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ebaY/PayPal Violates Trust

Editorial 20 Jul 2002

Why TAG is Concerned about the PayPal acquisition - and you should be too...
Editorial and call to action

There comes a time when hitting the panic button is not the wrong thing to do, and after a little poking around the last few days, TAG is ready to punch that button hard.

We have several problems with the PayPal acquisition, and right at the top of the list is that once ebaY gets its hand on PayPal, they will have full access to every transaction ever made by any user since the inception of PayPal. ebaY will be able to look into your individual account and see every online transaction that went through PayPal. They will have the name, address, phone number, bank account info, and credit card info on you and every person you have had transactions with through PayPal. Do you use PayPal to sell on other OAI/OTI sites or on your own web site? ebaY will now be able to tell what you sold, how much you sold and to whom. Have you been sending money via PayPal, to your best friend? ebaY will know to whom and when it was sent. Made any donations or paid court fines using PayPal? ebaY will know and be able to add the information to your customer file. Concerned yet?

Imagine that you are a software company offering products for folks to list on ebaY. Much or most of your online transactions are accomplished through PayPal. Your competitor, ebaY, now has access to all your PayPal transacted business, name, address, phone number, bank account info, and credit card info, along with a record of all your income that came through PayPal, and a complete list of your customers. ebaY even knows what you bought through your PayPal account and what you purchased using your PayPal debit card. What business would willingly supply that information to a competitor? Now imagine that you are the company that is ebaY's predominate critic. Yours is the one company willing to expose what ebaY would rather remain hidden and unknown, and many of your transactions are completed through PayPal. Would you want to see that information in ebaY's hands?

ebaY having this information can be a direct conflict of interest. ebaY admits it keep files on customers. In addition, they currently keep extensive files on certain people and organizations. These files are kept on vocal and critical users of their site, organizations such as TAG, on reporters and on competing businesses, amongst others. If ebaY gets the information currently on PayPal's records, it will allow them to add financial and business information to their files that would not otherwise be available to them. What would stop ebaY from exploiting or manipulating that information, so that it has a negative impact on the businesses or individuals that ebaY would like to eliminate? Has your concern increased?

Unhappy with the idea of ebaY having all this information on you? You think, 'ok, I will just go close my PayPal account and then ebaY will not be able to get any info on me. All the businesses and organizations can do the same, so protect their sensitive financial info from ebaY.' Unfortunately, this is not true. According to PayPal, all your PayPal information is kept on file for a number of years. No customer information is deleted when you close your account. PayPal says the information has to remain on file to cover possible fraud problems. The only thing you will keep from ebaY by closing your account, is your future transactions, not your past ones. And they will still have all the other info in your account.

TAG queried PayPal as to what info ebaY would get and when they would get access to it. PayPal answered that such issues would not be dealt with until after the merger was approved, and since the merger was not complete, TAG's concerns were hypothetical. TAG held that once ebaY got its hands on the info, protest would be futile, as the horse would already have escaped the barn. We wondered why these issue were not addressed in advance of the buyout completion, and why PayPal did not make clear exactly what would happen to their customer's information. We were left with the message that we were overreacting. It was at this point that we asked the question, "What would happen to our information if we closed our account now? Would it be wiped off the site?" And that is when we were told that all info was kept for years, which made a mockery of all the previous answers. If PayPal's policy is to keep all info for years, and that it is never removed, even if a customer requests it to be, then ebaY will get it all. It appears that the only way ebaY will be denied this information is for the buyout to be disapproved by the government, or by a class action or Dept of Justice lawsuit that prevents ebaY from getting access to the information if the buyout is approved.

This issue is only one, albeit of primary concern, of the many issues that troubles TAG about this buyout. Some other concerns include restraint of trade, and ebaY's monopolistic position in the online auction and trading industry (OAI/OTI).

As an independent company, PayPal has been available to use as a payment system on any OAI/OTI site, including individual web sites, and online stores and shops. It is in PayPal's vested interest to encourage widespread usage and universality for their products. If ebaY is allowed to take control of the PayPal system (a virtually unregulated system at present) that interest and focus will change. ebaY owned PayPal could decide on a completely arbitrary basis, to limit their payment facilities to any site at any time. For example, imagine that an OAI/OTI site such as SellYourItem.Com, an ebaY competitor, starts to gain market share, and attracts a significant number of ebaY's sellers to come over to their site instead of ebaY. What would stop ebaY from ending all PayPal payments made for items on SellYourItem.Com? They could just stop it, and seriously disrupt the payment system in use by participants on that site. The same situation could happen to an individual who sells on ebaY and on other OAI/OTI sites including their own web page or store. What happens if a seller gets into a conflict with ebaY because they have said something on the ebaY or other OAI/OTI chat boards, or to the news media, that ebaY does not like, or they have reported ebaY to an agency such as the Better Business Bureau? Currently ebaY tends harass the seller and find an excuse to suspend that seller, end all their listings and kick them off the ebaY site. If ebaY owns PayPal, they will also be able to disrupt the payment system that seller uses on other sites and on the sellers own web site, virtually shutting that sellers business down. As it currently stands, PayPal has great interest in promoting sellers of all kinds of merchandise to use the PayPal payment system everywhere, this will no longer be true when ebaY owns PayPal. ebaY will have a stake in restricting trade so all such business occurs through the ebaY site only.

In another scenario, if ebaY owned PayPal, what would prevent ebaY from deciding what kind of products could be purchased through the PayPal service? ebaY has already announced that once they own PayPal, they will not allow it to be used for gambling. While you may nod your head in sympathy for that restriction, and for others ebaY might impose, such as not allowing PayPal for use in purchase of 'adult' products or guns or cigarettes or alcohol, what happens when the product you sell is removed from the approved list? ebaY could be approached by a corporation such as Disney, and make an agreement that in return for a consideration ebaY will no longer allow PayPal for use on any site not owned by Disney or ebaY, that sells Disney merchandise. Under the complete lack of regulation for systems such as PayPal, this is completely possible.

TAG predicts that once ebaY own PayPal, ebaY will require all sellers who sell on ebaY must offer PayPal's payment services. Since ebaY has a virtual monopoly in the OAI/OTI, we feel this will be a disaster. ebaY will monopolize the auction and trading market and will now monopolize the online payment system. They will be able to increase prices at will (as they have done with their auction and trading services, despite quarter over quarter record breaking profits). Because of their dominance, they will be able to both require use of PayPal and be able to raise PayPal fees unrestrainedly. They could have attempted this with their own payment system, Billpoint, but TAG feels they would not have dared to do so because they would have had PayPal to contend with, as a lawsuit would have surely ensued. If ebaY owns PayPal, who will there be to challenge them?

We strongly suggest that every PayPal customer concerned with this buyout, contact the Department Of Justice Antitrust Division, and other relevant agencies, and express your concerns. A few thousand emails would certainly garner the attention of the DOJ. It is very unlikely that the deal will be stopped, but enough effort may prevent ebaY getting access to the mass of inside business and personal information, that will be available to them, if nothing is done NOW to stop the transfer of such information.

Dept Of Justice - http://www.usdoj.gov/atr/contact/emailatr.htm
Write to - antitrust@usdoj.gov
Federal Trade Commission - http://www.ftc.gov/ftc/antitrust.htm

You should also contact your Congressional representative and your Senator(s), and make sure they also hear your concerns. At this point in time, individuals are more likely to be listened to than at any time in recent history, when it comes to corporate misbehavior or potential for misbehavior. If sufficient numbers of individuals present their concerns, it is even more likely that these issue will be addressed. The time to act is NOW, to prevent the problem. Do not follow ebaY's or PayPal's advice to wait and see, which distills down to "don't worry, be happy". They would be thrilled if we all just let them go ahead unchecked to do whatever they like, in whatever manner they like.

Update 27 Jul 02
An astute TAG subscriber suggested that sending a letter to the authorities would be even more effective than emails, and also provided a sample letter that would suit the purpose. Here is the letter and the addresses to send it to. Don't also neglect to contact your Congressional Representative and Senator. Please pass the link to this editorial on to all you know who might be concerned, and post it on the chat boards you frequent. Just a few thousand letters would get this issue addressed at the highest levels of government.
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To whom it may concern:

I am writing to express my concern about the pending merger between the online auction house eBay (www.ebay.com) and the online credit card service PayPal (www.paypal.com). If this acquisition is allowed to go through, it will create the potential for some serious antitrust violations.

Once this merger goes through, eBay will have full access to every
transaction ever made by any PayPal user since PayPal began, including
addresses, phone numbers, credit card numbers, and bank account information. They will even have access to the accounts of people who have never before had dealings on eBay, and will be able to tell what was sold on other auction sites, sites in direct competition with eBay. This inside
information would give eBay a disproportionately unfair advantage over its
competitors, the very definition of a monopoly.

Furthermore, eBay will have full access to information about bills
paid, donations to charities, and any other private transactions that are
not related in any way to business transacted on eBay. PayPal keeps full
account information on record for a number of years, even if an account is
closed. The potential for violation of privacy and misuse of sensitive
information by eBay is staggering.

According to eBay and PayPal, these issues will not be dealt with until
after the merger is approved, by which time eBay will have full access to
the sensitive data and it will already be too late. I am urging you to act
now to limit the amount of inside business information to which eBay will
have access, once this merger goes through.

Thank you for your time.


Sincerely,

[Your Name Here]


SEND TO:

Antitrust Division - New Case Unit
601 D Street NW, Suite 10011
Washington, DC 20530

AND

Office of Policy and Evaluation
Room 394
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave, NW
Washington, D.C. 20580