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e-gold and eBay

It would appear that I spoke too soon when I said that eBay "made e-gold practical and desirable." eBay has a new "safe payments policy" that they announced sometime late last year (October, I think) and goes into effect approximately as I'm writing this post.

eBay has decided to specifically prohibit e-gold, along with several other payment methods including Western Union.

I sent them the following e-mail on Friday, referring to their new policy, and I'll post the response when they write me back:

Under "Some Examples" you state that e-gold will not be allowed. Is this a complete and total prohibition, or are there circumstances where it will be allowed? (Such as, as one payment option among several?)

It has strong advantages for sellers: finality of payment, and extremely low fees. (Much lower than PayPal, for example.) It's particularly well-suited for international payments, which are ordinarily riskier than domestic payments.

Could you explain specifically why eBay wants to discourage payments through e-gold?

Please also explain specifically why eBay wants to discourage payments through Western Union. They've been in business for over 150 years; their legitimacy is beyond any doubt.

Finally, isn't PayPal a "non-bank" "instant cash transfer service"? By what reasoning is PayPal acceptable but e-gold and Western Union are unacceptable? What principle distinguishes these?

I'm sure that when (if?) they reply, they will cite user complaints about being defrauded through the various prohibited payment methods. But this is irrelevant, because no payment method is immune to fraud. If someone auctions an expensive computer they don't have and can't deliver, it doesn't matter what payment method you use — you're not going to get the goods!

The real reason they're prohibiting e-gold and other competitors to PayPal is because … they're competitors to PayPal. When eBay bought PayPal, it ceased being merely an auction venue with no interest in what payment methods were used by auction participants. With the purchase of PayPal, they acquired a vested interest in PayPal's revenue stream. Competing payment systems with higher fees than PayPal aren't much of a threat, but those that are less expense than PayPal threaten to take business and revenue away from PayPal.

And e-gold is significantly less expensive than PayPal. I made some charts comparing their fees (e-gold fees, PayPal fees):

First is the e-gold fee schedule. Depending on how much e-gold is being spent, one of five different formulas apply. The maximum fee is 0.05g, which you'll pay whenever you send 5g or more. Yes, the fee to send 10g is the same as the fee for sending 10kg.

This is plotted with logarithmic scales to illustrate both very small and very large payments.

e-gold Fee Schedule

All the rest of the charts will be in dollar terms, assuming a gold price of $500/toz. (It's about $550 as I write this, but it's been above $500 for less than two months.)

Next let's compare the PayPal and e-gold fee schedule. As you can easily see, e-gold is always less expensive than PayPal.

Fee Comparison between e-gold and PayPal

Most people won't make enormous transactions, so let's focus on a "typical" payment size of $100 or less. Also, I'm switching to linear scales so the chart is easier to read.

Fee Comparison between e-gold and PayPal, small transactions

As you can see, the maximum e-gold fee — less than a dollar — is reached for a transfer of approximately $80. PayPal's fees keep growing along with the transfer size.

Here are charts expressing the fee as a percentage of the amount transferred. The first uses log scales and covers all transfers up to $1 million. The second uses linear scales and ends at $100.

Fee Comparison between e-gold and PayPal

Fee Comparison between e-gold and PayPal, small transactions

Notice that over almost the entire range of "typical" transactions, the e-gold transfer fee is 1%, while PayPal's is over 3%. Most auction transactions will be within this range. This is e-gold's advantage over PayPal. This is what eBay is afraid of. And that's why they've moved to prohibit e-gold.

UPDATE 2006-01-15 06:36:28 UTC: I received the following response from eBay. It restates the policy but doesn't answer any of my "why" questions that were seeking a justification for the policy. In that respect my prediction was wrong — I thought they would try to justify the policy but by using irrelevant reasons. No, they didn't even try:

Please note that our Safe Payments Policy states that sellers may not request payment through online payment methods not specifically permitted in this policy. Safety and convenience are at the core of eBay's policies toward payments. As noted in the 'Some Examples' section, e-gold payments would not be permitted under this policy.

Please understand that this policy is designed to promote safe online shopping, and to encourage online payment methods that are safe, easy to use, reliable, and offer high levels of protection for users.

I realize that you feel e-gold payments and Western Union are payment methods in which you believe offer safe payment, however, under our policy, you would not be permitted to use these payment types.

For more information on our Safe Payments Policy, you may wish to visit the following URL:

I can understand that this situation has been frustrating from your perspective and that you do not fully agree with our stance on this policy. As eBay is essentially a community, we do look to the members of said community to provide feedback as to how we can evolve our services and procedures to better facilitate a safe and secure trading environment. That said, if you would like to see a change that you feel will better our site, please submit your feelings at the following URL:

We value your membership in our community and your feedback is important. Although you may not see an immediate change as a result of your email, the appropriate personnel will be made aware of your position on this issue.

I'd like to thank you for consulting with us about our policies. We understand there are a lot of policies members may simply be unaware of, and we encourage members to contact us seeking clarification if they have any questions at all.

Thank you for being part of the eBay community.

I followed the second link and sent the following note in as a suggestion (not as a question):

I recently submitted a question to your customer support about a new policy. (There were some identifying codes in my message; it's not clear which you might need: <redacted>)

The response I got basically restated the policy. That't not what I was hoping for. I wanted to understand the reason for adopting that policy. I understand the policy! What I don't understand is *why* it's your policy. I think my original message was clear about this.

My suggestion is to please do a better job of answering questions.

I also submitted this question for eBay's next Town Hall (1/26):

Why is eBay prohibiting many PayPal competitors through its new "safe payments policy"? PayPal is very expensive and you're prohibiting cheaper alternatives. It looks like you're playing favorites, and as a venue you shouldn't be doing that.

Do any of my readers work for eBay? Could you e-mail me and tell me if I'm correct about the motivation for the policy? I'll keep it sub rosa.

Tiny Island