Re: ebay/paypal
Important bit of information: E-bay bought Paypal a while back, it's not a separate company, and E-bay requires that you pay via paypal, they don't allow other services/methods.
I'm gonna get long winded here...
In a nutshell, Ebay and Paypal are one big scam. Why? Because you have to move money through them, which lets them pick up extra "free" money from the interest on in-flight transactions. That's a LOT of cash, which they get for doing nothing but holding other people's money. It's in their best interest to DELAY transactions, freeze accounts, do anything to keep the money in their fists longer.
Because they're not a bank (they're classified as a "deposit agent") they avoid all those fussy banking industry regulations. Because they control Paypal, they control terms of the sales, and can refund/reverse transactions as needed to preserve their image...using other people's money. They preserve E-bay's image by manipulating Paypal's customers.
Here's the system: You sign up with them to sell things. You pay a listing fee for each item, and a final price fee that varies as a percentage of the item sale price, usually 6%-9%. You can pay a myriad of fees for things they could offer at a minimal or zero cost (it's all computerized, no people involved), but are sold as value-added "features" for extra dollars, like pictures, picture hosting, a bold title (they're charging you extra for using a FONT, people), extra special "gallery" listings, fees for reserve prices, buy it now prices, etc. They rake in the cash at every level just getting your item listed.
Then they sit back and let their auction program run the auction. No people involved in that, so no wages to pay. If the item sells, then they require payment via Paypal. Since they control payment for the auction, they have an easy way to "know" how much money was actually paid, so they get their full cut of the final price. Again, since it's all online and in their own computers, they don't need people to do it. It's all automatic, and very cheap for them.
Here's an interesting bit: When money is "in" a Paypal account, it's actually not an "account". Remember that Paypal isn't a bank, so it doesn't have to follow the same rules. Basically, E-bay/Paypal has all the money that's being transferred via Paypal in a few big banks in large accounts. Since it's a huge amount of money, they get preferred interest rates in banks (they use interest bearing checking accounts). This big pile of money is sometimes called a "float". It's how western union and Moneygram typically make a lot of their cash, too.
To give you an idea, Paypal/ebay makes 3.43 percent on its accounts (google it). In 2009, Paypal/Ebay had a total transaction volume of $71 billion dollars. So collectively we can estimate P/E made about $2.4 billion dollars on interest over the course of that year. Plus, remember they're taking in from %6-9 of the final for each item that sells ($4.2 to $6.4 billion) and at least a few dollars for each item as a listing fee whether it sells or not. From that they subtract expenses, of course.
Because of the way the fine print in their buyers/sellers agreements are written, Ebay/paypal can unilaterally refund/reverse transactions without the seller's permission. If money to cover the refund is in the seller's paypal account, they automatically take it. If the money is only partially there, they take what's there and send an e-mail to the seller asking them to deposit the rest. You can't argue with them, as has been mentioned they won't even talk to you. If you happen to have other sales happening that bring money to your Paypal account, as soon as money hits the account from whatever source, they take it until they get their money for the refund they gave.
Don't like it? Tough, they control all payment for their service. If you want to sell on E-bay you have to use Paypal. E-bay knows well the biggest barrier to other online auction companies getting started is a reliable, safe payment system that's internet based and worldwide. Since they bought Paypal, other auction companies can't use that service (which was pretty much the leading payment processor), forcing any new auction companies to build a payments business at the same time they build an auction business... so far no company has managed it.
Since Paypal has "branched out" into credit card processing, they now handle payments for other businesses not selling online, like industry associations and charitable donations. They control these completely as well, if they want to put a hold on your account for the charitable donations you're collecting for the local couple whose home got fire-bombed because the people in question are iranian immigrants and they're getting pressure from the state department, they can. If they want to deny your credit card payment for your magazine subscription because it's the same credit card you used back when you had a paypal account selling things on e-bay and didn't reimburse them for one of their "refunds" they do that, too.
They're pretty much the poster child for evil multinational corporations, with worldwide operations meaning no single government can control enough of their infrastructure to halt their business, no law enforcement agency is big enough to do oversight on them, they basically can do what they want.
I have to express a grudging admiration for their business model - they have to pay for software development for internal use, a worldwide network of data centers, people to do phone support, people to manage the money... basically a lot of the same items that a big bank or catalog retailer has to cover. But, they don't have to invest in, house, or ship inventory. They do shipping, but they're an agent, so no trucks to pay for. They don't pay for manufacturing, no wages for workers there. No taxes paid on materials or VAT either. They don't collect taxes from the transactions, they're not required to, so no time/effort spent on getting that money nor handing it to a government. They're multinational, on the internet, so they can put data centers in whichever country gives them the biggest tax breaks.
All they do is run the computers and tweak the software, and in exchange they get billions per year (est. 2010 revenue for P/E combined is about $25 billion), of which about $3 billion or so remains after expenses. Compare this to General Motors, who had revenue in 2010 of about $130 billion, but minus expenses they made $4.7 billion.
Do the math, and you'll find that Ebay/Paypal keeps 4 times as much money per revenue dollar as GM does.
Which company would you rather own?
Nowadays I only use Ebay to find local sellers, then offer to meet the seller locally and pay cash. Technically that violates the seller's agreement with e-bay, but that's the seller's problem. I don't use Paypal at all.
Erik
