eBay 2010 Annual Report Download - page 31

$153.1 million, representing 0.29%, 0.25% and 0.17% of our net total payment volume in the respective periods.
We have also recently changed the dispute resolution process for transactions on eBay.com and eBay.co.uk, as
described in greater detail above under the caption “Changes to our dispute resolution process could increase our
costs and loss rate,” which could result in an increase in our combined eBay and PayPal transaction losses.
PayPal’s highly automated and liquid payment service makes PayPal an attractive target for fraud. In configuring
its service, PayPal continually strives to maintain the right balance of appropriate measures to promote both
convenience and security for customers. Identity thieves and those committing fraud using stolen credit card or
bank account numbers can potentially steal large amounts of money from businesses such as PayPal. We believe
that several of PayPal’s current and former competitors in the electronic payments business have gone out of
business or significantly restricted their businesses largely due to losses from this type of fraud. While PayPal
uses advanced anti-fraud technologies, we expect that technically knowledgeable criminals will continue to
attempt to circumvent PayPal’s anti-fraud systems using increasingly sophisticated methods. In addition,
PayPal’s service could be subject to employee fraud or other internal security breaches, and PayPal may be
required to reimburse customers for any funds stolen as a result of such breaches. Merchants could also request
reimbursement, or stop using PayPal, if they are affected by buyer fraud or other types of fraud.
PayPal incurs substantial losses from merchant fraud, including claims from customers that merchants have
not performed or that their goods or services do not match the merchant’s description. PayPal also incurs losses
from claims that the customer did not authorize the purchase, from buyer fraud, from erroneous transmissions,
and from customers who have closed bank accounts or have insufficient funds in them to satisfy payments. In
addition to the direct costs of such losses, if they are related to credit card transactions and become excessive,
they could potentially result in PayPal losing the right to accept credit cards for payment, which would materially
and adversely affect our business. In addition, if PayPal were unable to accept credit cards, the velocity of trade
on eBay could decrease and result in corresponding decreases in our net total payment volume, in which case our
business would further suffer. The Bill Me Later service is similarly subject to the risk of fraudulent activity
associated with merchants, users of the Bill Me Later service and third parties handling its user information,
which could increase our exposure to transaction losses and adversely affect this business. Our Payments
business has taken measures to detect and reduce the risk of fraud, but these measures need to be continually
improved and may not be effective against new and continually evolving forms of fraud or in connection with
new product offerings. If these measures do not succeed, our business will suffer.
eBay faces similar risks with respect to fraudulent activities on its websites. eBay periodically receives
complaints from users who may not have received the goods that they had purchased. In some cases individuals
have been arrested and convicted for fraudulent activities using our websites. eBay also receives complaints from
sellers who have not received payment for the goods that a buyer had contracted to purchase. Non-payment may
occur because of miscommunication, because a buyer has changed his or her mind and decided not to honor the
contract to purchase the item, or because the buyer bid on the item maliciously in order to harm either the seller
or eBay. In some European and Asian jurisdictions, buyers may also have the right to withdraw from a sale made
by a professional seller within a specified time period. While eBay can, in some cases, suspend the accounts of
users who fail to fulfill their payment or delivery obligations to other users, eBay does not have the ability to
require users to make payment or deliver goods, or otherwise make users whole other than through our limited
buyer protection programs. The impact of changes to our dispute resolutions program implemented beginning in
2009 is discussed in more detail above under the caption “Changes to our dispute resolution process could
increase our costs and loss rate.”
Our limited eBay and PayPal buyer protection programs represent the means by which we compensate users
who believe that they have been defrauded, have not received the item that they purchased, or have received an
item different than what was described. However, users who pay through PayPal may have reimbursement rights
from their credit card company or bank, which in turn will seek reimbursement from PayPal. eBay also
periodically receives complaints from buyers as to the quality of the goods purchased. We expect to continue to
receive communications from users requesting reimbursement or threatening or commencing legal action against
us if no reimbursement is made. Our liability for these sort of claims is only beginning to be clarified in some
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