Is Paypal a bank?

Is Paypal a bank?

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Not such a daft question as you might think. One of my clients receives money from customer via Paypal and treats it in his books as a bank account. It also behaves like a bank account in that you can use it to make payments, either funded by a DD from your real bank account or from customer receipts. How should it appear in the statutory accounts - as cash in hand and at bank or as a trade debtor?

Chris F

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By welsh_dragon
08th Jan 2010 12:35

cash

You're right, in many ways it does operate like a bank.  However, in fact it is actually a "cash handling organisation". It doesnt pay interest or give loans.  We would always treat it like we would treat one of the pre-paid credit cards.

 

It's cash in hand.  

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By cfield
08th Jan 2010 13:23

What's the difference?

There are quite a few real banks out there that don't pay interest or make loans at the moment so I'm not sure if that is an appropriate definition (I would have thought it had to be regulated banking institution to be described as a bank and I don't know who regulates Paypal), but it sounds from what you are saying as though it should be included as "cash in hand and at bank" in the accounts. Don't think you can really think of Paypal as cash in hand though. I always thought that was just notes and coins on company premises; ie petty cash.

Thanks for the quick reply anyway.

Chris F

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By User deleted
08th Jan 2010 15:58

Just to be pedantic

PayPal is an escrow payment system.

If I owe you £100K I might well pay it to a trusted intermediary such as a solicitor to hold in escrow. If at that moment we draw up our accounts I would show that debt as paid, but you would show it as a debt due from the solicitor.

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By cfield
08th Jan 2010 16:27

Escrow accounts

Sounds like it should be a trade debtor then.  1-1 so far. Any more contributions?

Chris F

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By User deleted
08th Jan 2010 17:11

Depends what day it is.

The answer is simple it depends on what you feel like on the day. One day you may feel it is bank, another cash and a third Debtors, it really does not matter as long as you are consistant year on year.

I was once told that an accounting degree is a BA because it is an art form rather than a B(Sci) because it is not a science.

What I do on calls like this when reviewing work is to leave it as the preparer of the accounts decided - what is the point of creating more work for something that does not matter?

I think for 7 days out of 7 I would think it would be a bank account but after reading the above would not care if it was classified as something else.

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By User deleted
08th Jan 2010 17:49

Substance over form ? ... Does anyone still use that term ?

Whatever paypal is , we are treating it as a bank account ..and it has almost immediate liquidity ... therefore 110% in favour of cash at bank and in hand

 

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By petersaxton
08th Jan 2010 18:31

Substance over form

I'd treat it as a bank.

I'd even treat a friend as a bank if they were performing "banking services". Obviously I would consider a provision if necessary.

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By User deleted
10th Jan 2010 11:56

And can I throw in credit cards in Ltd co accounts....

Do people include these under bank overdrafts and loans, trade creditors, other creditors, or even just show as credit card?

We don't take advantage of small co disclosure exemptions on debtors and creditors notes when producing full accounts for client and HMRC.

 

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By petersaxton
10th Jan 2010 13:50

Credit cards are Other Creditors

 I'd treat credit cards as Other Creditors. This is what Digita in their default chart of accounts also.

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By jonbryce
18th Jan 2010 11:15

Sort of

They are an electronic money issuer, not a bank.  You would show them in the "Cash and cash equivalents" section in the balance sheet, which includes bank accounts, but there is no FSCS protection in the event of them going bust like there would be if it was a bank.

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By sebastiankoor
01st Jun 2013 18:03

What is PayPal.

Peter Thiel the founder of PayPal, has stated that PayPal is not a bank because it does not engage in fractional-reserve banking.  Rather, PayPal's funds that have not been disbursed are kept in commercial interest-bearing checking accounts.

In the United States, PayPal is licensed as a money transmitter on a state-by-state basis.  PayPal is not classified as a bank in the United States, though the company is subject to some of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA Patriot Act.

In 2007, PayPal Europe was granted a Luxembourg banking license, which, under EU law, allows it to conduct banking business throughout the EU.  It is therefore regulated as a bank by Luxembourg's banking supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF).

In Australia, PayPal is licensed as an Authorised Deposit-taking Institution (ADI) and is thus subject to Australian banking laws and regulations.

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