PayPal gets stung by ‘bad actors,’ shuts 4.5 million accounts
PayPal last year began offering its first ever sign-up incentives, handing out as much as $10 to encourage new customers to open an account. But the firm’s risk-management team discovered that many of the accounts were being created by bot farms.
By Jenny Surane | Bloomberg
PayPal Holdings Inc. said 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. Shares of the company fell by the most on record.
The payments giant, which is also overhauling its marketing strategy, said it no longer expects to achieve 750 million active accounts by 2025, abandoning a goal that contributed to a jump in spending last year on sales campaigns.
“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.”
The problem was disclosed along with an earnings report that fell short of Wall Street estimates, sending the shares plunging. The company said 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.
Shares of the company tumbled a record 25% to $132.40 at 9:42 a.m. in New York.
PayPal last year began offering its first ever sign-up incentives, handing out as much as $10 to encourage new customers to open an account. But the firm’s risk-management team discovered that many of the accounts were being created by bot farms, a system fraudsters use to manipulate internet activity, a spokesman for the San Jose, California-based company said.
PayPal immediately began closing those accounts and attempting to recoup the incentives from those customers, the spokesman said. PayPal said it will refocus its marketing efforts on increasing usage of its products among active customers.
The abrupt shift in marketing strategies was a “shocker,” Lisa Ellis, an analyst at MoffettNathanson, said in a note to clients. “You can officially add PayPal to your list of pandemic high-fliers that are experiencing a quite-bumpy landing.”
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