PayPal Punished: What Does That Mean for Ecommerce?

April 14, 2015

paypal punished ecommerce

What is an ecommerce company to do when one of their “most trusted” payment options gets a big slap on the wrist from the US Treasury? Most are learning right now, though data isn’t yet available to report. So, what exactly happened, and how might it affect your small to medium ecommerce business?

A $7.7M Slap Hurts

Apparently, PayPal disregarded US sanctions and allowed money transfers to forbidden accounts, including some linked to Cuba, Iran, and terrorist organizations. The Treasury Department said in a statement, “PayPal’s management demonstrated reckless disregard for US economic sanctions requirements in deciding to operate a payment system without implementing appropriate controls.”

Fair enough, right? When people send money through PayPal, the company should know who’s spending it and where it’s going. The lack of regulation regarding payments to countries and organizations under saction by the US Treasury Department is kind of shocking. Right now, a $7.7M settlement really is little more than a slap on the wrist, but it’s also a warning that stricter punishment could follow.

What This Means for Ecommerce Now

As of right now, ecommerce business shouldn’t slow much. Individual companies are, of course, encouraged to reflect on their own beliefs regarding the “reckless disregard” of the sanctions and where PayPal allowed payments to be made. There are other online payment options available, including Apple Pay and Google Wallet.

The amount of the settlement won’t affect operations for PayPal, however. If you prefer to keep using the online wallet, there will be no interruption. You may want to consider introducing some other options for your customers, though. While the judgment doesn’t seem to be big news now, it won’t take long for word to spread.

What This Means for Ecommerce in the Future

As news begins to spread about the judgment, especially the reasons for the settlement, some buyers may feel the need to abandon PayPal as a payment option. This isn’t a promise of things to come or even a prediction. However, consumers can be passionate people, and your ecommerce company should always be prepared for this.

A slap on the wrist doesn’t always teach a lesson, either. Ecommerce companies that use PayPal services for payments can hope the digital wallet has a strong enough reporting system in place now. If not, PayPal could face stricter punishments in the future.

Preparing for Tomorrow

PayPal did bring in new management to their compliance division in 2011, so we can be sure they took the issue seriously. PayPal says they now have a program in place to scan all payments in real time to prohibit payments to unauthorized countries and organizations.

Should they not, prepare for sales without PayPal. With so many other options available, you shouldn’t have trouble finding something that fits your needs and makes your customers happy.

What are your thoughts about the judgment against PayPal? Would this new keep you from using the services as your online payment solution? We’d love to know what you’re thinking, so leave us a comment.

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