by Rabbi Yair Hoffman for the Sfas Tamim Foundation

In late 1998,  Peter Thiel and Max Levchin founded a company called, “PayPal.” (It was originally called Confinity). Venture capital funding allowed it to combine with eBay transaction partnerships, and PayPal quickly shot up to 1 million users after just 15 months.  With Paypal, people can send money to others electronically – through their email addresses.  There are, however, two ways of sending money on PayPal: Friends&Family (F&F) and Goods&Services (G&S).

F&F is intended for paying a friend back for dinner, for example, or giving a relative money. There’s typically no fee involved, but it also drops protections for any issues that may come up, such as refunds or scams.

G&S is intended for purchases, and money sent this way is subject to PayPal fees which are currently 2.99% of the transaction. With G&S, if what you bought was not as described or if it was damaged upon arrival or it never got to the buyer – refunds are much easier.

PayPal makes its own money in two ways. The first is the fees they charge to a payment’s recipients. Though most transactions are free for the average user, many merchants pay that fee on transactions which is the G&S method. PayPal also collects interest on money left in PayPal accounts. All the money held in PayPal accounts is placed into one or more interest-earning bank accounts. Account holders do not receive any of the interest gained on the money while it sits in a PayPal account.

Is it permitted for a business to take payment for goods and services through F&F, even though it is not what they intend?  Can F&F or the term “friend” be defined as any person that you trust?

The question was posed to Rav Yisroel Dovid Harfenes, one of the leading Poskim in the United States.  [Each person, however, should make his or own inquiries to both Paypal and also to one’s own Rav or Posaik].  Rav Harfenes responded that one must ask PayPal if they truly do not care if a business uses F&F instead of G&S.  If they do care then it will be a problem.  When the question was posed to PayPal, however, they did not respond.

When Rav Harfenes was told this, he responded that it would seem from their lack of a response that it does not matter to them, and therefore, there would be no prohibition in utilizing the F&F method.

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