Re: [Salon] Losing Faith in PayPal

From: Chris Rasch (
Date: Sun Feb 25 2001 - 14:36:32 PST

Adam Rifkin wrote:

> I'm guessing that PayPal is doomed for the same reasons First Virtual
> was doomed five years ago -- until the economics make sense, email
> payments are too expensive when fully costed to account for fraud and
> the actual transaction price of moving money. Once the economics make
> sense, every bank in the world will have an email payment mechanism of
> its own.
> What's interesting is that Rohit tried to give Peter Thiel and Max
> Levchin a history lesson in Dec 1999 about previous endeavors in the
> electronic payments space, and Peter & Max were content to ignore history.

I think e-gold has a viable business model. See these articles:

By John Rubino
Special to
1/19/01 11:59 AM ET

"The first attempt to turn this theory into reality is called e-gold,
and so far, so good. The number of e-gold accounts rose from 3,000 in
mid-1999 to 130,000 by the end of 2000. The amount of e-gold in
circulation (which by definition is identical to the amount of gold
locked away in its vaults), has grown from 5,000 ounces in 1999 to
43,000 ounces. "We finally hit our millionth transaction in November,"
says e-gold founder Douglas Jackson, "and we hit a million and a half
in December." All, notes Jackson, with a marketing budget of zero...."

E-gold has lower fees than credit cards--the maximum cost of receiving an e-gold
payment is 50 cents (US$-equiv.). For values
under $50 the fee for receiving payment is 1%.

Rating the Current State of Electronic Payment Options
by Parker Bradley
January 29, 2001

The author, a precious metals/coins dealer, had bad experiences with credit
cards and
Paypal. He likes e-gold and EZCmoney. In this excerpt, he details his
experiences with credit cards:

"Is [credit card fraud] really so bad? Not for everyone, but for a large,
and growing percentage of online merchants it is. Let me very
briefly summarize my own merchant credit card experience over the
past year -- then you can decide. (This is very brief and
general. Specific details, and names of specific processing
companies and individuals have been removed in order to avoid
attention from those with more money than sense and inclined to
release legal bottom feeders.) For the first 2 1/2 months no fraud
problems are noticed. I take all the usual precautions a merchant
would take to protect against fraud, then the first few thousand
dollars worth of chargebacks start to show up. These are mostly
schmucks trying to take advantage of their credit card issuer's
liberal chargeback policies. As my business rapidly grows, I get
more adept at detecting suspicious patterns, and implement new
policies to try and cut back the problem even more. (Note: I deal
in precious metals which attracts thieves like flies to honey.) But
as my business grows, so too does the number schmucks and hoodlums
trying to make a quick one (in the process ruining things for
everyone), and the crooks get more and more sophisticated (identity
theft, theft of valid information, masking and replacing IP
addresses, etc.) Pretty soon I'm spending almost all of my time
trying to remove the obviously bad orders from the maybe, but by
the way things are going, most likely not good ones. The rest of
the time is spent trying to deal with the chargebacks that keep
coming in greater and greater numbers -- leaving little or no time
to actually run the business (approximately $45,000 in charge backs
by month 6 plus fines -- in case you didn't know a merchant gets
fined for each credit card chargeback that occurs no matter what
the cause or who's at fault). By month nine I have an instance of
$5,000,000 worth of attempted fraudulent orders in one week
(fortunately these were prevented from entering the payment system
so fines were avoided...prevented due to my own fraud-detection
efforts). In addition, that month there were over $230,000 in
fraudulent MC & Visa orders that actually made it through to the
credit card processor and to my bank (resulting in over $7000 in
fines, plus more fines for other chargebacks coming in) before I
noticed a subtle oddity in this particular batch of orders thereby
halting fulfillment and freezing the funds. When I tried to pass on
the information I had to the processing agency, they basically
ignored it -- they just want the money available when chargebacks
come through. They refused to make any effort to contact affected
card holders, law enforcement, or the issuing banks of the cards in
question; so if someone did not notice a suspicious charge on their
credit card statement and issue a charge back in the appropriate
time frame, they're SOL and don't even know it.

Needless to say, that last instance was
the straw that broke the camel's back
and I stopped taking all credit
cards. The decision was firmed up and
made definite when MC & Visa issued a
new chargeback fine policy, for internet
and other "high-risk" merchants, to take
effect in Jan. 2001 (this is on top of
chargeback fines a merchant already
faces from his credit card processing
agency). If a merchant's chargeback
(CB) ratio exceeds 2% (note that the
average merchant is lucky to have a CB
ratio of less than 2%) he/she/it is
subject to the following fine schedule:

1st month CB ratio greater than 2% -- $25,000 fine
2nd month CB ratio greater than 2% -- $75,000 fine
3rd month CB ratio greater than 2% -- $100,000 fine and termination of
merchant account (this may have changed since I was informed of this
back in October 2000.)"

The following articel is not about e-gold, but interesting--mostly about
Amazon's new tipjar-like system called the Amazon Honor System (using their
patented 1-Click shopping technology..:>) :

Thanking Web Sites, With Cash
February 15, 2001
New York Times

Use e-gold?  Send me two cents:">
Read the _Wall Street Performer Protocol_:

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