In the world of online money transfer, Paypal certainly dominates...does the company have too much power?

PayPal was spun off from eBay, after being set up to make possible online financial transactions related to their auctions. Since then it has certainly become much more ubiquitous and can be found as a payment option in most of the larger (and many of the smaller) e-commerce sites. PayPal's growth is an outcome of the convenience they provide, as well as their well-thought-out fee structure, which includes free accounts that are sufficient for most users.

Having said all that, they are not a bank, and as such, they are not FDIC insured. They place user monies in unaffiliated banks, which are FDIC-insured so that your accounts are protected against the failure of that 3rd party bank, but not PayPal's hypothetical failure. However, you are not required to maintain a balance with PayPal to use their service, and can use them as a conduit to transfer funds from your bank account to someone else's PayPal account, without providing the recipient with your original bank account information.

- quote (see https://paypal.com/us/cgi-bin/webscr?cmd=xpt/Use... )- FDIC Pass-Through Insurance You do not need to keep funds with PayPal in order to use our service. If you do hold a balance, you can do so in two ways: (1) PayPal, as your agent, will place your funds in a pooled account at an unaffiliated FDIC-insured bank or savings institution, which is eligible for pass-through FDIC insurance coverage; or (2) you can elect to earn a return on your funds by enrolling to invest all funds that you receive into the PayPal Money Market Fund. The PayPal Money Market Fund is not FDIC insured, not guaranteed by any bank and may lose value.

PayPal keeps a record of the amount of your balances, which you can check by logging in to your account through the PayPal Web site at any time. Balances held in currencies other than U.S. Dollars are not FDIC-insured. If you do not enroll in the Money Market Fund, then in the unlikely event that an FDIC-insured bank in which we place your money fails, your balance placed at the bank would be subject to FDIC pass-through deposit insurance coverage, along with any other deposits you hold at that bank, up to a total of $100,000.00 USD.

Pass-through deposit coverage is contingent upon PayPal maintaining accurate records and on determinations of the FDIC as receiver at the time of a future receivership of any bank at which we place your funds. FDIC pass-through deposit insurance protects you only against the failure of the bank at which PayPal places your funds, and does NOT protect you against PayPal's insolvency. Through the terms of our User Agreement, we believe that your funds will also be protected from any claims of PayPal's creditors and will be returned to you even in the unlikely event of a PayPal insolvency.

- end quote - So, the point is that holding large sums of money in a PayPal account is probably not wise. One can keep enough there for the amount you expect to spend during the coming month, and top it off periodically as needed. If you use your PayPal account mostly to accept payments, you should "drain" the account periodically by transferring the funds to your bank account.

Doing the above side-steps most problems people are concerned about with PayPal, such as the risk that they might freeze your account for no good reason for an indeterminate length of time. If you do as suggested, PayPal no longer has "too much power" over your funds. As for their having too much power due to not having serious competitors, the field is open for others to provide better services if PayPal starts misbehaving too badly, plus, you can almost always use your bank's online bill-payment services, or your credit/debit cards, to make e-commerce payments, which limits how much power PayPal can concentrate in their hands.

I love that clip! I personally do not think Paypal has too much power. I feel they have earned it, or are trying to, atleast.

I have had a Paypal account for over 7 years and it makes life easy. There is no reason for me to have a credit card. I make money at Ebay, all of my earnings are in Paypal, and I have a debit card attached to my Paypal account.

I know how much money I have every second and will never need a credit card again. The customer service at Paypal, has really changed in the last 7 years. The last two issues I had, I noticed, you can talk to someone live on the phone immediately, and they are extremely helpful and pleasant.

I think the fact that you can have large amounts of money in a PayPal account and then have it frozen at any given time because of your eBay activities is crazy. Since they don't qualify as a banking institution in the U.S. , they are not goverened by FCC regulations, allowing them to do anything that falls under their User Agreement. I have personally had $12,000 frozen for 6 months, causing me huge amounts of debt, inability to purchase product, etc.This is an abuse of power, but we all agree to it.

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