Earlier today I debunked fears about Paypal's new terms of service, and now I think we know why the rules will be changing this summer.
The uproar this morning concerned a clause in the new ToS which suggested that Paypal is going to start distributing digital files. While they haven't formally announced plans to do so, we do have hints that they're looking in this direction.
Cnet has published an interview where Tomer Barel, Paypal's chief risk officer, revealed that Paypal planned to extend its buyer protections and dispute resolution services to include more than just physical goods. Come 1 July, digital goods as well as payments to services such as Uber will also be covered.
"Trust...is one of Paypal's most important assets and it's an asset that we invest in," Barel said in an interview. "It's crucial for our success and it's one of those things that customers expect from us."
And not only is Paypal planning to guarantee digital content sales, they could also be planning to distribute the files themselves:
Additionally, with PayPal planning to expand into new areas of commerce amid its planned split with eBay later this year, offering services that keep customers coming back will be critical for PayPal to stay competitive against other payment services, such as Square, Google Wallet and Stripe.
Buyer protections for a digital goods are more complicated to do than similar services for a physical goods. For one thing, PayPal can't check with a shipper to see if an item wasn't delivered. Instead, the company needs to get proof from sellers from an email or access code.
Tell me, what is the best way for Paypal to guarantee that a digital file was delivered?
Why, that would be to deliver the file itself.
Obviously, Paypal is planning to start distributing the files as well as processing the payment. The hints dropped in the Cnet article suggest this, and Paypal's response to questions about the legalese confirm it. They'll be moving into direct competition with services like e-Junkie, Gumroad, and Steam.
While we don't have details on how Paypal's new service will work, I can add that Paypal already works with online retailers who sell digital content. Baen Books and O'Reilly Media, for example, sell ebooks on their websites.
Both publishers handle delivery and will likely continue to do so, but smaller retailers might see a benefit from using Paypal to both collect payment and deliver the files.
Today's news (er, speculation) comes at a time when Paypal is being spun off from its parent company, Ebay. The move was announced in September of last year, and is expected to be complete some time this summer - at which point Paypal will be the healthier of the two companies.