22 March 2018 ~ 0 Comments

A Tale of Three Payment Processors

It’s been a very interesting last few years in the world of payment processing.  They say you’re supposed to open with something that hooks people, but that first sentence is likely the most boring thing I’ve ever written, however if you are involved in online retailing you have likely experienced some turbulence with your payment processing as well.

Everything was Great… Until it Wasn’t

In my little niche of the internet, myself and my peers rely heavily on payment processing companies to process our transactions.  One thing that we, and likely others, have noticed is that while the internet is reaching massive growth, payment processors seem to continue to be deeply lacking.  Anyone who has been doing business online more than a decade will have all kinds of PayPal horror stories to share with you.  Although PayPal users have recently faced another stack of hurdles, but they’re not the only payment processing company to have caused struggle for the online business community.

2012

The year it all began to go down.  PayPal has always had strict restrictions on what countries they do business in, because of this there was always a demand for secondary processors on websites.  At the time, in my niche, a company called AlertPay filled that void.  Everything was going great for many years, consistent transactions, businesses were growing, and payments were flowing without a hitch.  Then one morning countless people woke up to log in to their AlertPay account to find the seal of the Department of Homeland Security.  As it turns out, AlertPay was operating without licensing.  The assets were seized and members were directed to contact the Department of Homeland Security to file to get money back from their account.  I was one of the people who filed however of course heard nothing back.

After the shut down, AlertPay (as the story goes) sold the property to MH Pillars Ltd, a company based in London formed in 2005.  The site reopened promptly as a payment processor Payza.  Payza has since become heavily invested in filling the void in crypto-curency exchanges and transactions, focusing mostly on Bitcoin and Altcoin in addition to transactions through nearly all global currencies.  But it was with a very rough start.

2013

In late 2013, Payza’s US operations were suspended and asset seized.  They cited this to be due to the AlertPay fiasco of a year prior and the websites previous owners.  It took about six months, however US services were ultimately restored after which they continued uninterrupted.

2016

In early 2016, the US Consumer Finance Protection Bureau re-categorized online payment processing companies as pre-paid cards.  This raised their level of liability with banks for transactions made through their service.  It made it easier for consumers to get refunds on purchases made using third-party processors, but at the same time greatly increased the risk of the processor’s.  The timing made for a perfect storm as at nearly the exact same timing as the announcement, a Ponzi Scheme that had taken more than $200 Million dollars from users through PayPal was targeted by the Securities and Exchange commission.  PayPal went out in full force and combined their client websites.  The SEC action and the CFBP decision made PayPal aggressively revisit it’s policy, and nearly all of my friends and colleagues became no longer eligible to process transactions on their website.   Many now relying on Payza and crypto-currencies.

2017

In 2017, PayPal was sued for their role in the Ponzi Scheme perpetrated by Charles Scoville.  The plaintiffs claim that PayPal knew that Scoville was operating an illegal Ponzi, however chose to continue to do business with him.  Since the SEC Case against Scoville is still proceeding, a tenth circuit court judge placed a stay on the case.  The reasoning behind this decision was two fold, first according to SEC rules parties involved in SEC suits cannot be involved in other suits that do not include the SEC, so the SEC must be party to the case in order for it to be pursued.  The second reason was that the case involving Scoville and the SEC was still preceding, and the evidence of wrongdoing lies in the result of this case.  Simply put, if it turns out the Scoville somehow miraculously wins his case and is proven not guilty of criminal activity, then that would make PayPal not guilty of a crime by doing business with him.  That being said, Scoville was operating a very clear and obvious Ponzi, he seemed to behave as though it was a legitimate business but to a person who has crossed a fair number of online Ponzi schemes, it was immediately evident what was going on.  When he is found guilty and the case against PayPal is resumed, this could lead to even more reactionary measures by the company.  It’s unlikely the processing company would be bankrupted, however they would certainly want to further minimize risk by removing dealings with even more digital good sellers. This is something any online business owner who uses PayPal needs to be aware of, as the experiences many felt in 2016 could very well be coming again.

2018

And history repeats itself.  In March 2018 Payza’s US operations are shut down by the Department of Justice.  As it turns out, MH Pillars, the company that acquired AlertPay, was operating Payza without a license to process payments.  The exact same thing AlertPay was shut down for.  The interesting part about this, is that they claimed that the investigation had been going on for 6 years.  As it turns out, MH Pillars just happened to be owned by the original owners of AlertPay.  The sale of AlertPay to MH Pillars was a cover as they were simply different businesses registered to the same set of brothers, only this time they are also being accused of Money Laundering.

What’s Next?

So now what?  Many business that relied on AlertPay were pushed to PayPal, who then pushed them to Payza, but now what?  What is to happen to the countless business who have relied on PayPal and other online payment processors?  I can’t help but wonder why there is so little innovation and competition in this field, obviously there is a lot of risk in processing such a high rate of financial transactions, but there is even higher demand.  Besides Stripe and a couple others, there really haven’t been many entries into the payment processing business for as long as I can remember.   Regardless of if it is risk, or regulatory burdens that are keeping people from starting these businesses, the result of having such a limited availability of them has caused to the end of thousands.