Red Ink Diary

I was going to write about the slowdown in PayPal’s growth rate in the third quarter, PayPal being the motor driving eBay’s increasingly shabby bus. Alas, Scot Wingo already wrote that at eBay Strategies including a quote from Jetil Patel of Deutsche Bank; the only analyst who knows what he is talking about when it comes to eBay (that opinion and emphasis within the quote is mine.)

Simply put, we think that eBay is approaching an inflection point in its business in that competitive pressures (specifically Amazon Prime and FBA) are likely to shift consumer demand away from eBay in coming quarters. Increasingly, we think that eBay’s underlying economics work in high ASP and high-margin categories, yet in low-ASP and low-margin categories seller economics look to be negative. These economics are constantly being pressured by lower product pricing.

De-coded: small sellers are eating dirt and that is not a sustainable lifestyle

Then I thought I would write something snarky, but seriously factual about eBay’s accounting shenanigans(def. #1.b &2) and the stagnation of eBay’s marketplace, but EventHorizon wrote that one, my favorite quotes from his piece:

GMV quarter to quarter growth is essentially dead.  Third quarter shows less than one percent movement, compared to second quarters “1%.”   And what of John Donahoe touting a GMV increase of 16%?  It’s the year to year increase.  And this year’s GMV, $14,666 million, is coasting downward off of eBay’s record 2010 year end GMV of $15,039 million . . . . [sellers funds held by PayPal] Going from 2010 fourth quarter’s $2,550,731,000  to this quarter’s $3,295,115,000. Yes, that’s 3.29 Billion dollars . . . . . It appears from the above metrics that eBay sellers in aggregate have had their say in the matter.

De-Coded: small sellers who don’t like eating dirt left and they aren’t buying there either, plus the economy is rotten

Word of the quarter seems to be inflection point. Jetil Patel used it (above) and so did at least one other analyst and both John Donahoe and Robert Swan in the earnings call. transcript

So, as we say on eBay, what is an inflection point? It is a mathematical phrase referring to a point on a chart that marks the beginning of a significant move, either up or down. The Business Dictionary says:

“The time of transition of company’s competitive position that requires the company change the current path and adapt to the new situation or risk declining profits.”

All that is left for me to write about is what I see in my crystal ball for eBay in the 4th quarter.

• The worse sales get, the less sellers are willing or able to ‘invest’ in trying to do business on eBay. Many sellers have reached a point that eBay is a zero-sum game.
• Increasingly skewed search finding frustrates buyers to the point they use Google and Google Shopping, which will not take them to eBay auctions, or they go straight to Amazon, Bonanza, Etsy, depending on what they are seeking.
• Established small sellers of non-cataloged items who are still hoping for a share of the crumbs will limit themselves to their 50 free Auction listings per month, pricing to make a profit on one bid sales if they are smart.
• Small sellers of cataloged items planning the same strategy on eBay should read Chris Dawson’s TameBay article “How eBay is hiding your auctions from buyers” first.
• Projected complete integration of PayPal only eBay Shopping cart will boost PayPal numbers but I believe this will be a transient increase. Large sellers will not welcome the higher PayPal charges or increased accounting expense and will work actively to avoid the cart. Think of it as PayPal gathering the fallen fruit from the ground. The low hanging fruit has been picked on eBay, all that is left are the windfalls.
• As PayPal increasingly plays the ‘hold your funds’ game the churn rate for new sellers will increase. Many will only make one transaction before departing, telling eight to ten people about their awful experience, each of whom will pass the information on to another five people if we are to believe marketing lore.

In summary: GMV may be up but margins are down. Remember, margin equals profit and avarice in square 98 takes you clear down to square 28. I think the inflection point has passed and the slope is downhill. Finally, a quote from an article by Stephen Gandel in the October 11th 2010 issue of Time .

There are few aneurysms in American business. Few companies drop dead. Instead, most endure a long slide into the grave.

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An article “Did Your PayPal-Funded eBay Purchase Disappear Into Thin Air?” and a Letter to the Editor at EcommerceBytes (formerly Auctionbytes) today, plus accompanying reader comments and advice tell me it is time to write about users legal rights when dealing with PayPal. Not just sellers, buyers have rights too!

The article details a known issue with PayPal eBay checkout, transactions vanish. eBay knows about it and has posted the issue to their developers board but does not consider it to be an issue buyers or sellers need to know about. I have made a screenshot, these things tend to disappear on eBay. Click image to enlarge.

The letter, from a seller, describes the normal customer service runaround when PayPal has a glitch. The overseas buyer had been refunded an amount unrelated to the transaction, by PayPal. PayPal’s solution was that the seller should

“[I was] told that #1 to contact the shipping service I used to have them track and stop the package and #2 to contact the buyer and ask here (sic) to pay back the money.”

Apart from the impossibility of recalling an international package from the US Mail there is nothing incredible (def.# 2) about the PayPal representative’s ’solution’. These customer service representatives are often very low paid workers in the Philippine Islands, Costa Rica or India who work from a script. Go off script at your own risk.

Some points to ponder:

• When you as a seller refund a transaction it is not instant.
• PayPal can take up to ten days to release the funds to a buyer
• the money is sitting in their PayPal account, with a hold.
• the buyer has to request the money be transferred back to their bank.

Additionally:

• Telephone complaints do not preserve your legal rights!
• Every single PayPal user gets large volumes of phishing email purporting to be from PayPal every day
• Most of us ignore them

The squeaky wheel gets the grease

A step by step guide to making a complaint and preserving your legal rights. Links will open in a new tab or window.

1. Download the relevant eBay invoices, put them on a CD so they are safe. You can print hard copy to enclose with your written complaints as needed.
2. Go through the eBay or PayPal email complaint process. Print hard copy of every communication you send or receive. Keep it in a file, you will need it. You will find it helpful to make a dated index for your file, it is going to get full.
3. If you decide to use the telephone ask the rep for identification, their name, location, employee number if they will give it to you. Note the number you called, date and time, takes notes of the conversation. Put it in your file.
4. Complain in writing to eBay. You will need to send the complaint by certified mail to eBay Inc. 2145 Hamilton Ave., San Jose, CA 95125, with a return receipt. Keep your correspondence short, polite and to the point. Enclose copies of everything you have done so far. Make a copy of your letter for your file.
5. Send a copy of your complaint to Complaint Assistance Unit, Division of Consumer Services,  California Department of Consumer Affairs, 400 R Street, Sacramento, CA 95814. They have a toll free telephone number (800) 952-5210.
6. If you are really on a roll go to the California Attorney General’s website and fill out their complaint form.
7. Notify the National Fraud Information Center
8. On eBay check to see exactly how PayPal is licensed in your state, if your state even requires licensing. Print a copy. Next, send a copy of your complaint to the department in your State which regulates Money Transmitters. Here is a handy list of links by State, and another one from the Financial Crimes Enforcement Network a Government institution which may or may not be of assistance.
9. I would send a copy to your State Attorney General and the Consumer Protection department or Ombudsman if you have one. Give them PayPal’s license number.
10. Finally, and this is important, the Federal Trade Commission. The FTC does not resolve individual consumer complaints. The FTC collects complaints about companies and business practices. The FTC enters all complaints it receives into Consumer Sentinel, a secure online database that is used by thousands of civil and criminal law enforcement authorities worldwide. These collected complaints can help detect patterns of wrong-doing, and lead to investigations and prosecutions.

You can do the Better Business Bureau complaint process if you really want. It is pretty much useless although it does get the complaint on record and eBay has to respond. Quite often the response is completely different from what you received through your initial email complaints. Expect this process to take a month or longer. Add copies of your complaint and responses to your file.

If you have followed all ten steps you will have poked a very large stick into an anthill. You may or may not get satisfaction on your complaint but you should get some satisfaction from knowing you have roiled (def.# 2,3) up a lot of ants.

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Where would we be without “PayPal, the world’s most loved way to pay and get paid.” Rhetorical question, that. Note that PayPal seems to have moved on from their previous slogan “PayPal - the safer, easier way to pay.”

An astounding tale
A modern comedy of errors and ineptitude which only peripherally involves PayPal caught my attention today.

On Tuesday March 22nd 2011 Marissa Mark, 28, was indicted on multiple charges in Allentown, Pa. Those charges include conspiracy and use of interstate commerce facilities in the commission of murder for hire, aggravated identity theft, attempted access device fraud, and aiding and abetting. The charges could get her a maximum sentence of 56 years in prison if she is convicted.

in 2006 Marissa’s boyfriend of three years ‘done her wrong’ and took up with a California girl. Marissa, unwilling or unable to move on, found a website called hitmanforhire.net, the perfect solution. Hire a hit man to kill her ex-boyfriend’s new flame! After much haggling with the hit man, identified only as “person No. 1″, she agreed to pay $37,000 to have the woman killed, specifically by shooting her in the head.

She gave a full description of the woman and her work address and agreed to pay $19,000 up front with the balance of $18,000 due when the murder was completed.

Because she didn’t actually have the money, she paid using three stolen and unauthorized credit card accounts, through PayPal. In the fullness of time PayPal discovered the fraud and reversed the transaction.

The hitman

The hitman, 52 year old Egyptian immigrant Essam Ahmed Eid (aka Tony Luciano) was employed as a $6.50-an-hour card dealer on the poker tables at the Bellagio in Las Vegas. He lived in North Las Vegas with his two wives, enjoying a rich fantasy life.

When his deal with Marks went pear shaped he decided to work the deal from the other end and flew to California to meet with the victim, loan broker Anne Royston. Read about that and the denouement (def.#1,3) of this tale in this article in the Irish Sunday Tribune which includes this priceless quote from FBI Special Agent Ingerd Sotelo

“Royston came out of the conference room with tears in her eyes and said that the people in the conference room were not clients and that they told Royston somebody wanted her dead,” Melanie Kasemaier, Royston’s colleague, was called into the office, and asked Eid, who had identified himself as Essam, if he was serious. He replied, “Yes sweetheart,” before leaving to eat breakfast with his wife and giving Royston a hug on the way out.”

It gets worse, or better depending on your viewpoint. Go read, after removing all consumable liquids from the vicinity of your keyboard.

Ireland?

After leaving California Eid flew to Ireland (with his #2 wife) to meet his next contract, Sharon Collins who wanted to kill her boyfriend, multimillionaire property developer P.J. Howard and his two sons Robert and Niall. Having seen that there was twice as much profit to be made by playing both sides of the deal Eid set out to extort €100,000 from the Howards. That scheme went pear-shaped very rapidly, Eid was arrested and remanded in custody to Limerick prison (where he began teaching inmates how to play poker)

In July 2008 Essam Eid was found guilty of extortion and handling stolen goods, he is serving a six year sentence in Ireland and will likely face charges in the USA upon his release.

The irony

Apparently in 2006 it was OK to use PayPal to hire a hit man. If Ms Marks had used her own money rather than ripped off credit cards for the transaction PayPal would have been oblivious. This is the same time period that PayPal were limiting and freezing accounts for ’suspicious activity’, like withdrawing funds from PayPal to your bank account. Go figure.

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To be charitable, eBay does a sloppy job checking user IDs. Most long time eBay sellers would say eBay needs to start verifying user IDs. Despite years of fraudulent transactions by both sellers and buyers there appears to be no effort, or intention to make a meaningful effort to clean up the site.

An amusing article last December by (very pro PayPal) Chris Dawson of Tamebay politely expresses a degree of frustration which is familiar to anyone who has ever sold on eBay. He wrote

“I’m still trying to figure out why eBay would bother to let me know an account was compromised but not tell me which User Id it refers to. Whilst I appreciate the need to protect user’s privacy, if eBay don’t tell me who they’re talking about then what is the point of emailing me?”

A story is currently in the news about an Australian who was convicted of more than 100 fraud charges March 3rd 2011, it is fascinating reading. He was eighteen years old and a senior in high school when he began his career in crime.

Phillip Heggie “at one stage had opened 119 false bank accounts with Suncorp, to defraud eBay customers, and ended up making almost $40,000 from the scam.” That does not sound like a huge amount but Heggie was not a boy genius, he was rated at the mid to low end of average in his final year at school. Of course this may have been because he was so busy with his criminal schemes.

Heggie started out on eBay legitimately but made a loss and had his PayPal account frozen. His next step was to open fake accounts. He worked hard at his scam, he bought a primer, a book written by a former conman who is now a leading consultant on fraud prevention. He kept meticulous records of his many user IDs with passwords and other pertinent information. As soon as an INR complaint was filed he abandoned the account, neatly putting a line through it with the annotation ‘dead’ and moved on to the next ID.

Giving credit where due PayPal made defrauded buyers whole to the tune of over AU$39,000. Apparently it is a better return on investment to make restitution than to actively deter fraud. eBay’s confidence in the wonders of technology are quoted below. This quote dates back to about a year before young Heggie  launched his criminal enterprise.

“Our technologies – those that exist today, as well as those that we are designing for tomorrow – are helping to make the internet safer every day.” John Canfield, Senior Director for Trust & Safety, April 2008

So, (as we say on eBay) all “our technologies” caught the young crook a year later, right?

Wrong

He was caught by a suspicious bank teller after $2 million was accidentally deposited into one of his bank accounts and he grabbed for the big prize.

But it gets worse

In February 2010 while on bail after being charged with multiple counts of fraud he started up again. He “opened bank accounts in a false name and created numerous sub-accounts via internet banking, all registered through PayPal for eBay transactions.” Back on eBay he made 91 more fraudulent transactions, and got caught. Because crimes committed while on bail tend to result in bail being revoked he spent a year in jail awaiting trial and sentencing. With credit for time served he will be out and on probation soon. Any bets on how soon he will be back on eBay?

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