PayPal has established itself as the de facto method of transacting money on the Internet. It is ruffling some feathers, though, with business and dispute resolution practices that seem to be focused on making sure PayPal gets to hang onto money as long as possible.
Users need a reliable method of paying for online goods--especially from auction sites such as eBay, which is why eBay bought PayPal. More importantly, users want some level of assurance and protection against fraud--both from sellers not delivering or sending items that don't match the online description, or from buyers that receive goods and don't pay for them.
With the sheer volume of transactions processed by PayPal, it is reasonable to assume that it receives a fair number of complaints and accusations on any given day. Understandably, PayPal has to be vigilant and act aggressively to investigate claims and resolve disputes.
Some sellers, though, feel that the PayPal dispute resolution practices are biased in favor of the buyer in any given transaction. There are also some who believe that PayPal drags its feet intentionally when it comes to releasing money, because every day it can keep funds in its own accounts is another day it can generate interest income or leverage that money for profit.
One recent case had PayPal sitting on nearly a million dollars that belonged to a PayPal seller. A game developer who goes by the name Notch wrote a blog post on September 10 stating, "They limited my account for unspecified reasons (a suspicious withdrawal or deposit! wow, thank you for that amazingly detailed information), and asked me for a bunch of vague documents. I did my best to give them what they asked for."
The blog post goes on to explain, "My account is still limited. I've called them three times, they keep telling me it's being reviewed. Most recently they told me it'd take up to two more weeks for it to get resolved, and that if they decide something bad's being going on, they're going to keep the money."
In PayPal's defense, this is an unusual case. It seems reasonable for PayPal to red-flag an account that has a sudden inexplicable spike in income in order to protect all parties--including PayPal.
Few PayPal sellers keep that kind of cash floating around in a PayPal account. In fact, Notch also explains that it has been his practice to withdraw his funds each week, but that PayPal froze the account right as sales of his game spiked--allowing the balance to climb rapidly while the matter was sorted out.
But, even on a smaller scale, sellers that usePayPal to conduct business rely on that income and don't appreciate having funds that belong to them held indefinitely at PayPal's mercy. That is why some businesses are exploring PayPal alternatives, such as Google Checkout or Amazon Payments to transact money online.