[reitzensteinm]

Frankly, yes.

The merchant is, if I understand the post correctly, taking orders, using the money to print a run, then shipping them.

The risk is caused by the merchant's business model. It may not be high, but it certainly exists. Either the merchant, PayPal or consumers themselves must pay for it.

Who would you pick?

[scottshea]

And yet you want him to turn to a bank to help secure Paypal's position so that would indicate that the costs of the risk are not wrapped into Paypal's processes (i.e. the transactions between the two parties).

For Credit Risk banks and other financial institutions use interest rates.

For Operational Risk they use fees. The freezing of accounts comes only when the activity of the merchant approaches a threshold not covered by the fees not prior.

As a base coverage all banks are required to keep a reserve just in case their losses start to mount and then they kick in the extreme measures. Paypal has no such standard to meet in the US (not sure what being a Bank in EU/UK would do).

Truly the Merchant should cover the risk directly with Paypal and the fee structure if they are legitimate. But that is not your solution... a third party must enter the equation to cover where Paypal is deficient in their risk assessment.

[rprasad]

Who would have thought that a merchant should have to cover the risk entailed by its choice of business model?

[rthomas6]

The merchant. It's the merchant's business. The merchant should be the one taking the risk.

[ed209]

I'd be happy with that. Frankly, PayPal's perception of risk is clearly killing businesses. They are going so far into being risk averse that it's killing business. I would rather shoulder the risk that suffer PayPal's "protections". They're like the TSA of online payments.