Paypal meeting

Meeting Between Federal Reserve Staff

and Representatives of PayPal

April 12, 2011

Participants: John Muller, Alison Nicoll, and Becky Relic (PayPal); and Doyle Bartlett (Eris

Group)

Dana Miller, Samantha Pelosi, Mandie Aubrey, Vivian Wong, and Ky Tran-

Trong, Greg Evans (Federal Reserve Board)

Summary: Staff from the Federal Reserve Board met with representatives of PayPal to

discuss the remittance transfer provisions of the Dodd-Frank Wall Street Reform and Consumer

Protection Act. Using prepared materials, PayPal representatives addressed the scope of the

legislation, written initial disclosure of information regarding the transaction, error resolution,

the posting of Internet disclosures containing information about model transfers, and the

potential effective date for the final regulation.

Attached below is a copy of the presentation that PayPal provided to Federal Reserve Board staff

to guide discussion during the meeting and sample transaction flows.

PayPal

April

12, 2011

Agenda

• PayPal Overview

- Understanding PayPal

- PayPal's Current Regulatory Framework

• Sending Money Internationally Through PayPal

• Remittance Transfer Provisions

Understanding PayPal

• PayPal is an internet-based payment system that enables customers to

make electronic payments online without sharing financial information.

• PayPal sits on top of traditional banking and financial institution

infrastructure to facilitate online payments.

• PayPal is available in 190 markets and supports 25 currencies: U.S.

Dollar, Australian Dollar, Canadian Dollar, Hong Kong Dollar, Singapore

Dollar, Taiwan New Dollar, New Zealand Dollar, Euro, Swiss Franc,

Czech Koruna, Swedish Krona, Danish Krone, Norwegian Krone,

Hungarian Forint, Mexican Peso, Philippine Peso, Malaysian Ringgit,

Chinese RMB, Israeli New Shekel, Pounds Sterling, Brazilian Real,

Polish Zloty, Turkish Lire, Thai Baht and Japanese Yen.

• Customers receive electronic payments to their PayPal account and

can either spend/use those funds online or withdraw them to their bank

account.

• Two general categories of transactions:

- Purchase Payments (purchase of goods and services).

- Personal Payments (not tied to purchase of goods and services).

Understanding PayPal

Purchase Payments

- PayPal enables global e-commerce for buyers in 190 markets.

[Image of "Buy Now" and "Add to Cart"

buttons.]

- PayPal offers a variety of merchant services (invoice, express

checkout) to help merchants enhance their ability to sell online.

- 84% of the payments of users in the United States sent abroad

are purchase payments.

Personal Payments

- Users are able to send/receive personal payments that are not

related to the purchase/sale of goods and services to 104

countries.

- 5.4% of the payments of users in the United States sent abroad

are personal payments.

For each payment, no actual funds are moved between users.

Amounts shown through real-time electronic

debits/credits in the virtual wallets.

Average Transaction: $63.00

If necessary, settlement of funds occurs between two

PayPal bank accounts. No actual funds movement may

be necessary for every transaction.

[Note:] *Thousands of customer transactions are aggregated (daily) with transactions being netted against each other (accounting entries) based on

PayPal entity and currency. Settlement between PayPal entities occurs 2 or 3 times a week. [end of note.]

[ Flowchart of Purchase Process. First the Buyers choose funding method.

The money goes to a PayPal Bank Account. By way of a Virtual Wallet payment

is sent through PayPal to the seller's PayPal Bank Account. Sellers choose

withdrawal method. They can Use funds to make a purchase or withdraw to a

bank account.]

PayPal's Current

Regulatory Framework

Global Regulatory Framework

United States

- Registered with the US Treasury

Department as a money services

business.

- Licensed in 42 states and 2

territories subject to audit exams

European Union

- Regulated by Luxembourg's

Commission de Surveillance du

Secteur Financier.

- Licensed as a bank.

Australia

- Licensed by Australian Securities

and Investments Commission as a

non-cash payment facility.

- Providing on-line payment service

granted by Australian Prudential

Regulatory Authority.

• Singapore

- PayPal Private Ltd., a Singapore

company, responsible for

operating the PayPal service in all

countries (except US, China,

Australia and EU).

- Designated as a stored value

system through the Monetary

Authority of Singapore.

• Hong Kong

- Registered as a Money

Remittance Business.

• Malaysia

- Licensed as a Electronic Money

Business

Sending Money Internationally

through PayPal

Cross border payments from US customers

(PayPal Send Money Flow)

[Two images of web pages labeled Page 1 and Page 2, illustrating the PayPal Send Money Flow.]

Send Money Flow - Page 1

Image of a PayPal web page where a user would send money to

friends and family. A user would have to enter the email or

phone of the friend or family member, the amount of money, the

currency, and select whether the money is for Purchase or

Personal. This example has selected personal, and then must

select whether it is sent as a gift, living expenses, payment owed,

cash advance, or other.]

Send Money Flow - Page 2

[Image of a PayPal web page where a user would review their payment

before sending. This payment involves exchanging U.S. Dollars

to British Pounds. The image has certain points highlighted.

These are:

Includes the amount to be paid by sender and the amount to be

received.

This links to a web page disclosing the fees that apply to PayPal

payment, including the cross border fee that applies to this payment.

The 2.5% currency conversion spread retained by PayPal that is

disclosed as a fee in the user agreement with PayPal is included in

this conversion rate.

[This page has two images, illustrating the continuance of the Send Money Flow begun on the previous page.]

Send Money Flow - Page 3

[Image of the confirmation page stating "The money has been

sent!" Also stating that a receipt was emailed to the user and

a notification was sent to the recipient.]

Email Receipt

[Image of the email that is sent to the user. Two items were highlighted by

the author of this document. One: the email shows the currency conversion.

Two: the email states the exchange rate.]

PayPal Send Money

Transaction Detail in PayPal account history (after logging in)

[Image of the PayPal web page displaying the user's "transaction details". It shows

the transaction outlined on the previous two pages. The author of the document

has highlighted two areas: One, where it displays the amount sent, the fee amount,

and the net amount. Two, where it displays the conversion from, the conversion

to, and the exchange rate.]

Remittance Transfer Provisions

Scope of Remittance Transfer Provisions

• Current definition of remittance transfer from a US "consumer who requests a

remittance provider to send a remittance transfer" to "any person in a foreign

country" could apply to cross border payments initiated for the purchase of

goods and services in addition to the more tradition "person-to-person" type of

remittance.

• For purchases from foreign merchants, a remittance provider (the payment

method used by the consumer) typically will not be able to provide any

disclosures to a user prior to the payment occurring.

• For these transactions, fees are generally applicable to the seller/merchant

(recipient), not the sender.

• If only some remittance providers provide such disclosures the purpose of

informing consumers of the costs associated with a cross border payment for

different payment methods would be defeated.

• Specifically address the issue of whether the remittance transfer provisions

extend to commercial payments, such as online purchase from overseas

merchants.

• Provision should only apply to payments known to be international.

Uniformity of Fee disclosures

• Fully support clear disclosure of all the fees that apply to a cross

border remittance transaction.

• In addition to how fees must be disclosed, we encourage

specific guidance on what fees and other amounts should be

disclosed.

- More transparency for the consumer and ensures accurate

comparison between remittance providers.

- Includes flat fees and transaction fees, but should other

assessments or amounts such as any spread on the currency

conversion that is charged by, or shared with, the remittance

provider also be included?

Consideration of Internet/Electronic only

Transactions

• Disclosures

- Providing initial disclosures in a "form that the sender can keep" does not adequately

consider payments initiated through an online flow or on a mobile phone.

- Encourage rule making to permit, as contemplated under 919(a)(5)(C), the

combination of the initial disclosures and receipt requirements into one written

disclosure if the information is accurate at the time the payment is made. This is

particularly relevant to instant payments.

- Encourage consideration of mobile phones and other devices when devising specific

disclosure requirements for send money flows.

• Error Resolution Timeframes

- PayPal cross border payments are instant and take the same amount of time as a

domestic payment.

- Longer error resolution times appear geared more to a remittance transfer that

occurs at a physical location, rather than one that is electronic and instant.

- Apply current error resolution procedures under Section 908 of the EFTA and 12

CFR 205.11 to remittance transfers that are completely electronic and instant.

- Refund and cancellation procedures must take into account remittance transfers that

happen immediately.

Storefront/Internet Notices

• Support clear disclosure of applicable fees and currency exchange

rates to customers.

• Disclosure requirements need to contemplate multiple countries and

multiple currencies as well as the most user friendly experience.

PayPal already provides a tool to show currency conversion and

calculate applicable fees for users who want to send money abroad.

[Image of a PayPal web page, pointing out:]

Pull-down menu with all PayPal countries

that a user can receive a payment.

Pull-down menu with all 25 PayPal

currencies.

Converted amount in the then current

conversion rate

Full disclosure of applicable fees

Implementation Timeframe

• Current time table for implementation of the disclosure

requirements not clear.

• Any rules that are issued will inevitably impact implementation

e.g., if initial disclosures and receipts are put into one written

disclosure.

• Request implementation of the disclosure requirements be after

final rules have been issued.

ONLINE CROSS BORDER PURCHASE FLOW

(US Consumer purchasing from a UK merchant)

Merchant Shopping cart Page

[Image of a merchant web page displaying the option to select

"Pay now with PayPal."]

Merchant Choose Your Payment Method page

[Image of a merchant web page displaying the option

to select PayPal in the "select your payment method" section.]

PayPal Log-In (after selecting PayPal as the payment method)

[Image of the PayPal login screen.]

Payment review page:

[Image of the PayPal "review your payment" page.

The bottom of the page states the exchange rate.]

Confirmation Page

[Image of the merchant's confirmation page, showing the order was

successfully placed.]

MOBILE CROSS BORDER PERSONAL PAYMENT (P2P) FLOW

[The following images on this and the next

two pages will display the cross border

personal payment flow on an AT&T

mobile smart phone.]

[This image is an example of the PayPal

Send Money screen. It says:]

Start sending money to anyone with an

email address or mobile number. You

can also send money by using Bump -

just shake your phone or select Bump

from the drop down menu.

[Image Of the screen where the user has selected a

recipient and the amount of money in British

Pounds (100 pounds).]

[Image of the Review screen where it shows the recipient,

the amount of money (100 pounds), and right below that

it displays that 100 pounds is equal to $205.39. Below this

is shown the payment details, displaying the amount of U.S.

dollars in this transaction and where the user is withdrawing

it from.]

[Image of the sending money screen, where it says:]

Sending money...

Please wait while we set up a secure

connection and complete the transaction.

[Image of the final screen, where it confirms the

money was sent.]