PayPal, facing a growing tide of consumer complaints, is changing its approach to fraud monitoring. But the eBay unit has provided few details of its plans, leading some to wonder whether it will be able to appease the consumers who say they've been wrongfully ensnared in its fraud-fighting net.

PayPal critics gather on websites like, a long-running forum filled with horror stories of frozen funds and poor customer service. PayPal spokesman Anuj Nayar recently admitted a need to change the company's approach and be more open, though some say the fire could have been put out long ago.

PayPal likely could have avoided the current controversy if it had employed “systematic social listening in a thorough and thoughtful manner,” says Campbell Edlund, president of Boston-based EMI Strategic Marketing.

“The irony of a company communications person saying the company wants to commit to transparency, yet he is unable to provide more details, won’t be lost on ‘Twitterati,’” Edlund says.

Fraud prevention is an “enormous concern” for consumers, Edlund says, but the question PayPal now faces is whether it “created a window for customer dissatisfaction.”

Nayar's remarks came in a CNNMoney report Jan. 21, where he described PayPal's new approach as "a fundamental shift in our business operations." His words came shortly after PayPal had to apologize for freezing the account of science fiction author and cancer sufferer Jay Lake, who was trying to raise money for an experimental treatment.

PayPal spokeswoman Jennifer Hakes said the company cannot share other details at this time. Nayar did not respond to a PaymentsSource inquiry to elaborate on pending changes in PayPal procedures.

Thus, it remains unclear if PayPal intends to alter its fraud screening or would make a change in how it handles customer balances. In its fourth quarter earnings report for 2012, eBay noted that it “now holds PayPal U.S. customer balances directly, rather than as a custodian for its customers.”

PayPal’s current policy calls for freezing funds for 21 days or as long as 180 days if the company suspects fraudulent activity. PayPal asks users with frozen accounts to submit proper documents, such as sales records, to prove a transaction is authentic.

Though PayPal faces criticism from consumers that its fraud policies are heavy-handed, payments experts say the eBay unit is skilled at thwarting scammers. Its first transaction-monitoring system, Igor, was named for the determined fraudster PayPal fought off with the technology. And in the wake of charity fraud schemes after natural disasters like Hurricane Katrina, PayPal has been credited for helping law enforcement stop would-be scammers.

“The perspective is that PayPal does fraud screening better than anyone,” says Gil Luria, analyst with Los Angeles-based Wedbush Securities. Because the company has been so focused on fraud prevention, some legitimate account holders have had funds frozen in the process, Luria adds.

“For the longest time, those who feel they have been wrongfully accused of fraud have made their complaints known, so it’s always been an issue,” Luria says.

PayPal’s stance that it is willing to risk some upset customers to keep its system safe started to change when David Marcus became CEO last year, Luria says.

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