We can say with little argument that PayPal is the largest single payment platform in history. The company reported nearly 150 million active accounts in the first quarter of 2014 and while that is small when compared to Facebook's more than 1.2 billion, the impressive figure still dwarfs other payment or money transfer platforms.
The company has expanded to the point of developing services reflective of an actual bank, including interest bearing accounts and both debit and credit cards. But lately PayPal has taken to freezing customers accounts while they are “under investigation.” The latest of these freezes affected a Swiss start-up named Protomail, founded by a group of researchers at the European Center for Nuclear Research (CERN Supercollider) in Geneva.
Protomail kicked off an Indiegogo Campaign to help fund their end-to-end encrypted email service and the campaign began registering off the chart results, collecting more than $300,000 since 17 June, 2014, which more than tripled the goal of the whole program, which was only $100,000. The campaign still has several weeks to run however which means that if the present trend continues Protomail will be able to add a great many other features that were planned for the future, including mobile apps and encrypted storage.
Not an Isolated Case
But last week PayPal unilaterally decided to “restrict” Protomail's account. The interesting thing about this however is that this is not the first time that PayPal has closed an account, and for the same reason: Regulations, created mostly by FinCEN, require financial organizations to monitor accounts for illegal activity, in essence deputizing private companies to act as monitors. These regulations however tend to cause companies like PayPal, and its parent company eBay, to freeze perfectly legal accounts in overzealous lock downs like the Protomail fiasco.
The company tried to find out what the problem was by contacting PayPal according to CEO Andy Yen were shocked at the response.
"When we pressed the PayPal representative on the phone for further details, he questioned whether ProtonMail is legal and if we have government approval to encrypt emails,"
The company was forced to switch to a combination of credit card and Bitcoin payments before PayPal would restore full access the account, which was finally achieved on Tuesday, 1 July and it was able to remove its funds that have already been donated through PayPal.
PayPal makes Duel Claims
PayPal seems to be trying to cover all of the bases in defending itself. One spokesperson told Threat Post the following:
"We have contacted ProtonMail today to solve this and can confirm that ProtonMail is able to receive or send funds through PayPal again,"
PayPal explained that the restrictions were not an implication that Protomail was a scam but rather it stemmed from a technical problem. But PayPal's Chief Risk Officer Tomer Barel said in September, 2013 said that the problem was the restrictive policies but that the company was working on a way to filter more effectively.
"Because the model is so new, it is potentially open to abuse. PayPal has a responsibility to ensure that the system remains secure, in compliance with Government regulations around the world, and that consumers who contribute to these campaigns understand where their money is going."
A Shot in the Arm Instead of a Bullet to the Head
Regardless of PayPal's motivations, this restriction could actually benefit Protomail because of the public relations gained. The community interested in encrypted email, cryptocurrencies and other privacy technologies would be the most offended by actions like this from large corporations. While this move will probably not lose PayPal any customers, it will certainly help increase the flow of donations to the Protomail Indiegogo campaign.