eBay 2002 Annual Report Download - page 58

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the ability to dispute and reverse merchant charges, because of frequent Öier miles or other incentives
oÅered by credit cards or because of generalized fears regarding privacy or loss of control in surrendering
bank account information to a third party.
Increases in credit card processing fees could increase PayPal's costs, aÅect its proÑtability, or otherwise
limit its operations.
From time to time, Visa, MasterCard, American Express and Discover increase the interchange fees
that they charge for each transaction using their cards. MasterCard is implementing an increase to its
interchange fees eÅective April 2003. PayPal's credit card processors have the right to pass any increases
in interchange fees on to PayPal. Any such increased fees could increase PayPal's operating costs and
reduce its proÑt margins. Furthermore, PayPal's credit card processors require it to pledge cash as
collateral with respect to PayPal's acceptance of Visa, MasterCard, American Express and Discover and
the amount of cash that PayPal is required to pledge could be increased at any time.
PayPal has limited experience in managing and accounting accurately for large amounts of customer
funds. PayPal's failure to manage these funds properly would harm its business.
PayPal's ability to manage and account accurately for customer funds requires a high level of internal
controls. PayPal has neither an established operating history nor proven management experience in
maintaining, over a long term, these internal controls. As PayPal's business continues to grow, it must
strengthen its internal controls accordingly. PayPal's success requires signiÑcant public conÑdence in its
ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to
maintain necessary controls or to manage accurately customer funds could diminish customer use of
PayPal's product severely.
Customer complaints or negative publicity about our customer service could aÅect use of our services
adversely and, as a result, our business could suÅer.
Customer complaints or negative publicity about our customer service could diminish severely
consumer conÑdence in and use of our services. Breaches of our customers' privacy and our security
measures could have the same eÅect. Measures we sometimes take to combat risks of fraud and breaches
of privacy and security can damage relations with our customers. These measures heighten the need for
prompt and accurate customer service to resolve irregularities and disputes. PayPal has received negative
media coverage, as well as public criticism regarding customer disputes. EÅective customer service requires
signiÑcant personnel expense, and this expense, if not managed properly, could impact our proÑtability
signiÑcantly. Any inability by us to manage or train our customer service representatives properly could
compromise our ability to handle customer complaints eÅectively. If we do not handle customer
complaints eÅectively, our reputation may suÅer and we may lose our customers' conÑdence.
Our failure to manage growth could harm us.
We currently are experiencing a period of expansion in our headcount, facilities and infrastructure,
and we anticipate that further expansion will be required to address potential growth in our customer base
and number of listings as well as our expansion into new geographic areas, types of goods and alternative
methods of sale. This expansion has placed, and we expect it will continue to place, a signiÑcant strain on
our management, operational and Ñnancial resources. The areas that are put under strain by our growth
include the following:
‚The Websites. We must constantly add new hardware, update software and add new engineering
personnel to accommodate the increased use of our and our subsidiaries' websites and the new
products and features we are regularly introducing. This upgrade process is expensive, and the
increased complexity of our websites increases the cost of additional enhancements. If we are
unable to increase the capacity of our systems at least as fast as the growth in demand for this
capacity, our websites may become unstable and may cease to operate for periods of time. We are
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