Failure Analysis: PayPal

By now you’ve probably heard about the dust-up between PayPal and the folks who run the Regretsy web site over the use of the “donate” button and who can use it for what purposes. I’ve been a little distracted this week, and by the time I’d read up on the facts of the case there had been an announcement about things being patched up, but I can’t help thinking of it as one of the best demonstrations of the importance of first-level customer service and the supervision and training of the people who work those positions I’ve seen in a long time. People who know me well have probably gotten tired of hearing about this issue, and are off looking for more amusing content (which shouldn’t be too hard), but if you’re still reading I’d like to go over why this topic is so important – and why PayPal’s handling of the Regretsy case may be the biggest failure I’ve seen yet…

The facts of the case aren’t really in dispute at this point; the Regretsy website put up a “donate” button where anyone who wanted to could donate $2 towards Christmas presents for children from poor families, and a large number of people chipped in. Then PayPal decided that this did not comply with their rules for charitable giving and started giving the Regretsy people a series of increasingly bizarre and contradictory demands, culminating in PayPal freezing not only the Christmas fund but several other accounts completely unconnected with the situation. Subsequent analysis indicates that none of the company’s published regulations were actually violated by these activities, nor were there any legal, ethical or even business-related justifications for any of PayPal’s actions. From the facts presented I can’t identify any way that a donation program of this type could possibly damage the company in the first place, or anything they could gain by shutting it down…

Now, I’ve stated before in this space that I’m not a big fan of PayPal; my own dealings with the company (as a vendor) have failed to impress me, and the fact that the company operates seemingly without any regard for customer relations, public image, business law or common courtesy annoys me. In the present case, the communications between the company and its customer read like a textbook of things one should never say (or do) in a customer service situation (condescending to the customer, telling the customer that their request is not important, refusing to escalate the call to higher authority, threatening to monitor the customer to make sure they can’t do what they want, threatening punitive action if the customer is detected doing what they want; the list goes on). What makes this a failure of a new and highly impressive kind is that PayPal collected at least three commissions on each of the transactions they are requiring their customer to refund, and then kept all of those funds as well as freezing all of the customer’s accounts (not just the relevant one)…

If a bank or financial company did anything like that they’d be up on criminal charges even before the first lawsuits were filed; it would be interesting to see if anything was left of the company by the end of the fiscal year. But PayPal isn’t a bank, and unless they actually violate Federal law (they don’t appear to have done so in this case, but it’s early yet) there isn’t much you can do except vote with your feet: take your business to a competitor and tell PayPal where they can put their idiot regulations. A few years ago there really wasn’t much competition; PayPal was the first mover, and they’re still the only company of their kind that most people have ever heard of. But this sort of spectacular failure doesn’t just cost you the current customer and anyone who sides with the customer; it also creates one more customer for your competition – and that sort of thing adds up after a while. Unlike a normal customer service failure, where an annoyed customer might tell an average of 27 people how badly you treated them, this one is making PayPal look corrupt, greedy and stupid in front of millions or hundreds of millions of Internet readers…

I don’t know how long PayPal can go on looking this bad and offending this many customers; I’m just saying that the money they think they’re saving on customer service personnel doesn’t look like much of a bargain to me…