PayPal (PYPL) is in trouble.
The financial services platform has been in a major decline since the beginning of the year.
Its stock price has fallen 52.2% since January. The market value has decreased by nearly $114 billion during that period to $104.3 billion.
Profitability concerns surrounding fintech have grown in recent months as fears of a recession have taken precedence over all other considerations with investors.
Investors fear that the aggressive increase in interest rates by the Federal Reserve (Fed) to tame inflation, which is at its highest in 40 years, will lead to a so-called hard landing for the economy.
Normally, when interest rates rise, it is a good scenario for financial institutions. They make money by charging their borrowers more than they pay to their lenders.
A $2,500 Fine for Misinformation
The problem is that a sharp slowdown in economic activity is likely to have an impact on many households. This could result in an increase in unpaid bills and a piling up of payment defaults on loans granted by financial firms.
PayPal’s revenue stems primarily from fees the company charges when consumers use the platform to pay for online purchases and various transactions. If the volume of transactions decreases, so will PayPal’s revenues.
In addition, the company is also suffering the brunt of the sharp decline in the interest of small investors for cryptocurrencies. PayPal was among the first companies to offer to buy and sell Bitcoin (BTC) and Ethereum (ETH), the top 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, often arriving on the market via PayPal and CashApp, Block’s (SQ) platform.
But as if all these challenges weren’t enough, PayPal just created a big problem all on its own. Documents were just leaked in which the company says it will impose financial penalties on customers who violate its policy.
Any misinformation would be penalized with a $2,500 fine. Basically, if a client is found guilty of four acts of misinformation, 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 PayPal’s services, regardless of the purpose of the use,” the document, called “Acceptable Use of Policy,” said.
“Violation of this Acceptable Use Policy constitutes a violation of the PayPal User Agreement and may subject you to damages, including liquidated damages of 2,500.00 U.S. dollars per violation, which may be debited directly from your PayPal account(s),” 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 come into effect in just under a month.
The leak of the documents has resulted in a massive outcry against PayPal on social networks. Some co-founders of the firm, like Elon Musk and David Marcus, were among the critics of this policy which goes “against everything” they “believe in.”
“It’s hard for me to openly criticize a company I used to love and gave so much to,” Marcus posted on Twitter on Oct.8. “But @PayPal’s new AUP goes against everything I believe in. A private company now gets to decide to take your money if you say something they disagree with. Insanity.”
“Agreed,” Musk quipped.
The leak has aroused all the critics of the tech giants, who perceive them as being too powerful and intolerant.
“PayPal is enacting private social credit,” commented one Twitter user.
“How does Paypal know that you are spreading misinformation? What are they watching our social media accounts? I don’t get it,” said another user.
Contacted by TheStreet, PayPal said it was an “error.”
“An AUP [Acceptable Use Policy] notice recently went out in error that included incorrect information,” a PayPal spokesperson said in an emailed statement. “PayPal is not fining people for misinformation and this language was never intended to be inserted in our policy. Our teams are working to correct our policy pages.”
PayPal thus finds itself in damage control.
“We’re sorry for the confusion this has caused,” the spokesperson added.
The question is whether it is too late for the reputation of the firm, which risks ending up on the black list of anti-Big Tech. This list includes Meta Platforms (META) – Facebook, Instagram; Alphabet (GOOGL) via Youtube and Twitter (TWTR) among others.
Image and article originally from www.thestreet.com. Read the original article here.