In a recent issue, Izzy Goodman wrote about PayPal http://www.auctionbytes.com/Email_Newsletter/53/53.html#paypal. A reader followed up with a question, which I've included below, followed by Izzy's response.

Hi, I loved the PayPal article and read it carefully. I've never had a chargeback, but don't want one! Never had a stolen card either. From what I understand about how PayPal deals with international customers, it is a little different than we who are in the US and I don't understand why PayPal doesn't do this same thing with us.

A customer (from London) signed up to use PayPal to pay me via his credit card. He informed me that Paypal puts two small charges on his card and he has to get or access his credit card bill to get those charge amounts, then enter that in before he will be able to use the card through PayPal. Seems to me this is the way it should be with all people who try to use a card through PayPal. If the card is stolen, the person who has the card will not have the bill, and probably will not have access to account records (either by phone or internet) to verify what those small charges are and input them into PayPal's system. I know it takes a little longer to first get a card verified in that manner, but it seems to me it would be better protection for us all.
-Michele

Dear Michele, Putting a credit on a credit card (even one for two cents) costs the merchant about $1. So it costs PayPal over $1 to verify the London credit card. They do not want to spend this kind of money for every one of their ten million users. (PayPal charges $1 to the foreign accounts for the verification. U.S. customers don't like being charged for anything.)

In the U.S., address verification is available. It is part of the charging process. So when PayPal sends the seller the info about the payment, they send along the cardholder's address and tell the seller to ship there only. If the seller ships somewhere else, it is the seller's problem if the card turns out to be fraudulent. Fraudulent U.S. credit cards are not really a big problem on PayPal. Out of the U.S., address verification is not available, so PayPal has to do the two-deposit verification method. Fraudulent credit card use outside of the U.S. (or folks who charge something with PayPal and later claim they didn't do the charge) is a big problem.

Another possible reason is that Paypal promotes itself as a fast way to pay. Right now if you use a U.S. credit card, you have immediate access to $250 on your credit card. If buyers had to wait until Paypal verified their cards, it would hold up the deal for a week or two. I don't think too many sellers would be pushing it then. In any case, U.S. credit cards don't really need that much verifying. If sellers shipped to the cardholder's address only, it would cut out most of the fraud.

Izzy