What just happened:

  1. A client payed for a service (software development) by PayPal. For sending, he used a different account than previously.

  2. After receiving the money by PayPal, I immediately ordered transfer to my account at Deutsche Bank Germany.

  3. In quick succession I got three emails. Subjects in German, with translation by me:

    • "Wir bearbeiten die Überweisung auf Ihr Bankkonto": "We process the transfer to your bank account"

    • "Benachrichtigung über stornierte Abbuchung": "Notice concerning cancellation of bank transfer"

    • "Bitte antworten Sie spätestens innerhalb von sieben Tagen bezüglich Fall Nr. ...": "Please reply in no more than seven days concerning case number ..."

In the last email they write:

"Wir vermuten, dass Sie eine Zahlung erhalten haben, die nicht vom PayPal-Kontoinhaber genehmigt wurde.": "We suspect that you received a payment that was not authorized by the account owner."

My PayPal account balance is 0 at the moment: The payment is held by PayPal.

Upon calling, PayPal told me that it is possible that the sender's account got hacked, and that the payment was done against his will. Obviously this is not the case: I am in good contact with the sender, who is my client.

How can both sides prevent problems like this in the future?

By the way, I was on the phone with PayPal for 38 minutes, and they were not able to show me where in the (German) terms&conditions such action is authorized. Not that I dispute that it is in there, I just am disappointed by quality of support. Also I had a hard time understanding the lady: While her German was quite good, she certainly was not a native speaker.

  • 1
    Why are you using Paypal at all? Doesn't your client have a EUR account inside the SEPA zone? If they have: why not do a direct transfer - it wouldn't cost the client more than an inner-Spanish direct transfer, and it is as least as fast as Paypal holding the money every once in a while. If not: how come someone with headquarters in Madrid doesn't have a bank account in the SEPA zone? – cbeleites unhappy with SX May 9 '13 at 19:20
  • @cbeleites Normally I receive payments by SEPA bank transfer. For smaller payments that client sometimes uses PayPal. Possibly, part of the company's revenue ends up in a PayPal account - but no idea. – feklee May 9 '13 at 23:53
  • Have you had the sender contact PayPal to confirm that the payment is authorized? – DJClayworth May 10 '13 at 16:39
  • @DJClayworth Of course. But he has to submit all kinds of documents to prove that the account is his. So, in the end I asked PayPal to cancel the payment. My client now sent me the money by bank transfer. – feklee May 11 '13 at 16:11

The only way to prevent it is to not use PayPal. The terms of usage are draconian, and by using the service you agree to them. I'm sure that when the case gets to a court of law, they will find where it is authorized.

Paypal is not a bank, and the money there is basically "entrusted" with the company and is not insured by anyone. They don't need or have to be subject to the regulations on the banking industry, and they're no different than your neighbour carrying money for you to the grocery store when you're sick.

Other options are wire transfer, services like Western Union or Moneygram, checks (better certified/cashier's checks), money orders or even cash. You can also charge via credit card, but you can get similar problems there (although it is still safer than PayPal because with credit card - the card owner must initiate the charge back, it doesn't appear on its own because they feel like it).

  • 1
    If I understand the German Wikipedia article on PayPal correctly, then in Europe PayPal does have the status of a bank. Also I noticed that transfers to bank accounts normally are done in no more than 24 hours, which would be in accordance with latest EU regulations. – feklee May 8 '13 at 17:34
  • @feklee could it be that the payer is in the US? – littleadv May 8 '13 at 17:36
  • I started to write a similar answer to littleadv's, but will instead just upvote his. If this just a consulting service, or something similar, your best option is probably just a check. Checks can bounce, but the dispute process is straightforward and it is fundamentally simple and under the control of the two parties. If this is more of a packaged solution where you need to support credit cards you might be better off with something like Stripe or Square depending on your requirements. (Again, disputes/chargebacks are still possible but there is less of a middleman.) – David Ogren May 8 '13 at 17:40
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    I don't like this answer, but it is probably the most correct. For years people have been asking "how can I make PayPal stop being a terrible company" and the answer in the US is always "you can't". I don't think PayPal intends to rip people off, but they certainly don't go out of their way not to. – MrChrister May 8 '13 at 17:48
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    @JohnBensin That's because I use the PayPal interface in German language. My client is a startup, headquartered in Madrid, doing business primarily in Brazil. – feklee May 9 '13 at 11:21

It is possible that the person you were on the phone with was in possession of the credentials of a paypal account that was not actually theirs. The sad truth is that there are a lot of scammers out there and they can be very convincing while talking to you on their burner phone. Then they send you money and before the actual owner of the account can do anything the scammer gets you to surrender your goods. Then the payment gets reversed and when you call that phone number they used no one answers, or the phone is not in service.

For this reason do not release the product until you actually have the money. For software work use an escrow account at a reputable bank to ensure that the funds will be available when you complete the work.

  • 1
    I have a long term relationship with this client. By the way, it wasn't my client whom I called by phone, it was PayPal support. – feklee May 8 '13 at 18:29
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    @Feklee did you ask the client about the hold? The client should be able to release it. Paypal can flag what it thinks is a fraudulent transaction but upon clearing it up they should release the funds. – user4127 May 8 '13 at 19:39

It is worth checking currency types you have authorised on your account, and that the payment that your client sent is in one of those currencies. Paypal will not always move or convert between currencies, and I have seen payments held for authorisation where simply enabling the paid currency at the receiving end would allow the transfer.

  • The main currency of my account is EUR, and that was also the currency that the sender used. My invoice was in EUR. – feklee May 8 '13 at 23:50

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