The Dark Truth About PayPal

PayPal is no ordinary company and this is no ordinary story on the one hand this is one of the most inspiring Tales you'll ever hear how a small group of people in their 20s with no real Finance experience went up against big Banking and revolutionized the way we send money but there's also a very dark story here how a company that promised so much has ended up ripping off its own users and being involved in countless scandals there are very few companies with as many horror stories and unhappy customers as PayPal this is also a

story about how PayPal faced frauders gave away free money near went bankrupt and on multiple occasions hatched a secret plot to overthrow their own CEO and yet despite all of this controvery surrounding the company hundreds of millions of people use PayPal every day to send money around the world and the team behind PayPal have come to be known as the PayPal Mafia a network of powerful billionaires who are behind so many other huge internet companies which means there's an extreme amount of power in the hands of a very small group so it's time we delve

into the truth welcome to the insane true story of PayPal Max Levin was only 10 years old when the Chernobyl nuclear power plant exploded he was in his house sleeping just 90 Mi away and as a Jewish Family living in Soviet Russia life was hard for the levans so when the Russian economy started to decline in the late ' 80s Max's family feared the worst and immigrated to the United States in 1991 in the early '90s Max became fascinated with a gift he received an early computer system Max taught himself how to write and develop

programs for it and throughout College Max explored ways to use the internet to improve his own life and the life of those around him together with some friends Max wrote and sold two separate computer programs and in 1998 using the money he made Max moved to Paulo Alto in California Max was hoping to build his own internet company and this was quickly becoming the hub for young tech-minded people wanting to capitalize on the dotom revolution but one day whilst trying to escape the intense California heat Max attended a lecture so he could have a in

the air conditioned lecture hall except instead of getting some sleep max was riveted by the lecturer a guy called Peter teal Peter was already moderately successful in several Fields he was a startup founder a hedge fund manager and now an investor in Tech startups so after the lecture Max cornered Peter and explained that he wanted to build a tech company Peter's eyes lit up the two of them arranged to meet for breakfast the very next day to discuss Max's ideas during the breakfast Max talked while Peter listened Polly but then Max started talking about writing

programs for the Palm Pilots which was the first popular handheld computer it seems very primitive now but at the time there was a lot of excitement around this little device that could store your contacts notes and calendar Max explained how creating new applications for Palm Pilots was an untapped market and that was exactly what Peter wanted to hear Peter believed in Max's technical skills and funded his first idea for $100,000 in 1998 using Peter's Money Max founded a company called field link which would offer security for these Palm Pilot devices Peter and Max both had

Big Dreams for this business however they soon realized that their idea was completely flawed the market for mobile security didn't exist yet there were simply not enough customers not just that but they soon realized Palm Pilot's parent company had already partnered with another business for their security needs field link had to change its business strategy immediately but Max and Peter were still both convinced that mobile computer devices like this were the future so they began to consider what else they could develop for the Palm Pilots they wondered what if you could use the Palm Pilot

to send them receive money and thus they decided to launch a mobile wallet for Palm Pilots that would allow users to send money to each other using the device's infrared ports infrared ports allowed Wireless transfer of data between two devices within a 10 m range and at a time where most people still relied on cash and checks the idea of beaming money to each other sounded impressive so now that they had this new idea field link changed its company name to confinity a mixture of confidence and infinity as for their money beaming program they came

up with a bunch of name ideas e- moneybeam zapo Momo casay but they eventually settled on PayPal which had a nice alliteration to it and could easily be used as a verb like saying just PayPal me so with the business idea and name both sorted out Peter and Max started recruiting although most of their hires were people they knew from college the average age of their employees was just 25 but this camaraderie would later prove crucial to PayPal's success Peter also knew that investment would be critical for a young startup like Infinity to sustain itself

in the initial years fortunately the dotom boom was at its peak and there was no shortage of cash in Silicon Valley with a better business plan Noy Adventures agreed to invest $4.5 million into their money beaming idea this investment allowed them to hire more people and set up a proper office but Peter also realized it was a great opportunity to generate media headlines so rather than Nokia just transferring their investment to kin's bank account they staged a publicity event where in front of the press Nokia would wirelessly beam the money onto Peter's Palm Pilot Not

only would this make a great news story it would show the world the potential of kin's idea the plan was good in theory but the reality was the technology was still unpredictable the infrared transmitter was notoriously buggy and unreliable so just days before the event Max and the team pulled all nighters to code and repair the two pm pilot that would be used during the announcement if this payment failed people would completely lose confidence in the concept before they'd even started but thankfully the money transfer worked and it seemed people loved the idea well except

for one man sitting in his office this man watched the news story about Palm Pilot money transfers and said that's a dumb idea they're doomed and that man was Elon Musk guys before we get to the next chapter I have some very exciting news for you for a while now I've been getting a lot of questions such as how are magnates media videos made how do you edit like this or hire an editor who edits like this how do you write the videos how has the channel grown so quickly how do you get huge sponsors

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I'll see you there it was 1999 and Elon Musk had just so his first internet company called zip 2 earning him a personal payout of around $22 million or just 27 years old but to Elon this just meant he now had more money to invest in a new business that was much more ambitious he wanted to overhaul the entire Financial system you see before starting his own business Elon had interned at a bank and had witnessed firsthand how little Banks seemed to be innovating Banks were tied up with expensive outdated systems that made transactions extremely

slow most people still relied on sending checks by mail which was extremely slow and inconvenient but Elon felt the internet was going to enable all of that to change and since the banks didn't seem to be doing it he'd do it himself Elon saw a future in which all of our financial needs were met by one single platform he wanted to build a company that would offer savings and checking accounts loans Insurance mortgages L of credit mutual funds and even stock trading all in one place and all connected to the internet and this Elon named

his new business x.com as he felt this Compass the idea of a digital super bank that would do everything Elon then invested the majority of his zip 2 money into this new company this was very uncommon in Silicon Valley where most entrepreneurs rely on investors but after being sidelined by investors in his previous business Elon was determined to keep full control this time around and putting his own money in also had a positive effect as it showed everyone just how much Elon believed in the idea but despite the hype and plans to change the world

x.com looked like it might be dead before it had even begun many believed integrating every Financial Service under one company would be a regulatory nightmare in fact it was actually illegal at the time there was the glass deagle act which banned the merging of retail Banking and Investment Banking however Elon believed he could ignore these restrictions and regulations for the time being he told his team we shouldn't be afraid to break a few eggs along the way Elon would end up firing most of the original Executives on the team who didn't think his vision was

possible Elon then hired Bill Harris as CEO as he'd been the former CEO of a successful Financial software company he also began expanding his software development team and soon enough the x.com product began to take shape X struck a deal with Barkley's bank that allowed its customers to invest in mutual funds another agreement with a Community Bank meant x.com could now issue checks and print its own debit cards and this meant if you had an X account with money in it you could withdraw cash at an ATM and thus the x.com website finally went live

on November 25th 1999 because of all the regulatory issues and red tape it it was nowhere near the all-in-one Financial Services Hub that Elon was envisioning but it was a start however in 1999 x.com was renting a small office suite at 394 University Avenue in Palo Alto overlooking a bakery and in a crazy coincidence confinity was occupying the adjoining office suite these two companies both looking to revolutionize online payments were literally neighbors employees from both companies saw each other all the time they often bumped into each other at the entrance to the building or in

the restrooms and parking lot and just like infiniti's PayPal app X was also planning on letting users instantly transfer money to other users although it's important to note this was just a tiny fraction of what Elon had planned for his company what's really interesting though is that at first these two companies didn't even think of each other as competitors confinity was developing their PayPal app for Palm Pilots an x.com was trying to become a digital super bank offering different Financial Services it seemed they were on very different paths and secretly both companies thought their neighbors

were on the completely wrong path Max and Peter were convinced elon's vision for X would face way too much regulation whilst Elon felt money beaming on Palm Pilots was a dumb idea so neither company could imagine that in just a few months they would be bitter Rivals trying to crush each other the new story about beaming money from one Palm Pilot to another was exciting but the publicity didn't get that many people actually using PayPal there were obvious flaws with the idea like what if you left your device at home and not just that the

majority of people didn't even have pal Pilots so in a late night brainstorm to try and solve these problems Max casually threw out an idea what if on the PayPal website you could also send money to someone's email address in his mind this was nothing more than a temporary solution until they found a better option certainly nobody thought this would be a core feature it was simply meant to be a safeguard for people who forgot their PM Pilots at home but then something interesting happened within a few weeks everyone was using the PayPal email feature

much more than their Palm Pilot system because anybody could sign up to send them receive money using just their email address no specific device was needed and that same year more Americans chose to send emails than actual letters and so it soon became clear that sending money via email rather than using pwn Pilots was actually way more useful and popular PayPal could ride the wave of people adopting email so what had intended to just be a backup plan was actually an instant hit with consumers PayPal began gaining thousands of users and this led the team

to realize they needed to focus purely on email payments not pal Pilots however in another crazy coincidence at almost the exact same time in the same building and facing the same problem of acquiring more users Elon Musk and x.com were coming to a very similar conclusion Elon Musk was not remotely excited by email payments he said it's trivial to do a money transfer especially moving numbers in a database it's super dumb my kid made one and he's 12 and yet Elon would tell people about all the other Financial Services x.com was working on but it

was always the simple email payment part that everyone seemed interested in which was the easiest part of what they did and so just like the PayPal team Elon had not set out to focus on email payments it was meant to just be a small side benefit but the market clearly preferred this to any of their other features and so x.com also began to focus more on sending and receiving payments via email and thus in late 1999 these two companies in neighboring offices each with a very different original business plan had accidentally stumbled into offering the

same service sending and receiving payments via email and this would begin a bloodthirsty battle that would change Banking and the the internet Forever both companies knew the online payments Market would only have one ultimate winner because they both understood one of silicon Valley's most prominent principles the network effect the more people in a network the more valuable that network is everyone wants to use the most popular Network as that's the one where you can connect with the most people so both companies were willing to throw money at customers in a race to build the largest

payment Network the battle was on and customer growth became the number one priority for both PayPal and x.com to get more customers both companies offered a version of the same incentive refer your friends and we'll literally give you free money PayPal offered $10 if you signed up and an extra $10 if someone you referred also signed up so X went one better offering $20 per new sign up plus $10 for the referral handing out free money like this was an interesting tactic to get customers or as Elon later said it was a race to see

who would run out of money last both company's Chief Financial officers were initially horrified by this plan surely it was a bad sign if they had to pay customers to sign up rather than customers paying them but of course paying people to join and then paying them for referring others was a very effective way to get a lot of users quickly because by rewarding both the person making the referral and the friend they were signing up it became a truly viral marketing campaign for both companies however although both companies saw an increase in users from

this they still both needed a clearer use case instead of people just using the service to get the free cash bonus and little did they know that their services had already become popular with an unexpected user base the auction website ebay.com by 2000 eBay was a billion dooll company with tens of millions of users and eBay's auction model allowed sellers to create listings of items that buyers could bid on but initially eBay didn't have a robust payment service built into its platform and so to complete transactions buyers and sellers often used cash money orders checks

and wire transfers so PayPal and xcom's email payment services were incredible for eBay users as it made it so much easier and faster to handle payments all eBay sellers had to do was create an account on either PayPal or x.com and mention in their auction listings that they take payments via these service and back then neither PayPal or X even charged any transaction fee in fact the opposite both companies paid new users for signing up and for referring others so eBay sellers realized if they referred buyers to PayPal or X they'd make even more money

on every item they sold it was win-win and so thousands of eBay users started using PayPal or x.com by late January 2000 papal had more than 100,000 users on its platform and x.com wasn't far behind this soon became 200 100,000 users and it was clear the Battleground had shifted to the eBay Marketplace once again neither company had planned that eBay users would be such a big part of their business and initially neither company had done any advertising to attract eBay customers eBay users had simply adopted PayPal and x.com themselves because it made sense but once

both PayPal and X realized this demand it allowed both companies to tap into an existing Network where there was a clear use case for their email payment services and thus both companies went all in on marketing to eBay users PayPal created tools and tutorials to help people offer PayPal on their auctions and days after PayPal started chasing eBay users X did the same thing whenever one of them tried to offer a new feature the other would always tried to quickly copy or improve upon it both trying to one up each other in the race to

become eBay's number one payment service the Rivalry began to intensify the PayPal team brought out a cake with the words dx.com written in frosting whilst Elon personally sent emails to his team about the need to kill PayPal both companies worked tirelessly during this period literally sleeping under their desks everyone was exhausted and being pushed to their limits but they were also excited to be building something they believed in however whilst it may seem that PayPal and x.com were on an incredible growth trajectory their balance sheets told a very unpleasant story because of the sign up

and referral bonuses along with the lack of any real Revenue model both companies were losing money at a rapid Pace the more users who joined the more money they lost for for example payal had to pay a 2% fee on every credit card transaction and was bleeding almost $100,000 every day to make matters worse PayPal had promised users its basic service would remain free forever because their plan was to make money from selling business accounts with extra features but that would be a long slow process to eventually recoup all the money they were spending to

get customers and PayPal was starting to worry they'd run out of cash before that happened and if PayPal backtracked and started charging users now they worried everyone would just use x.com instead meanwhile right next door x.com was facing the exact same issues elon's strategy was a little different he was happy to provide the email payment system at a loss indefinitely believing that customers would also use x.com other Financial Services like the checking accounts and brokerage where the fees were profitable but the reality was users just didn't seem that interested in these other features as they

could already get those from their traditional Banks which they trusted more so both companies continued to lose more and more money is they rised to get more eBay users for their unprofitable email payment services PayPal had a small lead in terms of users but Peter and Max were extremely nervous they could see x.com catching up to PayPal and knew that X had more funding to ensure PayPal didn't go bankrupt they needed to do something drastic to survive and thus one day Peter teal walked to the office next door to have a secret meeting with Elon

Musk Elon was confident that x.com would emerge victorious in this battle he had more money than PayPal and could raise more if needed so in his mind there was no way x.com would end up on the losing side but Bill Harris who was x.com CEO didn't share elon's optimism he thought both companies were spiraling towards Mutual destruction in Bill's View the online payment Market was only big enough for one player and so he felt the two companies would be much better off by merging together and thus a meeting was arranged with the two most influential

people from both companies Max Levin and Peter teal from the confinity team who were building PayPal and Elon Musk and Bill Harris from x.com despite being Fierce Rivals everyone could see the logic of having one dominant payment company instead of two competing companies however it's fair to say Elon was not particularly on board with the idea of a merger he believed the x. would crush PayPal eventually and that merging wasn't necessary but Bill persuaded Elon to at least explore the idea the mood in the meeting was tense and it soon got worse elon's first offer

was that X should acquire PayPal and that the PayPal team would receive just 8% of the combined value of the companies this extremely low ball offer shocked Peter and Max who left the meeting almost immediately it seem like the deal was a lost cause and so the PayPal team pushed harder than ever to gain more users which of course sent them closer and closer to bankruptcy but as PayPal's users grew the acquisition offers from x.com kept increasing after some further negotiations Elon eventually agreed to come down to a 55 to 45 split which PayPal felt

was much fairer in fact they were literally ready to agree to the merger and then the big egos on both sides of the deal almost killed it Elon made a comment to Max about how he was getting a steel implying their deal was much better for PayPal Max was Furious by this and left Max then argued that the only way this merger could work is if they became genuine Partners which meant an even 50/50 split instead Elon was ready to back out of the deal completely because of this and continue their brutal fight but then

ex's CEO Bill Harris dropped a bombshell he told Elon that if x didn't merge with PayPal he'd resign Bill believed it was unclear which side would win and it' take a huge amount of time and resources to figure it out so merging the two companies was the only thing that made sense and thus bill was given Elon an ultimatum but given x.com was right in the middle of a funding round having their CEO leave right now would look disastrous for the company so feeling like he had no choice Elon agreed to the 50/50 terms and

in February 2000 the two companies officially merged together the company kept the name x.com which Elon loved but it kept kin's PayPal name for the email payment system as users had become attached to that Elon the largest shareholder took the role of chairman whil Bill retained his position as CEO pet AEL was made Senior Vice President of Finance and was responsible for finding investors and Max continued his role as CTO the battle for the eBay Marketplace seemed like it was finally over thanks to the merger they could make a powerful pitch to investors one United

payment company that no longer had any major competition by combining their user bases they could go on to dominate the entire online payments Market because instead of competing with each other for customers they could now focus on other serious issues like generating revenue and reducing operating costs and so at first it seemed everything had worked out perfectly PayPal continued to attract 12,000 new users per day and Peter even secured a record $100 million in funding just in time before the dotcom Bubble Burst and many other internet companies went bankrupt with a 100 million in the

bank and a growing customer base of 1 million PayPal users by the end of March 2000 it seemed like the company's future looked very bright however the actual reality was very different under the surface several even bigger problems were bubbling up firstly actually merging their systems together was not going to be straightforward x.com and confinity had entirely different user bases and websites whilst X had been built on Microsoft Windows and confinity PayPal was built on Linux not just that but internally at the company the merger meant the business now had duplicates in some roles like

both X and confinity had someone who oversaw Finance but now that they' merged two people were effectively doing the same job PayPal was also re receiving thousands of customer service calls a day which it simply couldn't handle at one point they literally just unhooked the phone lines although this resulted in someone thinking PayPal was keeping their money hostage so he showed up at the PayPal office with a gun to demand his money after the merger the company also became much slower and less efficient with decisions taking way longer and many employees being unsure who they

were even meant to report to it didn't help that the two companies had been such Fier Rivals and now everyone was supposed to get along as one Happy Family the reality was the PayPal side and the . side still felt separated even though they were officially on the same team now and it wasn't long before cracks began to appear in the relationship between x.com Executives for example Peter wasn't impressed with some of Bill's decisions as CEO bill was Keen to end the referral bonus and start charging customers for using PayPal even though they'd always promised

to be a free service but Peter disagreed and also disliked that bill seemed to be introducing more meetings and formality within the company eventually Peter teal resigned Peter's res ation sent a shock wave through the organization and it was soon clear that Peter wasn't the only one who had issues with Bill's leadership both Elon and Max had a lot of concerns about how slowly new features were being rolled out after the merger Elon in particular felt bill was focusing too much on PayPal and not on his bigger x.com Vision he also felt bill was hiring

too many Executives from traditional Finance the same kind of people who worked at the banks Elon wanted to disrupt but perhaps most importantly Elon had never forgiven bill for the ultimate atum that had forced this merger in the first place all of this along with Peter's departure meant that Elon Musk Max Levin and a couple of other high-ranking Executives had all come to the same conclusion they needed to overthrow bill as CEO behind Bill's back the rebel secretly conspired to go to the board with an ultimatum either remove bill as CEO or we're all resigning

since Elon and Max both had board seats of their own they only had a few other board members to convince and so before bill could do anything anything about it he was forced to step down as leader in May 2000 after a successful coup Peter teal returned as chairman and Elon Musk ret took the title of CEO but before we get to the next chapter it's time to answer a question I get a lot how can you make your own YouTube videos if you don't have time to edit them or hire any help well you're

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Elon calling the shots it finally seemed like the internal battles had been settled and PayPal could continue expanding however keeping PayPal free forever wasn't going to work as it cost PayPal millions in credit card transaction fees to process payments and so in the summer of 2000 they introduced paid business and Premier accounts which offered more features than the standard free accounts in exchange for a 1.9% transaction fee you could get benefits like a dedicated 24-hour customer service hotline and automatic balance withdrawals to your bank account a week after the launch of their premium Services PayPal

had more than 9,000 premium customers for the first time in PayPal's history they were generating a small amount of Revenue but then suddenly a new enemy appeared that threatened PayPal's entire existence eBay you see at first eBay had been fine with PayPal since they were making payments easier which meant more people were using eBay but by the end of 2000 half of all eBay listings had PayPal as their preferred payment option and eBay had realized they were missing out on a lot lot of money by not handling all those payments themselves directly PayPal was essentially

running the cash register on eBay's store eBay had already bought their own payment system called billp points and even though payments wasn't eBay's main business they felt like every sale that went through PayPal stole a little bit of income from them so throughout the year eBay began trying everything they could to get its users to switch to Billo instead of PayPal firstly eBay restricted logo sizes on listings making the PayPal logo hard to find in a user's description but PayPal responded by designing tools to help its users resize their logos and stay within the guidelines

next eBay automatically enrolled new auctions into the billp point system meaning that unless you found the Obscure opt out button you had to use Billo as a payment option for your auction in response PayPal publicly posted eBay's customer service number encouraging users to phone eBay directly to complain and sure enough after getting flooded with calls eBay removed the feature but the battle between eBay's billp point and PayPal only intensified further one major threat to PayPal was when eBay introduced the Buy It Now feature that allowed a user to skip the auction process and buy the

item at a fixed price immediately in reality this was app ployed to funnel customers to Billo which was the default payment service when a user press Buy It Now cutting out the part where you would normally agree a payment method with the seller this tactic succeeded and billp points users quickly Grew From 10% to 20% but PayPal had victories elsewhere they built more tools designed for eBay users like a feature that autocom completed that the eBay payment page with PayPal selected as the payment option PayPal also started offering 1.5% cash back to sellers using debit

cards if they made PayPal the only payment service on their auctions of course this just ramped up tensions further eBay then responded by directly emailing their users to explain the ways billp point was better than PayPal including how bpoint was officially owned and endorsed by eBay they also partnered with visa and said there'd be no fees on Visa transactions done through bpoint and they even renamed bpoint to eBay payments to make it sound more official but despite all the tactics eBay tried it was still no match for PayPal's free service which people had come to

love PayPal was still the most preferred payment service on eBay by far and PayPal had now gone International and allowed users from around the world to open accounts and so as the year 2000 ended PayPal had processed $1 billion in transactions in total since its Inception their Q4 report showed 7.4 million in Revenue a big increase from the previous quarter of just 1 million in Revenue having said that PayPal was still nowhere near being actually profitable plus PayPal was still fearful that in theory eBay could completely ban PayPal from its site which would essentially kill

PayPal's entire business so in order to try and become less reliant on eBay they introduced PayPal shops an online directory where sellers could post their websites free of charge for buyers to see encouraging users to do business outside eBay payal also introduced buttons anyone could easily add to their own personal website to accept payments but this just made eBay even more Angry as PayPal was giving people a way to sell their items online that cut eBay out completely PayPal increased attentions further when their team invaded an eBay event and distributed thousands of PayPal t-shirts to

attendees by June 2001 70% of all eBay sellers were using PayPal while only 25% were using eBay's own payment service eBay had to accept they just couldn't innovate as quickly because ultimately payments was only a small part of eBay's business whereas it was PayPal's entire Focus not just that but eBay took a more traditional approach to its payment system like requiring a more in-depth verification process unlike PayPal who were handing out accounts and cash to literally anyone this would soon cause huge problems but in the short term it meant PayPal had less friction and was

easier to use and built up a bigger Network faster and thus PayPal ultimately beat eBay when it came to payments and as the CEO Elon Musk must have been thinking that after winning this battle finally things would be a little steadier for the company Maybe maybe he could now start expanding x.com more with the other Financial Services like he'd always wanted but little did he know within PayPal Whispers were going on behind the scenes and very soon he'd be kicked out of the company entirely part of the reason PayPal had grown so much faster than

any competitors was was that it had offered such generous welcome bonuses and made it extremely easy to join and use its services but PayPal did not have proper verification and screening processes in place and it soon became clear that this had created an insane amount of Fraud and scams one PayPal employee admitted we would be issuing lines of credit to people that either weren't real people or had stolen someone else's identity there were people joining with names like Mickey Mouse and somehow managing to get access to lines of credit and make payments plus every single

user got sent a checkbook and debit card despite the fact many of them weren't real people fraudsters had also written code that could open large amounts of new accounts in bulk so they could claim the welcome and referral bonuses over and over again not just that but PayPal was being used by shell companies and people with stolen credit cards many believed PayPal made it easier for criminals to funnel money around the world giving it a bad reputation in the media scammers would even use PayPal to accept payments and then simply cash the money out before

sending the buyer anything and thus PayPal was losing a staggering amount of money in fraud and fees which meant Elon Musk and Max Levin were arguing more and more often Max was worried that the amount of fraud could destroy PayPal but Elon seemed more preoccupied with his original vision for an all-in-one Financial platform in fact Elon decided to create a newer version of PayPal called PayPal 2.0 that would offer all kinds of financial services in the future just like he originally wanted for x.com he ordered his engineering team to stop adding new features and updates

to the original PayPal website and start building PayPal 2.0 many employees at the company were not happy with this Sudden Change while Peter and Max wanted to focus on PayPal as their main service Elon still wanted to create a digital super Bank the tension was made worse by a crucial software disagreement Elon wanted to use Microsoft which x.com site had been built on whereas Max wanted Linux which PayPal was currently built on Elon reportedly suggested they should decide this huge decision over an arm wrestling contest the truth was there were Pro and cons for both

options and the company was divided But ultimately Elon got his way the engineers spent months rewriting the code to work for Windows which many thought was a waste of time where they could have instead been working on new features and improvements and thus PayPal 2.0 caused a rift in the company and hurt morale meanwhile costs were spiraling and the business still didn't have a clear plan to profitability however perhaps elon's most controversial decision the one that completely soured his relationship with Peter and Max was to kill the PayPal brand Elon wanted PayPal to be renamed

X PayPal because he believed PayPal was just one of many Services Under x.com and shouldn't be the company's main focus he even ordered that all references to PayPal be removed from the website and that typing in paypal.com would instead redirect users to x.com likewise instead of wearing PayPal merch around the office Elon handed out XRS t-shirts mugs and frisbees but a lot of the team believed that their customers preferred the PayPal name to anything X related some outright refused to update the website saying they'd rather be fired first than kill off their brand Peter and

Max also opposed this decision openly they argued that PayPal had created brand loyalty and these changes would risk losing their customers Hard One Trust however Elon had already made up his mind Max Lin Peter teal Reed Hoffman and several other influential team members all reached the same conclusion Elon Musk needed to be fired as CEO thus for the second time a group of EX netives within the company conspired to overthrow their own CEO however unlike when Bill Harris was kicked out a CEO by a group of employees revolting it wouldn't be quite as easy to

get rid of Elon he was the original founder of x.com and still the largest shareholder so the rebels met secretly to devise a plan they agreed they would go to the board together and threaten that unless Elon was immediately removed they would all resign and they knew the perfect time to do this as Elon had planned a vacation to go away with his wife Justine on their honeymoon in September 2000 that way Elon wouldn't be able to fight back or try to persuade the board members that he should stay and sure enough as soon as

Elon got on his flight and became unreachable the rebels used that moment to confront the board they drafted a vote of no confidence document to present and got signatures from many other PayPal employees who also agreed they'd resign if Elon wasn't removed his leader since the board hadn't even been told about some of the big changes Elon was making that helped convince the board to fire Elon of course when Elon landed and eventually heard about the Mutiny he hurried back from his trip immediately but it was too late the board had already made up their

mind and just like at his first company ZIP too Elon was sidelined again from a company he' built with his Blood Sweat and Tears Elon was shocked and heartbroken by the Betrayal he'd invested almost all of his own money into x.com and been working crazy hours but it was no use Elon said this whole thing is making me so sad that words fail me I have given every last ounce of effort almost all of my cash from zip 2 and put my marriage on the rocks and yet I Stand Accused of bad Deeds to which

I have not even been given an opportunity to respond 2 Days Later Elon was fired from the company and Peter teal became the new CEO Peter immediately reversed elon's controversial decisions the PayPal 2.0 project was scrapped the PayPal brand was restored and xcom's allinone financial services idea was put on hold indefinitely but with Elon kied out the company was now more fractured than ever on the one hand some of the team agreed that Elon had failed to deal with problems like the high fraud rates and lack of profitability he was also blamed for the divided

team the 2.0 project the naming issues and for focusing too much on his bigger Vision at the expense of PayPal's current growth however many others felt it was completely unfair he'd been removed especially in such a controversial way there's no doubt Elon had the biggest and most ambitious vision for the company out of anyone and some felt if he'd had more time he could have pulled it off so it was like the company had just been through a Civil War and the office mood was tense over the next few months PayPal's users grew faster and

faster by July PayPal was processing almost $5 million daily and whil fraud had been costing the company Millions Max took it as his personal mission to tackle the issue for example one of PayPal's problems was that bot accounts were being used to wire money around the world at the time there wasn't a universal way to check if it was an actual human opening a new account so max created a system where the signup page presented the user with a picture it was a series of letters and numbers with black lines across the image to the

human eye it was easy to see the characters but back then computers couldn't figure it out so they wouldn't be able to set up new accounts the idea became the first popular capture system online and it soon spread around the internet but Max's greatest adversary was an anonymous hacker who called himself igore igore opened up countless fake accounts and every time Max shut down an igore account new ones popped up in their place igore even wrote to Max taunting him saying he'd never be shut down however the more time Max spent finding and closing Igor's

accounts the easier it was for him to spot criminal activity Max realized that most PayPal clients use their accounts in predictable ways if an account sent money too frequently or in unusually large amounts it stood out from the normal pattern so Max wrote programs that flagged and froze suspicious accounts using hundreds of variables its algorithms got better and better at identifying subtle patterns to detect fraud and ultimately PayPal's running with fraudsters gave it a competitive Advantage as they work to create complex fraud Fighting Tools essentially becoming one of the first big data security companies this

pushed many fraudsters to attack PayPal's competitors instead the only problem was that while it solved a lot of fraud innocent users also sometimes had their money Frozen by Max's program but we'll get to that for now PayPal still had an even bigger problem to think about actually becoming a profitable business they'd so far been relying on investor money but that wasn't sustainable forever up until this point PayPal had a premium model you could use it completely for free with no transaction fees and just voluntarily upgrade and start paying transaction fees if you wanted some extra

features but eventually PayPal realized this wasn't going to be enough and decided they were going to force users to upgrade and start paying transaction fees this meant completely backtracking on the promise they'd repeated over and over that PayPal would always be completely free some employees internally referred to the forced upgrade as the fu a recognition that this was the most controversial move papal had made ands surprisingly users were Furious by the Broken promise one user wrote they got us hooked and then started charging to think I helped promote you build you up and then you

do this to us you should be ashamed the problem for users was that people had wiped out all their competition by initially not having fees so now even if users were unhappy they didn't really have any alternatives they had to stick with whatever PayPal was charging them if they wanted to keep sending and receiving online payments it's a classic business trick offer something amazing to get market share initially but then as soon as you have a near Monopoly you can start doing whatever you want PayPal had lured people in with a great deal but changed

their policy once customers had no real alternative for email payments of course PayPal is not a charity and so it had to find some way to become profitable but the fact they blatantly broken a promise was a warning sign of the much shadier things PayPal would soon be doing to its customers by the end of 2001 PayPal was generating a staggering $13.7 million in revenue and had more than 12 million users on its platform with 20,000 new users signing up every day after going through so many ups and downs over the years PayPal was finally

profitable and they now wanted to take the company public on the stock market this was the exit that everyone had been working so hard to achieve and on paper it seemed like the right move PayPal had survived the potentially disastrous merger with x.com it had millions of users it had won the eBay battles it had cracked down on fraud and PayPal was finally profitable but despite all this the road to IPO was riddled with difficulties during the leadup to the IPO several companies filed lawsuits claiming that PayPal violated patents the timing was designed to disrupt

the IPO and get a quick settlement but PayPal diligently fought each one then just one day before it went public the Attorney General of Louisiana claimed PayPal didn't have proper State banking rights to make payments and it would block PayPal within the state meanwhile the Securities and Exchange Commission accused PayPal of violating the quiet period before IPO because of all this newspapers began running negative news stories about PayPal it also didn't help that PayPal was the first company to announced an IPO after 9/11 and many also felt the effects of the dotom bubble were still

lingering of course if investors were worried about the bad press the lawsuits the state blocks plus the general nervousness about investing in Internet businesses this could completely ruin PayPal's IPO plans but on February 15th 2002 PayPal completed its IPO and was listed on the stock exchange at $13 a share by the end of the day paper closed at over $20 a share making it officially a billion doll company all the hard work of Peter and his team over the years had finally paid off from a failing startup with six employees payal had turned into a

fully-fledged business with over 750 full-time employees everyone celebrated champagne flowed music played and people danced on their desks within the Poo Alto offices it felt like PayPal had conquered the world but nobody in the office knew that just 2 months later their world would be turned upside down so far in this video we've talked a lot about money but before we get to the next chapter let's talk about how you can make some money with today's video sponsor Mumu Mumu is a stock trading platform with zero commission fees on stocks ETFs and options but remember

how PayPal had a welcome bonus for new users back in the day well I think Mumu has an even better deal for new users if you just deposit $100 you get five random stocks completely for free and these can be worth anywhere from $2 to $22,000 each and that's just for making a deposit you also get up to 8.1% interest on uninvested cash so this really is an amazing deal for new users plus Mumu is an award-winning stock trading platform with free financial analysis tools that can help you with your Investments and they support pre-market

and postmarket trading as well there's also no subscription fees and no account management fees so if you want to get started right now and unlock those free stocks just click the link in the [Music] description by mid April word was spreading around the office that Peter had been secretly meeting with the top Executives at eBay and then the rumor started eBay had agreed to buy PayPal you see eBay had tried to beat beat PayPal for a while but 75% of eBay auctions accepted PayPal versus only 27% for eBay's own payment service So eventually eBay had

decided it was easier to just buy PayPal than continue to fight them and even though PayPal weren't hugely enthusiastic about the idea it was better than the constant risk of eBay just Banning them completely from their platform so on July 8th 2002 eBay announced that it acquired PayPal for $1.5 billion in eBay stock there was a sense of both relief and shock in the PayPal offices PayPal would now become the official payment system of all eBay auctions this meant Millions more users and no more battles however while the news seemed good to many at PayPal

it marked a significant Moment In Time joining eBay meant joining an established company with rules and guidelines and strict protocols it meant the death of the vibrant exciting thrilling world of a startup and thus soon after the announcement Peter teal announced his resignation as the CEO of PayPal several other top Executives followed including Max Levin the other co-founder of PayPal in just four years PayPal had survived the Doom Bubble Burst had two leadership coups outsmarted an e-commerce giant crawled its way to profitability had a successful IPO and now negotiated a sale to eBay for 1.5

billion but now the original Duo who started it all were gone in fact following eBay's acquisition almost all of the original PayPal team members left one by one going on to start other companies rather than being a part of eBay and its more traditional corporate culture the entrepreneurial Spirit of the company seemed to have been replaced by a stricter hierarchical culture where people felt like just another Cog in the eBay wheel nevertheless as an eBay subsidiary PayPal continued to reach New Heights by 2011 it had reached 100 million users and was processing $315 million in

payments per day in fact PayPal became much bigger than eBay itself and grew far beyond its parent company and so in 2015 eBay decided to split PayPal into a separate entity once again so each company could have a sharper Focus as of 2024 PayPal is valued at over $70 billion around triple the value of eBay not bad for a startup that started with Peter Teal's $100,000 Bridge Loan however despite PayPal's success Elon Musk feels it massively underachieved what it could have and still maintains his original x.com Vision could have been a trillion dollar company and

whilst there's no doubt PayPal has been successful this is the point we must ackn know that its success may be coming to an end you see in more recent years payal has become one of the most hated and Shady companies and it's time we look at the dark truth about what PayPal has become on trust pilot PayPal has a shocking 1.3 average rating from around 30,000 reviews in fact if you look up Paypal reviews anywhere from Reddit to YouTube you'll find an endless amount of people who have been screwed over by PayPal just search PayPal

horror stories and you'll realize how big of a problem there is with PayPal like users talking about how PayPal stole their money froze their accounts for no reason lied to them gave them terrible support or were just dishonest and rude one of the biggest issues with PayPal is that it's surprisingly common for someone to have their account shut down for no reason PayPal then often hold all of their money for up to 180 days with no explanation given and if you try to contact their support you'll often be met with awful and unhelpful customer service

people repeatedly talk about how PayPal treat them like criminals when they've done nothing wrong in fact I've seen people who used PayPal for their small business but then without any warning PayPal just blocked them and seized all their money for 6 months with no reason provided this is caused people's entire businesses to go under as they can no longer pay their suppliers or staff a second big issue is how PayPal's fees have just gotten higher and higher for a company that gained market share by repeatedly promising to always offer no transaction fees it's quite amazing

how high the fees have now gotten especially when dealing with payments and other currencies PayPal was meant to be better than traditional Banks but now it's often not for example in the US zel has no fees for instant payment transfers and in many countries now the the banks themselves offer instant fee-free money transfers so it's perhaps not surprising that PayPal stock price has fallen dramatically now PayPal may try to claim that their service offers more payment protection but that doesn't really seem true either anymore you will find hundreds of thousands of people talking about getting

scammed while using PayPal and how PayPal regularly side with the scammers I saw countless stories where a buyer or seller had provided Clear Proof they were in the right but people made no effort to actually figure out the truth it's like they just couldn't be bothered to waste resources on it as long as PayPal got their fee they didn't seem to care as well as this the Consumer Financial Protection Bureau has accused PayPal of all kinds of unethical and illegal practices to rip off customers this includes signing people up for credit accounts without asking permission

so they got hit with late fees and interest outright lying about promotions and never fulfilling them and even just ignoring customer disputes but just when it seemed like PayPal couldn't get much worse with all the fees scams and terrible customer service it did get worse in fact it got pretty dystopian PayPal updated their policy to say anyone posting misinformation can be F $2,500 it's a pretty crazy thing to sneak into your policy that a financial company should even have any involvement in what you say and then be able to ban you from receiving payments and

take your hard-earned money if you say something they don't like or agree with even a former PayPal president agreed he said said PayPal's new policy 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 Elon Musk agreed as well but of course by continuing to use PayPal you were agreeing to this policy and risked being banned and find of course once all the backlash started PayPal backtracked and said this policy was just a mistake however once the outrage died down some

people pointed out that the penalty for certain violations still seemed to be there and given PayPal's track record of broken promises it's definitely hard to fully trust them personally I would not recommend keeping large amounts of money in your PayPal accounts I've just heard of so many people who have issues with PayPal and most of the horror stories I read were people who'd been a customer for years which is why they were so shocked when people suddenly froze their account and refused to help them so it's definitely worth considering alternative Payment Solutions like many businesses

now use stripe or Square and personally I really like wise.com which has lower fees than PayPal they also have a two-sided referral bonus like PayPal used to so I'll link to them in the description if you want to check them out but of course there's many other options too because thankfully PayPal's tight grip on the world of online payments is coming to an end and the less of a strangle hold on online payments PayPal has the more it might force them to care more about its users again and return to being the Innovative company it

once was now given what people has become it's not surprising that the original team who started building x.com and PayPal all left the company but what is surprising is what they did next for many of its earliest employees PayPal became a crash course in how to build a startup and thanks to the lessons they learned PayPal employees went on to be involved in some of the world's biggest tech companies Engineers Steve Chen Jared carim and Chad Hurley left PayPal to co-found YouTube Reed Hoffman Executive Vice President of PayPal founded LinkedIn Peter teal became Facebook's first

outside investor Russell Simmons and Jerry stoppelman co-founded Yelp Elon Musk went on to build SpaceX and Tesla fund open Ai and bought Twitter which finally gave him a reason to reuse the x.com domain name he bought and many more of PayPal's team became investors in prominent startups or became high level Executives at major companies either in public or behind the scenes PayPal's alumni have been involved in almost all major Silicon Valley companies as a result Fortune released an article in 2007 that nicknamed the group The PayPal Mafia a reference to how much influence this small

group of former papal employees has meanwhile for Elon after he was kicked out of x.com a couple of years later he started SpaceX and said his new goal was to colonize Mars but in an interesting turn of events when SpaceX was on the brink of bankruptcy it was Peter Teal's investment company that helped save the business showing that even after everything the PayPal Mafia stick together and help each other out this so-called PayPal Mafia has changed how we shop how we connect how we learn and how we live however if you want to know the

story about the most interesting Tech entrepreneur you're going to want to go watch this video about John McAfee just trust me on this one you've never heard a story quite like this just click the thumbnail on screen to go watch that video now I hope you enjoyed the story of PayPal and I'll see you over in the next video in just a second cheers