Why Experts Say PayPal and Venmo Need More Transparency

Advocates say it’s time for more accountability

Key Takeaways

  • PayPal and its subsidiary, Venmo, have endured years of scrutiny due to account freezes and closures, with little recourse for users.
  • The refusal of payments for WikiLeaks in 2010 is the highest-profile example of what anti-censorship advocates call "financial censorship."
  • A coalition of digital rights organizations is demanding more rights for users of the social payment platforms.
Someone using a smartphone for contactless payments.

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A new coalition of digital rights organizations is demanding more transparent policies for users of PayPal and Venmo after nearly a decade of opaque account restrictions and closures.

The role social payment platforms play in our lives has grown over the past decade, as companies like PayPal, the parent of Venmo, increased their user base. But as the world increasingly moved online last year due to the pandemic, complaints to the Consumer Financial Protection Bureau related to “managing, opening, or closing a mobile wallet” more than doubled nationwide, compared to 2019. 

Now, a group of digital rights advocates is saying enough is enough.

"Especially during a pandemic, these payment processors play such a huge, outsized role in our lives," Jillian York, director for international freedom of expression at the digital rights advocacy organization Electronic Frontier Foundation (EFF), told Lifewire in an interview via Zoom.

"It’s how people receive payment for work, in many cases, or fundraise for hospital bills in countries like the US—so we’re starting to see this as a bigger issue, and see these platforms as infrastructure, rather than, say, Facebook or whatnot."

Demanding Transparency

In response to nearly a decade of complaints related to unanticipated account freezes and closures, the EFF and 21 other digital rights organizations recently issued an open letter to PayPal and Venmo demanding more transparency and accountability for users.

person using a smartphone

Marko Geber / Getty Images

Based on the Santa Clara Principles, the letter calls for the publication of regular transparency reports by PayPal and Venmo, meaningful notices to users about account freezes and closures, and the creation of a "timely and meaningful appeal process"—things York says are currently lacking for users.

Shutdowns as Censorship

One of the problems the coalition is focusing on is financial censorship—an issue that made headlines in 2010 when PayPal froze WikiLeaks’ account

Earlier this month, the EFF attempted to help a longtime supporter named Larry Bryant after his PayPal account reportedly was closed without notice or explanation.

"In this particular case, Bryant was receiving payments for servers running Tor nodes, some of which may have been used by WikiLeaks supporters, and he was unable to make payments for running his server leased in Finland," York said. "He didn’t receive any emails or phone calls [from PayPal]. That was really the troubling aspect of this for us."

Although PayPal reportedly denied that the account closure was related to Tor, even after the organization’s legal team reviewed months of Bryant’s transactions and requested answers from the company, the EFF was unable to determine a specific reason for the closure or have the account restored.

"... these payment processors play such a huge, outsized role in our lives."

Because of those kinds of opaque decisions, the coalition is seeking more transparency for users of both platforms moving forward. 

Laws Create Complexity

"Increasingly, over the past few years, we’ve been seeing PayPal, Venmo and other payment providers…limit people’s payments based on certain topical areas," York said.

One of those areas is sanctions.

In the US, businesses are prohibited from making financial transactions with sanctioned countries under a slew of complex laws. Penalties can range from a few thousand dollars to millions, in some cases even jail time.

Pressure to comply with those laws may play a role in some of the limitations placed on some individuals’ accounts, according to York. Rather than limiting transactions between countries, some payment processors end up restricting individual accounts based on sanctions-related keywords.

In 2017, PayPal made headlines when it froze the account of a major Canadian media organization after one of its local newspapers paid a fee to enter a story about a Syrian refugee family in a contest, citing sanctions. Venmo received similar criticism in 2019 for flagging a user’s account after they paid friends for dinner at a Persian restaurant in Manhattan due to using keywords related to Iran.

Someone using a smartphone and a laptop at a kitchen table.

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York said she was personally impacted by similar tactics when her own PayPal account was abruptly suspended after organizing a fundraiser for Syrian refugees in Europe.

"It was just because of the keyword 'Syria,'" York said. 

Because of York’s connections in the tech world, she was able to have her account restored. Since most users don’t have that option, though, she said transparency and accountability are necessary to ensure fairness.

"That’s where a lot of our appeals advocacy comes from..." York said. "The average user is completely disenfranchised by these shutdowns."

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