August 4, 2009, 12:00 AM

PayPal back online after a major outage disrupts payments for e-retailers

PayPal was down for about an hour around mid-day Monday, and it was four and a half hours before service was completely restored, PayPal says.

PayPal has become a big part of online payments, and so when it went down yesterday in the middle of a weekday it disrupted payment processing for many web retailers. The outage affected credit card processing for online retailers that use PayPal to provide that service, as well as all payments from PayPal accounts.

PayPal, a unit of eBay Inc., says a network hardware failure at around 10:30 a.m. Pacific time on Monday interrupted service completely for about an hour. And it took until around 3 p.m. Monday, four and a half hours after the problem began, before full service was restored, Scott Guilfoyle, senior vice president of technology at PayPal, said in a post today.

The impact was far-reaching. PayPal provides payment processing for 75 of the 500 largest online retailers in North America, and 205 of those Top 500 retailers accept the PayPal electronic payment method, according to the Internet Retailer Top 500 Guide. PayPal says it processed an average of $2,000 in online payments every second in the second quarter; 55% of payment volume comes from its Merchant Services unit that processes credit cards and other payment types on behalf of e-retailers.

Among those affected was Sports Giant LLC, No. 341 in the Internet Retailer Top 500 Guide, which sells sporting goods at such sites as and Once PayPal went down, customers trying to place orders were shown messages saying their orders could not be processed at this time, says Keith Retzack, manager of information technology for the retailer.

Once the retailer recognized the problem, it notified Yahoo, which operates the e-commerce platform for Sports Giant, and told Yahoo to pass customer payment information to the retailer’s customer service department. Those payments were later submitted when PayPal was back online, Retzack says.

Sports Giant cannot say how many orders it lost, Retzack says. “It was an obvious nuisance because we did see an uptick in customer service calls,” he says. “Had it been during the holiday season, it would have been a problem.”

FansEdge Inc. lost no orders because of a system it developed that continues to accept orders when its payments processor, in this case PayPal, fails to respond. “When the processor fixes its problems and is back online, our platform automatically re-connects with them and does all the processing that it couldn’t while they were down,” says Kevin Bates, president of the retail division of Dreams Inc., parent company of FansEdge, No. 217 in the Internet Retailer Top 500 Guide. Bates says the retailer of licensed sports apparel may have lost one order from a customer trying to pay with PayPal.

Less fortunate was web-only electronic retailer HamGo Corp., No. 281 in the Internet Retailer Top 500 Guide, whose card processing is handled by PayPal. CEO CEO Al Benyameen could not say for sure how many sales he lost during the outage but estimates he wasted about $750 on search engine ads that brought consumers to his site during a period when they could not complete a purchase.

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