Paypal ‘not able’ to comply with new EU Law

Jane Bell is one of the top eBay Specialist Consultant in Britain and provides consultancy to a host of eBay businesses. Today she looks at PayPal:

Watching BBC Breakfast news this morning, it’s been reported by Paul Lewis of BBC R4’s MoneyBox that Paypal is unable to comply with the new EU law requiring electronic bank transfers to arrive in the recipients bank account by the following day. Paypal say they will not have the system in place until later in the year so it will still take 2-3 working days for money to transfer. Paul Lewis advised people who have complaints regarding Paypal (who declined to comment on the programme) and these later payments should contact the Ombudsman. Pod cast of programme here (article 6:35 in Paypal 11:38 in)

I have to ask why Paypal didn’t get this sorted out in time and why they should be the exception to the rule of law? I can’t think of any excuse, if other financial businesses managed to sort it in time why haven’t Paypal? Oversight? This just isn’t good enough, perhaps the amount of interest they will gain by late implementation of this should be forfeited. I would be interested to see what happens on this one and if anyone claims compensation via the Ombudsman. Rather embarrassing for Paypal methinks.

Update, Monday 9th January 2012, 14:56pm.

This comment was supplied to us by PayPal today:

PayPal customers can already send money between PayPal accounts almost instantly – these payments already go well beyond what is needed under the new rules.

For payments outside the PayPal system, we’ve already implemented changes across the EU, except in the UK, that meet the new European standards for faster payments.

We are in the process of implementing Faster Payments in the UK, to allow PayPal customers to move money from their PayPal account to their bank account. Of course PayPal will only be able to use this method of transfer when the customers bank supports Faster Payments – a number of UK payment service providers are not yet able to receive Faster Payment transfers.

Within the UK, the process of implementing Faster Payments has been more technically challenging, which unfortunately has delayed our launch. However, we are planning a phased launch later in the first half of 2012.

The way we are implementing Faster Payments in Britain is significant. We are in the process of becoming the first ever “Direct Agency” member of the Faster Payment scheme. This will mean that although PayPal is not a UK Bank it will give its UK customers the same almost instant real time money transfers to bank accounts as offered by UK banks in the Faster Payments scheme. Other organisations use the Faster Payments system in a different way, delaying the transfer of funds by a number of hours. PayPal took the decision to be the first non-UK bank to provide near real-time transfers to give our customers the best possible experience. Unfortunately building and testing this has been significantly more complex and lengthy than expected, which is why we have not met the January deadline. However, we are working very closely with the Faster Payments scheme and our sponsor bank to complete the project, while ensuring the system works well given the large volume of payments handled by PayPal on behalf of its 14m UK customers. It will also mean that PayPal customers enjoy a far faster service than the new rules require.

We have explored other options in order to meet the January deadline. Unfortunately, using Britain’s traditional faster payment service, CHAPS, is not practical given PayPal’s scale – CHAPS is designed to handle a small number of high value transactions, rather than PayPal’s large number of relatively small value transactions.

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I've found the transfer times to be increasingly reliable over the past year, and the implementation of the automated transfers to be a step in the right direction (with some room for improvement, of course) It would be great to have one-day transfers to have less money in the ether between Paypal and the bank account, but the interest isn't a huge issue -- with over a million pounds a year going through Paypal, it would only represent a saving of a few hundred pounds for my business, even using a typical bank overdraft rate of 12%. More useful would be the thousands of pounds which would be in our account earlier to spend. Of course Paypal need to catch up and implement this if that is what the law says -- and it's great to hear that will happen this year -- although that will take development time, and I'm sure there are lots of projects I'd rather they got on with than this one!

David Brackin • 7th January 2012 •

nicely put were happy with paypal and we would rather wait a day or so and it be right as have an instant payment with problems

St Georges Dragon • 8th January 2012 •

I guess they [Paypal] just don't care Jane. It's not like eBay sellers have an alternative, and would anyone really be bothered claiming compensation for something that is remaining as they are used to seeing for a little longer? If the service were getting slower in the interim, I think you would see some action but not as it stands. Stunning disregard for the law Paypal, thanks for that.

JD • 7th January 2012 •

@david I agree re interest. I certainly don't think that is a motivating factor. Indeed, I don't believe (on my ancient and possibly out of date knowledge)that Paypal even take the interest on balances held. But, where I would disagree, I do think it pretty shocking that PayPal can't make the changes required in time. So much for the nimbleness of online business! Every business faces competing priorities and will allocate resources strategically. But this is PayPal. Compliance isn't the number one concern if the penalities are small. But being best in class should be. I personally think this is remiss. I always blame cock up before conspiracy. But when PayPal is sluggish on money transfer (in and out), I think it's because the people within don't think that is important and have prioritised other things. Bad news for PayPal in the longer term. It's bad for a brand where confidence must be key.

Dan Wilson • 8th January 2012 •

we have every confidence in paypal other than they can be rather patronising, inflexible, and distant when things go wrong, saying that only had 1 problem in over 10 years that was actually caused by paypal itself, plenty of buyer caused problems though

St Georges Dragon • 8th January 2012 •

Surely they should be pulling all the stops out now and not leaving it until "later in the year"? Aren't they leaving themselves subject to huge fines? Also I was told once (not sure that if still applies) that each complaint to the FSA costs the FSA member £200, so they try and reach an agreement with the complainant before it reaches that stage.

Debs • 8th January 2012 •

Recently I read somewhere that every 60 seconds, PayPal processes $219,000 worth of payments - which works out at over $315 million per day. While I imagine that would be a global figure and the EU affected component a fraction of that, we are still talking about very significant sums of money. While the specifics are likely to vary somewhat, the following example is based on what I would consider the speedier end of transferring funds into a recipient's bank account... If we consider a member requesting transfer of their funds around 1 day from receiving them in PayPal and that PayPal take 3 days for those funds to reach the destination bank account, then there would be a rolling balance of members' funs in PayPal of OVER $1.25 billion. While am individual seller might not worry about a loss of interest earned on their little drop in the bucket, I cannot see PayPal being as disinterested in the fertility of more than a billion dollars in liquid cash sitting at their feet ... day after day after day. I will leave it to those more learned in this are to come up with some numbers - but I somehow expect they will be impressive. Presuming we do actually have such a convenient income stream, there is a side benefit which supports the international nature of PayPal - and that is the use of these funds (in one way or another) as a hedge against exchange rate fluctuations. Caught short on rate dip? Well, just 'slow up' the funds transfer times. An extra couple of days will give you well over half a billion extra in you rolling balance - and you keep it there for as long as you need to make up the shortfall. Pure speculation? Perhaps so, but it was rather curious to observe exactly these symptoms being presented when the Australian dollar took a dramatic plunge in the beginning of October, 2008. With the way the PayPal model has been put together and their expertise in skirting around so many legislative requirements, dodging accountability ... it's just too easy. With this EU requirement, in my opinion, you can expect PayPal to react in any number of ways - from cutting a deal (most likely behind closed doors) to finding that legal loophole they are so adept at doing. They may even try to take their operation off shore. Who knows? If, however, they DO get stuck and actually have to toe the line, I would feel fairly comfortable in saying their fees will rise ... significantly.

MickeyFinn • 8th January 2012 •

Nochex, a vastly smaller company, have always (in my experience) beaten paypal on speed of deposit. If they can do it why can't paypal? Answers on a postcard please ....

Bunchy • 8th January 2012 •

It's the other way around for us, almost invariably Paypal withdrawals take 2 days and Nochex 3 days for some reason.

Steve H • 9th January 2012 •

Surely this new requirement needs to effect Amazon. As a payment solution would they not need to comply with FSA laws. As a seller on Amazon we can only get our money each week then it takes four working days to get to us. Other merchants have to wait longer periods. Makes the Current Paypal situation look a dream.

Andrew Rowson • 8th January 2012 •

At the present time PayPal seem quite capable of completing a transfer within 1 day ...... if you pay them £5. If PayPal can do it for £5 then they CAN surely do it for free?

JD • 8th January 2012 •

That is kind of weird logic. It means that it is technically possible for them to transfer money that quickly but for all anyone knows it actually costs PayPal £5 each time you withdraw like that. I'm guessing whatever service can get away with charging PayPal that much must have some sort of patent or other legal leverage that PayPal has to work around.

ebuyerfb • 9th January 2012 •

I think that my logic is impeccable! I said that they CAN do it. Whether or not that they should do it or that it was economic for them to do it was not part of my post.

JD • 10th January 2012 •

In comparison to Amazon PayPal are faster than a qucik thing. We are notified by Amazon of our bi monthly transfer on a Sunday, and the funds do not arrive until the following Friday! Considering that some of our Amazon sales were made up to two weeks before the transfer, that means they hold onto our funds for up to nearly three weeks! Outrageous

AA • 8th January 2012 •

This is an EU requirement. When the EU brings in a new requirement they tend to allow those that have to abide by it a period of time to bring it in. I take it that all the other Banks and Financial Institutions affected have done what is necessary to bring it in. Paypal for whatever reason has not bothered. There are a range of EU Laws and Regulations that affect business. The Fines for not abiding by the Rules and Regulations are not fixed amounts such as £50 or £500 or whatever. The Fines are based upon 10% of the turnover of the company concerned. So in the UK we have seen British Gas fined £2.5 million, and Talk Talk/Tiscali Fined £3 million etc. Although usually such fines are the last resort rather than the first step. In the case of British Gas the fine was because their Customer Service was quite appalling(almost like ebay and Paypal) and in Talk Talk/Tiscali case the fine was because they were invoicing customers for services that they had not ordered or received. So it is possible that while Paypal cannot achieve the service by the stated date they manage to convince the regulators that it is in hand and that some technical problem has caused the problems(rather than Paypal incompetance) and either get away with it altogether or receive a lesser fine. However the fine is supposed to be paid by the company concerned and not just charged to the customers. So if Paypal was to be fined a substantial amount and then increased their charges to charge it to their customers it is likely that the EU might very well have another look at Paypal with the potential of further action.

Chris • 9th January 2012 •

so what! 24 hours or 3days what real differance does it make?

St Georges Dragon • 9th January 2012 •

The difference between your direct debits bouncing or not. The difference between being able to go ahead and purchase that super deal you just came accross that's not going to be there in 3 days. The difference to being "in the red" or "in the black"

Bunchy • 9th January 2012 •

Surely that arguement can be used about almost any of the Business Rules and Regulations? At the end of the day breaking the rules does not actually really affect people. Its not as if people are going to die. Insider Trading, Fraud, etc etc are not like Murder or other Crimes of Violence. So who cares? Well the fact is that we should all care. The rules and regulations are there for a reason.(With the EU I sometimes get the impression that they invent rules for the sake of inventing rules but not in this case). If other Banks and Financial Institutions have abided by the Rules why should some others "get away with it".

Chris • 9th January 2012 •

of course were all saints here ,we all pay all our bills and invoices as fast as we can

St Georges Dragon • 9th January 2012 •

so how far do you take this soon 24 hours will not be quick enough ! and the demand will be for minutes or seconds, if my business was on such a footing that my direct debits being paid depended on such a small window of time I would be worried

St Georges Dragon • 9th January 2012 •

Most of us sell on line. When the customer pays us by Paypal we do not expect the monies to be lost in space for hours, days or weeks. We expect the monies to be in our Paypal Account instantly. Then we can start the job of sorting the goods, packing and despatching to the customer. The monies are then sitting in our Paypal Account. So why should we not expect that the monies can be transfered to our non-Paypal Bank Account as quickly? After all the EU agrees and its Rules and Regulations say that such transfers should also be as quick. You ask the question about sellers on ebay needing the monies to pay their Bills. Well ebay sellers range in size from the very large right down to the very small. The large might have healthy Bank Accounts but my guess is that many small and indeed medium sized sellers may be very much a hand to mouth organisation. So for monies to be held up in the system could be a serious problem for them. After all if you have to pay Direct Debits or Standing Orders on a particular date in the month it can be very expensive if there are not funds available to pay them. Indeed the monies could be needed to pay such as Wages and Salaries. I can remember years ago,during the 1970's, I was Company Accountant for a company employing 80 people. Every day the Managing Director opened the post and carefully added up the cheques. He then told me to prepare so much in cheques to pay the most important outstanding debts. This company survived and still trades but it was difficult at the time to try to keep all the "balls in the air" and had monies been delayed in the system for any reason it could have caused Balls to be dropped which could have threatened the long term existance of the company.

Chris • 9th January 2012 •

I would take it so paypal are inkeeping with current legislation. Why should they be expempt? As for being worried about DD's bouncing when credit payments take a while to appear, there are a lot of businesses out there in that position. It must be terrifying.

Bunchy • 9th January 2012 •

so its all paypals fault? get real ! run your business and look to yourself dont blame others

St Georges Dragon • 9th January 2012 •

If the Law changes and you are given ample time to make the necessary alterations and you fail to do them whose fault is it? As I understand it Paypal failed to get ready for the Change in the Law. So obviously its their fault. As to problems in my or indeed any other ebay sellers Bank Accounts then yes I agree the problems are down to us. However problems can be made much worse by such as Banks operating Direct Debits on the wrong day(a neighbour told me this morning that a DD has gone through nearly 3 weeks early causing her all sorts of problems). Again in St Georges Dragon's case this might not be a problem but for many mere mortals it is a problem that we can do without.

Chris • 9th January 2012 •

AS PROBLEMS GO the problem of paypal payments being less than instant is so small its incredible that anyone even worrie about it ,just shows some folk dont run a business, they just talk about running one!

St Georges Dragon • 9th January 2012 • Not sure where you read I am placing any blame. I just agreed with other posters on this thread that Paypal should keep up with what's expected of them and what's required under current legislation. I am not going to comment on how I run my business as that's for me to know and for you to make assumptions.

Bunchy • 9th January 2012 •

your THE ONE insinuating that direct debits may not be paid. or your may be in the red ?

St Georges Dragon • 9th January 2012 •

eBay and Paypal seem very reactive to things that go on outside of their control. I'm sure it's a huge task to revamp their processing system but they have an almost endless development budget. If other banking institutions can get their system updated then there's really no excuse for paypal.

Dan Tole • 9th January 2012 •

Hi, This is the reply we have received from PayPal this morning? Thank you for contacting PayPal regarding and EU legislation which states electronic payments are to received within 1 business day. This legislation requires these withdrawals to be completed between bank to bank transfers within 1 day. As PayPal is a payment processor we do not need to comply with this request. All withdrawals and transaction through PayPal will remain the same for the foreseeable future. I hope this information has been helpful and I wish you the very best. Please let us know if you require any further assistance.

Parties Unwrapped • 9th January 2012 •

As Paypal is not a bank does this mean that banks are not obliged to transfer money to Paypal within 1 day? Maybe this is the reason why Paypal are unable to comply. Maybe Paul Lewis of Moneybox needs to do a bit more research before having a pop at Paypal.

Gary • 9th January 2012 •

But surely Paypal are bank with the EU, and as such they under obligation to obey the electronic transfer directive (ie one business day for monies to be received by the recipients account. Also, the response Paypal gave, as Dan indicated, is at odds with the "system will be in place later on in the year" one. Also, I think the argument about how much money a large/small businss may/may not have is a redundant one in this regard; this issue is about obeying the law.

Debs • 9th January 2012 •

ok...I made my last comments before reading the new, updated statement from Paypal...

Debs • 9th January 2012 •

Please note that the post has been updated to included a comment supplied by PayPal. It is also worth noting that the comment supplied to us by the PayPal PR team does seem to be at odds with the one apparently supplied by PayPal's CS team in comment 14 above.

Dan Wilson • 9th January 2012 •

I agree there seems to be some conflicting information but we assume the BBC have done their research? PayPal Business Support Department responded to us quite quickly. This is the response from; Our Financial Centre is based in Luxembourg and when you confirm a transfer from your PlayTrade account, we set in motion the transfer to you and you may get your money a bit earlier if your bank pays you earlier, but it is, and never has been, anything that we have control over. If you feel monies to you are still taking too long you will need to take it up with your bank. Now that really does not make any sense!

Parties Unwrapped • 9th January 2012 •

It may not make sense but it is true. Transfers from our PlayTrade account usually take exactly a week but occasionally come through within a day or 2 with a reference clearly indicating that it is a "Faster Payment"

Steve H • 10th January 2012 •

If PayPal isn't a bank, which bank do they use?

PayPaluser • 9th January 2012 •

PayPal is not a Bank, they are a payment processor. Nonetheless I think that their payment processing times fall within the remit of the EU requirement. And also PayPal will not want to be seen as falling a long way short of a bank because the banks just might move on in?

JD • 10th January 2012 •

"If PayPal isn’t a bank, which bank do they use?" A very happy one, I would imagine!

board_surfer • 10th January 2012 •

It seems that paypal are using a 'Temporary Hold' block to delay payments. I bought some stationery online, but it was out of stock so the seller refunded me. Immediately Paypal put the hold on the refund, and they have refused to reply to my emails and forum postings. Even if paypal isn't a bank and has no control over the transfers then 1) there should be no issue here as all banks are compliant, 2) why are paypal working on becoming compliant?

Lizzie • 16th January 2012 •