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PayPal "reminds" businesses to pay up

The money transferring site is riling some customers by insisting that people who use its services for business purposes help pay some of the costs.

X.com's money transferring site, PayPal.com, has riled some customers by insisting that people who use its services for business purposes help pay some of the costs.

PayPal, a payment service that allows customers to send money via email, is free of charge to individuals, but it charges a 1.9 percent and 25 cent transaction fee for business use.

The company had relied on people to self-report on whether they used the service for business, but it has started sending emails to customers who log large numbers of transactions.

"If you have a personal account and you use it for business purposes, we ask that you comply with our terms of use and upgrade," said an electronic copy of one reminder obtained by CNET News.com.

The policy has been in place since June, X.com chief executive Elon Musk said. He estimated that about 55,000 people could be violating the company's policy.

Since its November launch, PayPal has become one of the most popular online payment methods, according to analysts. In less than a year, the company said it has grown to 3.6 million customers, with 200,000 of those being business customers, Musk said.

Analysts have questioned how online payment sites offering free service intend to make a profit. Most of PayPal's revenue comes from business transaction fees, according to company spokesman Vince Sollitto.

"Credit card transactions are the most costly," Musk said. "If somebody is doing a high volume of transactions, the only way to make it economically viable for us is to pass along some of the cost."

That didn't keep some customers from airing their frustrations on message boards at AuctionWatch.com, eBay and Honesty.com. Some customers wrote that they only sold goods part time or as a hobby and didn't consider themselves a business, and PayPal shouldn't either.

"Is it up to PayPal to determine whether or not I am a business?" one customer wrote on Honesty.com. "It would seem that is between me and the government."

PayPal's written policy states that even part-time sellers must enroll in a business account: "Auction sellers--both individuals who make it a full-time job and those who sell on a recurring, part-time basis--are also engaging in business use," the company's policy reads.

Musk wouldn't say what volume of transactions would trigger PayPal to send a reminder notice. The company hasn't decided what its enforcement policy will be, Musk said.