NCPA - National Center for Policy Analysis

THE STORY OF PAYPAL

January 4, 2006

PayPal, the Internet payment service, is used worldwide by some 73 million users. Since the company's inception, however, it has battled competitors, class action suits and bureaucratic hurdles. In his book, "The PayPal Wars: Battle With eBay, the Media, the Mafia, and the Rest of Planet Earth," Eric M. Jackson describes how consumer advocates and the government treat fledgling entrepreneurs.

PayPal founders Peter Thiel and Max Levchin wanted to create an online payment system that would eventually become a "borderless private currency," facilitating trade for anyone connected to the Internet, allowing instant transfers of funds of different currencies, and allowing citizens more direct control over their currencies, free from government control.

However, when PayPal decided to become a publicly traded company, the obstacles began:

  • A rash of lawsuits ensued, including one class-action suit that accused PayPal of mistakenly freezing several accounts while it investigated suspicious activity.
  • New York's Attorney General Eliot Spitzer accused PayPal's online agreement of not being "clear enough" and accused the company of violating the state's gambling laws.
  • The U.S. Department of Justice then accused PayPal of violating the Patriot Act through the use of its services on gaming sites; PayPal settled with the DOJ for $10 million and agreed to prohibit its use for online gambling.

According to Radley Balko of Reason Magazine, "PayPal's story is a sad but instructive lesson in how this country treats its entrepreneurs."

Source: Radley Balko, "Who Killed PayPal?" Reason, August/September 2005; and Eric M. Jackson, "The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth," World Ahead Publishing, September 21, 2004.

For text:

http://www.reason.com/0508/cr.rb.who.shtml

 

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