PayPal Shuts Down 4.5 Million Accounts

PayPal has announced that it closed 4.5 million accounts and lowered its forecast for new customers after finding “bad actors” were taking advantage of its incentives and rewards programs. The payments giant said it no longer expects to achieve 750 million active accounts by 2025. PayPal is also overhauling its marketing strategy going forward.

“We regularly assess our active account base to ensure the accounts are legitimate,” Chief Financial Officer John Rainey said on a conference call with analysts Tuesday, after the company released fourth-quarter results. “This is particularly important during incentive campaigns that can be targets for bad actors attempting to reap the benefit from these offers without ever having an intent to be a legitimate customer on our platform.”

PayPal normally doesn’t offer a signup bonus. But last year it began offering $10 referral bonuses and $10 to new users. It even offered $20 for e limited time. But the firm’s risk-management team discovered that many of the accounts were being created by bot farms. That’s a system fraudsters use to manipulate internet activity, and in this case to take advantage of these signup incentives and other rewards. PayPal immediately began closing those accounts and attempting to recoup the incentives from those customers, the spokesman said, as reported by Bloomberg.

But PayPal is also facing a lawsuit for freezing funds and closing account, for people who say they have done nothing wrong. Plaintiffs say the company unilaterally seizes funds from its clients’ financial accounts, without cause and without any fair or due process. That case is still ongoing.

PayPal said it will refocus its marketing efforts on increasing usage of its products among active customers. In its earnings report the company said that low-income customers are spending less as they struggle to keep up with rising prices amid the highest levels of U.S. inflation in decades. Growth in e-commerce spending also slowed as supply-chain disruptions affected shipping times and consumers did more of their shopping in stores during the holiday season.