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PayPal forego interest on held funds

By Chris Dawson March 12, 2012 - 7:16 am

PayPal holds are not something any eBay seller likes, but the truth is that it’s better that PayPal hold funds for up to 21 days than the alternative which is to close your account effectively banning you from selling on eBay.

The most common group of sellers impacted by PayPal holds are new sellers who will have funds released on receipt of positive feedback from their customers or after 21 days. The other group of sellers subject to holds are those whose businesses PayPal believes are high risk.

Now eBay’s Vice President of Merchant Development, Michael Jones, has answered the criticism that it’s in PayPal’s interest to place funds on hold. Unsurprisingly PayPal place balances on funds held in PayPal accounts in interest earning accounts. However in order to demonstrate that they’re not incentivised to place funds on hold they’re transferring an amount equivalent to held funds into a non-interest bearing account.

Personally I think PayPal are mugs to forego the interest, I’d rather they earned interest and used the additional profits to either improve service or lower fees. However that said at least we can be confident that if it is our funds on hold that at least PayPal aren’t profiting from it and have no financial incentive in delaying access to our money.

  • Richard
    7 years ago

    I agree — I would rather see them actually put the interest towards self-insurance against losses from the people who are having the holds against them so there are fewer holds.

  • Chris
    7 years ago

    Surely the best alternative would be to put the funds into Interest bearing Accounts and to pay that interest to the Person/Company whose account is held. After all if the Account Holder needs that money during the time that Paypal has it on hold then they can be expected to have to pay interest to their Bank to borrow the monies that they need.

  • JohnC
    7 years ago

    Well, it’s not their money, they’re just “holding it”. The interest should be earned, and it should go to the account holder.

  • Henrietta
    7 years ago

    Did I read somewhere that UK law does not allow sellers accounts to be interest bearing?

    In the USA at one time PayPal offered an interest bearing Money Market account which was quite competitive. Before PayPal became so risky I used to shuffle money back and forth between my Vanguard MMA to PayPal depending on who had the better rate.

  • 7 years ago

    I do not agree with this policy of holding money.

    I hope one day it is investigated, because I am surprised this activity is even legal.

    Ebay make enough money to cover bad experiences.

    It does not need to place small sellers in a poor cash flow position to create a good marketplace.

    In a recession, cash flow is everything.

    This type of activity directly inhibits small business’ cash flow.

    That is never a good thing.

  • Gary
    7 years ago

    Nochex and others hold money. It is common practice. There can be charge backs going back 3 months on cards and some businesses are at a higher risk of this. It is only those sellers who do not explore the world beyond Paypal who complain about the practice.

    Paypal are actually one of the better companies!

    • 7 years ago

      That does not mean it is the right thing to do. 🙂

      There are people out there who hold up post offices, doesn’t mean my neighbour should do it…

  • This is standard practice for paypal. They are not a merchant, but a third party aggregator. They do not fall under any regulations because of that and they will continue to hold money until the govt. steps in.

  • Unrealt87
    7 years ago

    I feel that PayPal missed the point.
    People get miffed when what is essentially their money goes on a up to 3 week holiday with no perceivable benefit or adequate reason given.
    I’d rather have them clearly telling sellers the precise reason why their funds have been held and openly say that the interest gained had been used for business improvements.
    Their change to a non-interest bearing account (a.k.a. in a massive shoebox under PayPal’s bed) just seems a peculiar solution to what should be a open process.

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