Last week, I had the pleasure of attending the 19th Executive MBA International Week at the prestigious IPADE (pronounced ee-paa-day) university in Mexico City on behalf of Ivey Business School with some of my peers. The theme of the week was “Entrepreneurial Solutions to Poverty” which focused on matters related to corporate social responsibility and sustainability.
Attendees hailed from Canada, USA, Mexico, Japan, Italy, Vietnam, Uruguay, Peru, Dominican Republic and Colombia.
This event was truly inspiring and honestly changed my perception about Mexico and Latin America as a whole. We had the pleasure of attending Kidzania which was a remarkable edutainment center (educate and entertain), which is mini city dedicated to kids who learn life skills, earn kidzos (the city’s currency), and are able to spend their hard earned kidzos’ to purchase items within Kidzani. We also had a tour of Reintegraan organization that works with troubled youth that had a severe run-in with the law and worked to rehabilitate them as an out of jail solution. They work directly with them, train them, empower them to earn a living by training them in two key trades: t-shirt printing and baking. We had the privilege of interacting with the beneficiaries of their services and was truly impressed.
One remarkable speaker that stood out was Cristóbal Colón (Christopher Columbus) from Spain, talking about his journey at La Fageda. With a background in psychiatry work, he truly believed in giving back to society and started a company with a core focus to provide jobs to the mentally challenged. He had a cause he was passionate about and he searched for a business idea to support it. Cristóbal is a true success story as a social entrepreneur. He created an extremely successful and sustainable business selling a premium product to the public. This business supports his cause. He was truly inspirational. You can read more about La Fageda here.
The event asked each of us to look deep within and encourage all of us to find creative ways to give back to society through entrepreneurial ways.
The FinTech sphere has been growing steadily and is starting to be recognized on a larger scale. More specifically, banks and FinTech firms are starting to realize that working together is beneficial to both parties. Check out this interview I did with B2B News Network about my thoughts on FinTech, my history in FinTech and, most importantly, my new FinTech startup!
Star-studded is an understatement. Batman, Lord Conrad Black, Justin Bieber, Ironman, Lennox Lewis, Maestro Fresh Wes, Ben Mulroney, Dragons and countless other celebrities and successful entrepreneurs. Also a lion cub, a tiger, a kangaroo, a lemur and a camel (parked conveniently next to the Batmobile). Las Vegas meets Hollywood meets Bay Street. I had the privilege of being personally invited to the most fantastic and fantastical VIP party of the year: philanthropists Andy Curnew and Dr. Rita Kilislian hosted a Private VIP Art Show and “Nyotaimori Celebrating Life Love and Art” this past Saturday, April 30.
Speaking with Kevin Oleary
Talking to Robert Herjavec!
And yes, I was “that guy”. That guy is the entrepreneur who never stops being an entrepreneur and always has his newest, revised, tweaked elevator pitch at the ready for when an opportunity arises I get asked the inevitable question, “So, what do you do?”
The moment I entered the party, I was mesmerized by the display of exotic cars and animals, hypnotized by the theatrics of fire jugglers and acrobatics, and transported by the music of Opera Atelier and a performance by the one and only Justin Bieber.
But the moments that really tested my composure as a fan and as an entrepreneur came one by one, The Dragons: Kevin 0’Leary, Michael Wekerle, Robert Herjavec, Manjit Minhas, Jim Treliving, Joe Mimran, Michael Romanow, and Michael Hyatt just to name a few. The who’s who of Canadian entrepreneurs. The crème de la crème of business acumen and personal drive.
With Faizal Maestro
When would I, as a fan and as a founder of a new FinTech startup ever have an opportunity like this again – not just to meet so many of the business celebrities I admire, but also for them to get to know me.
So, when that moment did arise and one of the dragons asked me, “A FinTech startup, eh? Tell me more,” I was That guy.
There’s no denying it, FinTech is hot! It seems everyone is trying to build the next FinTech solution whether they’re focused on P2P Lending, Processing, Cyber Security, Block Chain, Bitcoin, Payments or any number of other pain points that are ripe for disruption.
Companies tend to forget that Financial Technology is made up of two distinct words. Many times, you will see amazing startup ideas who end up focusing on the Technology side by creating amazing UI/UX and pay little attention to what I consider the most important aspect of the Financial side: Compliance. This is a risky approach, from my experience either you address compliance head on from the onset or pay the consequences later.
I recall a FinTech Money Services Business (MSB) startup team that approached me regarding their business. They had a pretty good business idea, they were very passionate about it, and they found a niche market segment that they had expertise in. Fantastic! My first question to them was, “do you have a bank account setup?” This sounds like a trivial question to the uninitiated, but for those in the MSB space, it’s an incredibly important concern (read “Biggest challenge for a money remittance company” to understand why). In their case they did not. A banking relationship can make or break your business and is mission critical for any chance of success.
My next question was, “Do you have an AML (Anti-Money Laundering) Policy?” Again, they did not. At this point, they had a very slim chance of getting a banking relationship established, and without a bank account, they would not be able to operate their business.
Another team I spoke with was building a Bitcoin FinTech company that was also working on an amazing platform. The line of questioning was very similar. “Do you have a bank account setup?” They did! We were off to a great start. “Does your bank know what you are doing?”
They responded that their account manager was aware and they know people at the branch and everything is good. I was very skeptical with that response; if only it was that easy.
I reminded them that compliance must be managed at the corporate level and not at the branch level, and as soon as there is any noticeable volume going through their account, it may be flagged for Enhanced Due Diligence. Once the bank got a whiff of the bitcoin activity, the account will be terminated. They reassured me that everything was good and they had things under control.
Three months later, their bank accounts were all terminated.
These examples highlight the issues that FinTech MSBs need to worry about from the start.
Your idea may be outstanding, maybe you’ve built that next generation platform or the next killer app, but if you don’t build compliance into the platform from Day 0, you’re going to get crushed. Banks don’t have time for companies who are not operating at a compliant level, and that means to a level that satisfies the banks, not your own personal risk appetite. It’s not worth their time or effort and definitely not worth the risk.
A good business will focus on compliance as a core building block to their platform instead of building it ad hoc when the time comes that they absolutely need it. Right from the beginning they will address the areas that need to be dealt with and be fully “switched-on” to the areas they need to be aware of. Unfortunately, many FinTech startups are built around incredible ideas however management is naïve to the realities regarding the regulations that may affect them. Some may run into it early on and work around it without much trouble. Others may only face these issues much later and at that point they represent a critical roadblock. At best, companies that fall into the latter group would require a significant pivot, at worst, these issues will shut down their business entirely.
The most successful Fintech companies address compliance early in the lifecycle and place just as much importance on it as they would on building a robust, scalable, and secure platform. Fortunately, there has been a recent trend for many accelerators and incubators to incorporate FinTech support as part of their offerings. Help and guidance is out there; FinTechs can continue to innovate and disrupt without letting compliance be their downfall.
Compliance can be a distinctive value proposition if addressed correctly and creatively when it’s time to engage banks and partners. Letting these partners know you have a robust compliance plan in place may not seal the deal, but it will help you get past the front door.
For those who have been following the evolution of bitcoin, it may come in no surprise that the cryptocurrency has recently found itself in the news once again. This time it is due to a governmental reaction and retraction to the currency. In early November of 2015, news broke that Taiwan’s Chairman of the Financial Supervisory Commission (FSC) had declared Bitcoin to be an illegal currency within the small island nation. This announcement followed on the heels of a widely publicized kidnapping incident where the ransom was made using Bitcoin.
The purported intention of criminalizing the Bitcoin currency in Taiwan was ostensibly to jilt and hopefully reduce the facility of monetary exchange surrounding illegal activity.
However, just a few weeks later, the nation’s top banking and securities regulator (FSC), suggested that it remains neutral towards this new currency. This is of course very confusing when it comes to understanding both the FSC’s opinion and of bitcoin, as well as how they will react to the cryptocurrency in coming years.
The online publication CoinDesk requested clarification regarding the FSC’s perspective when it comes to Bitcoin exchanges in Taiwan, and received the following response from the regulator’s Banking Bureau:
“At the end of 2013, the Central Bank of the Republic of China and the FSC has [sic] released a joint statement that defines bitcoin as a ‘virtual commodity’. Considering the non-currency nature and risk of Bitcoin, the FSC has required banks in Taiwan no to receive or exchange Bitcoin, the FSC has required banks in Taiwan not to receive or exchange Bitcoin. At present, the FSC’s position on this issue remains the same as before.”
This response sheds some light on the tenuous nature that the FSC and Central Bank of the Republic of China have with Bitcoin. Essentially they are refusing to acknowledge it as a currency, and instead identify it as a “virtual commodity”. This distinction in definition from a currency means that these regulatory bodies can essentially choose how they do or do not interact with Bitcoin at their discretion and whim – as we’ve seen.
While this makes it difficult to anticipate the ins and outs regarding the legality of the cryptocurrency in the future, it seems reasonable to say that Bitcoin will not exist unchallenged by the regulatory bodies that govern the banking systems in Taiwan!
JP Morgan Chase CEO Jamie Dimon described the situation in the simplest terms. “Silicon Valley is coming,” he said.
In his annual letter to shareholders this past spring, Dimon warned the Wall Street old guard that their way of doing things was under siege from “hundreds of startups with a lot of brains and money.” Traditional banking was facing a world of more “seamless and competitive” alternatives. JP Morgan, he said, would work to modernize its own services and, if need be, partner with those same Silicon Valley startups striving to undermine the way the banking industry has long done business.
His warning, it turns out, did not go unheeded. Over the past several months, Wall Street has embraced the new wave of Silicon Valley fintech with remarkable speed. The latest example: earlier this week, a small San Francisco outfit called Chain said it had received $30 million in funding from such names as Nasdaq, Citi Ventures, Capital One Financial, and Visa.
Wall Street has embraced the latest wave of Silicon Valley financial tech with remarkable speed.
Chain helps build financial systems based on the blockchain, the online public ledger that underpins the bitcoin digital currency, a technology that could bring more efficiency and security not only to the way we exchange money, but to the way we trade other financial assets, including stocks, bonds, and futures. Nasdaq, the company behind the Nasdaq stock exchange, is already partnering with Chain to build a digital marketplace for shares in private companies, and Chain CEO Adam Ludwin says that other investors are using the company’s tech to create their own systems atop the blockchain idea.
“All of our investors are either existing partners with commercial engagements, or they are serious prospective commercial partners, where we had already had discussions about engagements,” Ludwin says. It’s telling, he says, that six big financial institutions have bought into a high-risk, early-stage startup at the same time. “They don’t just want ROI on an investment. They want to build.”
Meanwhile, the New York Stock Exchange has invested in the San Francisco bitcoin infrastructure company Coinbase. Goldman Sachs has backed bitcoin consumer services company Circle Internet Financial. And Digital Asset Holdings, an outfit led by former J.P. Morgan Chase exec Blythe Masters, is developing a “cryptosecurity” system similar to the one fashioned by Nasdaq and Chain. In the world of bitcoin alone, Wall Street is pushing forward in myriad ways.
The blockchain is essentially an online ledger governed by cryptographic algorithms. In the case of bitcoin, this ledger tracks the movement of digital currency, but it can also oversee, well, anything else that has value. The hope is that in bringing things like stock trading onto this cryptographically secured online database, we can streamline the markets in enormous ways.
In applying the blockchain to the Nasdaq Private Market, Nasdaq and Chain aim to provide a better way for companies to manage their shares before going public. Typically, pre-iPO companies do this in ad hoc ways (think: computer spreadsheets). The blockchain can provide a more efficient way of trading stock and auditing trades. Georgetown professor of finance James Angel, who specializes in the nuts and bolts of trading systems, calls private stock markets “the perfect application for the blockchain.”
But as Nasdaq’s chief technology officer Brad Peterson says, this is merely a first step. The company indicates it will eventually use the blockchain protocol to overhaul its public stock market as well. In creating a need cryptosecurity outfit called TØ.com, online retailer Overstock.com is already well down this path. At the same time, it’s building a blockchain-based system that oversees stock loans (another enormous market).
The flip side is that the bitcoin blockchain isn’t always as secure as some would lead you to believe—and it’s doesn’t operate at speeds suited to the public equities markets. But these are the kinds of things Chain aims to fix. In essence, it offers technology that lets companies run their own private blockchain networks and connect their network to each other in faster and more secure ways.
And Money Too
Amid the rise of systems from Nasdaq, Overstock, and others, the prevailing trope is that the blockchain is reinventing the equities markets, but not necessarily the way we exchange currency. But Ludwin downplays this characterization.
“What we’ve built—and only work on with most of our partners—are blockchains that can issue assets of many different kinds,” he says. “You have to be able to trade not only one security for another, but for currencies. What you will see are networks that can handle transactions involving all currencies as well as other types of financial instruments.”
In should be said, however, the equities markets are particularly ripe for change. Trades on the public stock market take as many as three days to settle, and the blockchain can potentially remove this seemingly anachronistic lag time. Today, stock settlement is overseen by an organization called the DTCC, and it’s telling that even the DTCC is publicly singing the praises of the blockchain. Silicon Valley is coming. And the arms of Wall Street are open.
The Boston Consulting Group is reporting that the payments and transactions aspect of banking businesses generated $301 billion in revenue. There was also another $223 billion in revenue related to account maintenance. When the two totals are combined, they reach a staggering $524 billion, which is nearly a quarter of all banking revenue for the year. By 2022, these figures will have reached the $1 trillion mark with ease.
The real surprise comes when reviewing the market for cross-border payments. In this respect, there is a projected compound annual growth rate of 8% if we review the same date range, from 2012 to 2022. The cross boarder payments market matches the overall growth of payments precisely, based on both actual data and forecasting. This is due to the major increase in global trade flows, and the corresponding demand that has been placed on cross-border payments.
The key fact to understand is that cross-border payments are only a fraction of the total market for payments today. Although, cross-border transactions are increasing at a dramatic pace that outperforms domestic counterparts. In order to understand this complex market, let’s examine some of the forms of payments that currently exist.
Figure 1: The volume and value of Cross-Border Payments Transactions are growing steadily (Source) Figure 2: Four Major Categories of Cross-Border Payments (Source)
When one business utilizes the services of another, they must exchange money to help pay for the supply of those goods or services. The supplier often extends a credit to the buyer, but they may require an assurance of credit in some other form. This is known as “Supply Chain Finance” and it’s still practiced heavily in various markets.
The ecommerce market includes all businesses that ship physical goods online. This includes any costs related to shipping, customs and the corresponding taxation. eCommerce has also grown to include digital goods as well, especially as more music, movies and video games are sold digitally.
Benefits, Payroll, and Retirement Payments
Businesses that want to stay competitive in their quest for talent typically offer benefits to new employees. These benefits may sometimes be extended to people or entities who are outside of the company’s home country. In these situations, individuals are the primary market but business enterprises may utilize these services in paying our benefits to franchisees, licensees or digital collaborators.
Foreign workers often transfer a portion of the money they’ve made back home, which counts as an international remittance.
While these cross-border payments have different purposes, their core functions are actually quite similar. So the next step in understanding this market is looking at how cross-border payments actually work.
How Cross-Border Payments Work
Part of the complexity involved in these transactions is the lack of a local banking entity. When someone makes a domestic transaction, domestic banks bound by domestic laws handle the processing. Acrss border, transactions must be handled by other banks outside of the home country.
There are only a small handful of banks that are truly global in today’s economy, so financial institutions will typically enlist the help of a correspondent bank to complete the transaction, gather documents and accept the actual deposit. They do thison behalf of the domestic institution, essentially working as an agent of the bank from abroad.
The reason this system persists is that domestic banks typically have limited exposure to foreign financial markets, which is usually by design. That would mean opening a branch in every part of the world, which is not always feasible. Therefore, these domestic banks make individual decisions related to how they will send, receive, and settle payments. As a result, banks process a staggering amount of variations and combinations of payments at both the foreign and domestic levels.
PayPal, the nationally recognized online payment processor, is announcing that it has purchased an emerging player in the international scene.
PayPal acquired Xoom, a money transfer company, for a total of $890 million with the goal of expanding its digital payments business. This is also seen as a move to better prepare the company for its exit from PayPal.
Xoom was founded in 2001, and the company allows its users to send money, pay bills and reload accounts from any mobile phone in the United States and 37 other countries. The service has a wide userbase outside of the US, with many immigrants also utilizing the service within our borders, mainly to send money back to friends and family overseas.
According to Dan Schulman, PayPal’s president, the acquisition of Xoom allows PayPal the opportunity to expand its services to the growing overseas market. Xoom is particularly well known in places like Mexico, India, China and Brazil, with a notable presence in the Philippines as well.
Xoom will remain its own entity within the PayPal family, and the branding will remain intact. The acquisition is also helping PayPal better position itself as a publicly traded company in its own right.
PayPal has grown its revenue a staggering 14% during the first quarter of 2015, with the volume of payments being of particular significance. There were also 1 billion transactions made with the service, and the company has seen solid growth in its mobile sector as well.
John Donahoe, the outgoing CEO of eBay, explained that the split was due to the fact that PayPal and eBay did not function as tightly as a unit as they used to.
On a related note, Roelof Botha, who is on the board of Xoom, was the former CFO of PayPal and a partner at Sequoia Capital. PayPal will pay $25 for Xoom, which represents a 32% premium on the market price of the company for the past three months.
Travelling has its indignities as most people already know. The impertinence of travelers can, at times, be unbearable and difficult to stand. There are limitations however. Justine Sacco, the senior director of corporate communications at IAC experienced firsthand how simple tweets can push the boundaries between harmless intentions and full-blown controversy and virility.
Her journey begins on a trip to South Africa from New York at John F. Kennedy International Airport. She found herself in the presence of a fellow passenger for her flight who reeked of body odor.
She tweeted, “‘Weird German Dude: You’re in First Class. It’s 2014. Get some deodorant.’ – Inner monologue as I inhale BO. Thank God for pharmaceuticals.”
Then, stopping off at Heathrow via layover, she continued with another tweet, “Chilly – cucumber sandwiches – bad teeth. Back in London!”
Finally, to further push the envelope, on December 20, before the final leg of her trip to Cape Town she wrote, “Going to Africa. Hope I don’t get Aids. Just kidding. I’m white!”
While her prospective belief remained harmless, what happened next would eventually put her in the spotlight of the public in a way that she would’ve never expected.
After sending out her last tweet, she sporadically checked her phone but to no avail. Nobody replied. It didn’t come off as a surprise to her as she only had 170 Twitter followers at the time.
So she boarded the plane. Being an 11-hour flight, she slept soundly. When the plane landed in Cape Town and began taxiing on the runway, she immediately turned on her phone. One of the first texts she received was from someone who she hadn’t spoken to since high school. It read, “I’m so sorry to see what’s happening.”
Baffled, she continued reading another text, “You need to call me immediately.” It was from her best friend, Hannah. This marked the beginning of a whirlwind for Sacco as her phone blew up with texts and alerts. And then it rang. It was Hannah. “You’re the No.1 worldwide trend on Twitter right now,” she said.
Sacco’s Twitter feed quickly turned into a nightmare. The tweets kept rolling in with hate, “In light of @Justine-Sacco disgusting racist tweet, I’m donating to @care today” with others saying things like, “How did @JustineSacco get a PR job?! Her level of racist ignorance belongs on Fox News. #AIDS can affect anyone!” and “I’m and IAC employee and I don’t want @JustineSacco doing any communications on our behalf ever again. Ever.”
Her employer, IAC, the corporate owner of The Daily Beast, OKCupid, and Vimeo chimed in saying, “This is an outrageous, offensive comment.” However, she was unreachable for much of the event because she had boarded an international flight. So much of this firestorm happened without her knowledge.
What began as public outrage soon turned into a twisted carnival of excitement. Tweets demanding that she get fired came in the thousands. “All I want for Christmas is to see @JustineSacco’s face when her plane lands and she checks her inbox/voicemail” and “We are about to watch this @JustineSacco bitch get fired. In REAL time. Before she even knows she’s getting fired.”
The initial uproar over Sacco’s tweet was not only an ideological campaign against her unknowing narrow-mindedness but was twisted into idle entertainment. Her ignorance to the situation over the past 11 hours helped create a dramatic episode with a one-sided narrative arc. As Sacco’s flight continued over Africa, a hashtag began trending.
Again, the outpour of tweets followed her. “Seriously. I just want to go home to go to bed, but everyone at the bar is SO into #HasJustineLandedYet. Can’t look away. Can’t leave.”
One Twitter user actually took the time to travel to the airport to tweet her arrival. Upon her arrival, he snapped her photograph and immediately posted it online. “Yup,” he wrote, “@JustineSacco HAS in fact landed at Cape Town International. She’s decided to wear sunnies as a disguise.”
By the time Sacco had landed, angry tweets in the thousands were sent in response to her jokes. Hannah immediately deleted her best friend’s tweet and her account as well. However, it was far too late for Sacoo. “Sorry @JustineSacco,” wrote one Twitter user, “your tweet lives on forever.”
In the early days of Twitter, like the early days of life, a lot of users hopped on these trends without a lot of thought as to how they might affect people. However, there was a time in American history where language we would consider racial slurs appeared in print daily or weekly. Looking back at experiences that forever changed our collective perspectives, society may have a long way to go but we’ve become closer and more empathetic than ever before.
To see this up close, consider a recent column from A. A. Gill, which talked about shooting a baboon on safari in Tanzania: “I’m told they can be tricky to shoot. They run up trees, hang on for grim life. They die hard, baboons. But not this one. A soft-nosed .357 blew his lungs out.” Gill did the deed because he “wanted to get a sense of what it might be like to kill someone, a stranger.”
Word quickly got out on social media, with some journalists leading the charge having had somewhat personal relationships with Gill. They were all too excited to add to the negative ranting that was already building behind Gill and his documentaries.
What tweets like Justine Sacco’s teach is that the collective fury of the public can be all too powerful and effective. In turn this is true as ganging up on people can supplant a dominant feeling inside. As time passes, though, these campaigns eventually fizzle. At least, they did before the age of social media. Today’s mob targets the institutions and influential figures involved with someone or some company. They go after anyone they feel is remotely responsible, and in some ways, Sacco’s tweet proves that no one is safe. The punishment is often disconnected from the crime, and that’s outrageous. It’s almost like the crowd is gleeful in its practice of public shaming, which perhaps says more about our society than these people who “need” to be publicly shamed.
So what happens to these people after the firestorm dies down? Justine Sacco has a new job, but is she whole again? What one might find, if one were inclined to do the digging, is a series of broken unemployed, and mentally scarred individuals who find themselves still searching for redemption. The experiences that these people went through are difficult for most of us to understand, everything from viral tweets to pictures, had the ability to crush their spirits to the brink of insanity. The idea that we tend to lose in these situations is empathy. We forget that there is a human face on the other side of that screen, and that every insult hurled at this avatar is being hurled at a living, breathing person.
Lindsey Stone, a 32 year old woman from Massachusetts, posed for a photograph while mocking a revered sign at Arlington National Cemetery’s Tomb of the Unknowns. With her co-worker Jamie taking the photograph Stone stood next to the sign, posed as if pretending to scream and gestured her middle finger to the camera. What may have been a running joke about documenting rebellion in public places quickly turned into controversy as her mobile uploads through Facebook were visible to the public.
Fast forward to four weeks, Stone was out with Jamie celebrating her birthday when all of a sudden they both feel their phones vibrate uncontrollably and repeatedly. They had just found out that someone shared their photo with the online world. A mixed reaction of anger and disrespect from the public came crashing down on Stone’s world. A Facebook page titled “Fire Lindsey Stone” was created and became a social phenomenon. The following morning her house was surrounded by news cameras wanting in on a story for the day’s broadcast. Bewildered, she showed up at her job, a program for developmentally disabled adults, only to find out that she was out of work as they had taken away her keys.
The following year Stone barely left her house, devastated by the events that had occurred. She began to suffer from depression, insomnia and PTSD and isolated herself. “I didn’t want to be seen by anyone,” she told reporters at her home in Plymouth, Mass, “I didn’t want people looking at me.”
While spending her days at home on the Internet, she watched others get turned on that were in similar situations. Stone isn’t the only recent victim either. Alicia Ann Lynch, who dressed in a running outfit with fake blood smeared across her face, arms, and legs, lost her job after she posted Halloween costume on Twitter and was met with immediate backlash. A victim of the Boston Marathon bombing saw the photo and tweeted, “You should be ashamed, my mother lost both her legs and I almost died.” Soon afterwards her personal information was leaked and she became victim to numerous threatening messages.
We might disagree with the way someone acts, but today’s idea of mob justice isn’t the answer we collectively need to progress as a society. Empathy is a powerful concept, and it’s easy to lost sight of that when all we see are avatars.
Recently, PayPal has been in the spotlight for a number of reasons that most people would call “not good.” First, the company was hit with a US sanctions violation and now PayPal has been given a CFPB penalty related to its activity.
According to the Consumer Financial Protection Bureau, PayPal mismanaged the “Bill Me Later” service and that led to deceptive practices that bordered on abuse. The marketing and management of the service was completely mismanaged, and the CFPB filed a complaint against the company charging that it should pay $10 million in fines for its breaches of the law. The complaint also asks that PayPal refund some $15 million to any consumers who were affected by the practice. At this point, the order is merely waiting on approval from the US District Court for the District of Maryland.
“The CFPB alleges that many consumers who were attempting to enroll in a regular PayPal account, or make an online purchase, were signed up for a credit product without realizing it,” the bureau writes. The complaint goes on further to state that PayPal also failed to post payments properly, or in some cases the company lost payment checks and mishandled billing disputes. This put a huge stressor on consumers and merchants. AS this issue affected tens of thousands of people, the CFPB felt it needed to take action.
The CFPB alleges that PayPal advertised promotions and charged deferred interest at a rate the regulatory body considered to be abusive. Users were enrolled in PayPal credit without their knowledge or consent, and customers who were enrolled in the program also suffered thanks to illegal billing and mishandled credit disputes. Under Dodd Frank, the CFPB has authority to take action against PayPal. The affected customers, in this case, are any who paid late fees or were charged interest between January 1, 2011 and May 1st of 2015.
PayPal recently agreed to pay $7.7 million after it was caught processing payments for companies that appeared on the US sanctions list.
If you wish to see a more in-depth review of the allegations CFPB made toward PayPal Credit, you can view the consent order online.