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EBAY » Topics » Changes to credit card association or bank fees, rules, or practices could harm PayPals business.This excerpt taken from the EBAY 10-Q filed Oct 29, 2007. Changes
to credit card association or bank fees, rules, or practices
could harm PayPal’s business.
PayPal does not belong to or directly access credit card
associations, such as Visa and MasterCard. As a result, PayPal
must rely on banks or other payment processors to process
transactions, and must pay a fee for this service. From time to
time, credit card associations may increase the interchange fees
that they charge for each transaction using one of their cards.
PayPal’s credit card processors have the right to pass any
increases in interchange fees on to PayPal as well as increase
their own fees for processing. These increased fees increase
PayPal’s operating costs and reduce its profit margins.
PayPal is also required by its processors to comply with credit
card association operating rules, and PayPal has agreed to
reimburse its processors for any fines they are assessed by
credit card associations as a result of any rule violations by
PayPal or PayPal’s customers. The credit card associations
set and interpret the credit card rules. Visa, MasterCard,
American Express, or Discover could adopt new operating rules or
re-interpret existing rules that PayPal or its processors might
find difficult or even impossible to follow. As a result, PayPal
could lose its ability to give customers the option of using
credit cards to fund their payments. If PayPal were unable to
accept credit cards, its business would be seriously damaged. In
addition, the velocity of trade on eBay could decrease and our
business would further suffer.
PayPal is required to comply with credit card associations’
special operating rules for Internet payment services. PayPal
and its credit card processors have implemented specific
business processes for merchant customers in order to comply
with these rules, but any failure to comply could result in
fines, the amount of which would be within Visa’s and
MasterCard’s discretion. PayPal also could be subject to
fines from MasterCard and Visa if it fails to detect that
merchants are engaging in activities that are illegal or that
are considered “high risk,” primarily the sale of
certain types of digital content. For “high risk”
merchants, PayPal must either prevent such merchants from using
PayPal or register such merchants with MasterCard and Visa and
conduct additional
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monitoring with respect to such merchants. PayPal has incurred
fines from its credit card processor relating to PayPal’s
failure to detect the use of its service by “high
risk” merchants. The amount of these fines has not been
material, but any additional fines in the future would likely be
for larger amounts, could become material, and could result in a
termination of PayPal’s ability to accept credit cards or
changes in PayPal’s process for registering new customers,
which would seriously damage PayPal’s business.
This excerpt taken from the EBAY 10-Q filed Jul 27, 2007. Changes
to credit card association or bank fees, rules, or practices
could harm PayPal’s business.
PayPal does not belong to or directly access credit card
associations, such as Visa and MasterCard. As a result, PayPal
must rely on banks or other payment processors to process
transactions, and must pay a fee for this service. From time to
time, credit card associations may increase the interchange fees
that they charge for each transaction using one of their cards.
PayPal’s credit card processors have the right to pass any
increases in interchange fees on to PayPal as well as increase
their own fees for processing. These increased fees increase
PayPal’s operating costs and reduce its profit margins.
PayPal is also required by its processors to comply with credit
card association operating rules, and PayPal has agreed to
reimburse its processors for any fines they are assessed by
credit card associations as a result of any rule violations by
PayPal or PayPal’s customers. The credit card associations
set and interpret the credit card rules. Visa, MasterCard,
American Express, or Discover could adopt new operating rules or
re-interpret existing rules that PayPal or its processors might
find difficult or even impossible to follow. As a result, PayPal
could lose its ability to give customers the option of using
credit cards to fund their payments. If PayPal were unable to
accept credit cards, its business would be seriously damaged. In
addition, the velocity of trade on eBay could decrease and our
business would further suffer.
PayPal is required to comply with credit card associations’
special operating rules for Internet payment services. PayPal
and its credit card processors have implemented specific
business processes for merchant customers in order to comply
with these rules, but any failure to comply could result in
fines, the amount of which would be within Visa’s and
MasterCard’s discretion. PayPal also could be subject to
fines from MasterCard and Visa if it fails to detect that
merchants are engaging in activities that are illegal or that
are considered “high risk,” primarily the sale of
certain types of digital content. For “high risk”
merchants, PayPal must either prevent such merchants from using
PayPal or register such merchants with MasterCard and Visa and
conduct additional monitoring with respect to such merchants.
PayPal has incurred fines from its credit card processor
relating to
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PayPal’s failure to detect the use of its service by
“high risk” merchants. The amount of these fines has
not been material, but any additional fines in the future would
likely be for larger amounts, could become material, and could
result in a termination of PayPal’s ability to accept
credit cards or changes in PayPal’s process for registering
new customers, which would seriously damage PayPal’s
business.
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