PayPal (PYPL) is in trouble
The financial services platform has suffered a significant decline since the beginning of the year.
Its share price has fallen 52.2% since January. Market value has declined nearly $114 billion over that period to $104.3 billion.
Profitability concerns around fintech have grown in recent months as fears of a recession have trumped all other considerations with investors.
Investors fear that the Federal Reserve’s (Fed) aggressively raising interest rates to control inflation, which is at its highest in 40 years, will lead to a so-called hard landing in the economy.
Usually, when interest rates go up, it’s a good scenario for financial institutions. They make money by charging their borrowers more than they pay their lenders.
A $2,500 fine for misinformation
The problem is that a sharp slowdown in economic activity is likely to affect many households. This could lead to an increase in unpaid invoices and the accumulation of late payments on loans granted by financial companies.
PayPal’s revenue comes primarily from fees the company charges when consumers use the platform to pay for online purchases and various transactions. If transaction volume declines, so will PayPal’s revenue.
In addition, the company is also bearing the brunt of the sharp decline in the interest of small investors for cryptocurrencies. PayPal was one of the first companies to offer to buy and sell Bitcoin (BTC) and Ethereum (ETH), the first two cryptocurrencies by market value.
The crypto craze that peaked in November 2021 has completely died down. The sector has been in a kind of lethargy for several months, marked by a sharp drop in trading volumes and the withdrawal of retail investors, who often come to the market through PayPal and Block’s CashApp. (SQ) platform
But as if all these challenges weren’t enough, PayPal just created a big problem for itself. Documents have just been leaked in which the company says it will impose financial penalties on customers who violate its policy.
Any misinformation would be punishable by a $2,500 fine. Basically, if a customer is found guilty of four acts of misrepresentation, they could be fined $10,000. PayPal would withdraw this amount directly from the customer’s account.
“You are independently responsible for complying with all applicable laws in all of your actions related to your use of the PayPal Services, regardless of the purpose of the use,” the document, called the “Acceptable Use Policy,” says.
“Violation of this Acceptable Use Policy constitutes a violation of the PayPal User Agreement and may subject you to damages, including liquidated damages of US$2,500.00 per infringement, which may be charged directly from your PayPal accounts,” the company added.
You can read the full document here.
What is interesting is that it is marked “Last updated on November 3, 2022”. This suggests that the policy was only due to take effect in just under a month.
The leak of the documents has sparked an outcry against PayPal on social media. Some co-founders of the firm, such as Elon Musk and David Marcus, were among the critics of this policy that goes “against everything” in which they “believe”.
“It’s hard for me to openly criticize a company that I loved and gave so much to,” Marcus posted on Twitter on October 8. “But @PayPal’s new AUP goes against everything I believe in. Now a private company decides to take your money if you say something they don’t agree with. Crazy.”
“Okay,” Musk joked.
The leak has sparked all the criticism of the tech giants, who perceive them as too powerful and intolerant.
“PayPal is enacting private social credit,” commented one Twitter user.
“How does Paypal know you’re spreading misinformation? What are our social media accounts looking at? I don’t understand,” said another user.
Contacted by TheStreet, PayPal said it was a “mistake.”
“And UP [Acceptable Use Policy] Recently, a notice was issued in error that included incorrect information,” a PayPal spokesperson said in an emailed statement. “PayPal is not fining people for incorrect information, and such language was never intended to be inserted into our policy . Our teams are working to fix our policy pages.”
So PayPal is in damage control.
“We regret the confusion this has caused,” added the spokesman.
The question is whether it’s too late for the company’s reputation, which risks ending up on the anti-Big Tech blacklist. This list includes Metaplatforms (TARGET) – Facebook, Instagram; alphabet (GOOGLE) via Youtube and Twitter (TWTR) among others.