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Will PayPal Policy Change Be Good for Business?

By Tanya Roth, Esq. | Last updated on

PayPal is planning "aggressive changes" to its user terms and conditions, along with its overall fraud management operations, reports CNNMoney. But will these changes be good for your small business?

So far, there's little information out about these policy changes. However, according to PayPal's senior director of communications, they will signify a "fundamental shift" in the way the company has been doing business.

Here's why many business owners have high hopes for the PayPal policy change:

PayPal is a payment processor owned by eBay. Users can send out invoices and collect payments directly through their PayPal accounts.

Currently, PayPal has fraud prevention policies and processes in place. One of these is that PayPal will freeze funds if it detects potential fraudulent activity.

The problem with this type of safeguard is that it casts a wide net, ensnaring some perfectly legitimate transactions as well, critics complained to The New York Times.

For example, the recent crowdfunding craze has led to many campaigns and fundraisers coming under PayPal scrutiny. When PayPal notices large sums of money, or a substantial increase in activity, pass through a user's account, alerts can be triggered and the funds can subsequently be frozen.

Those funds then remain frozen for 21 days if an account is flagged as a fraud risk. That freeze could be extended by PayPal to 180 days.

The idea behind these procedures is that a scam artist's PayPal account would, in theory, show transactions that grossly deviate from their prior account activity levels.

Of course, when you're looking at a one-time fundraiser, that's exactly the kind of activity PayPal would see -- a one-time spike in activity and an increase in funds flowing into the account.

As a result, perfectly legitimate companies now have to jump through hoops to have their accounts unfrozen, the Times reports. Sometimes, they must prove their legitimacy by providing records detailing their account activity over the course of several months.

That's not always paperwork that a one-time charity or event fundraiser would have.

PayPal's policy changes will likely address these issues when they're released in the coming months. Time will tell whether the changes will pay off for businesses.

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