Ebay-owned PayPal gets far more attention for shutting down accounts and reinstating them following media/blogger coverage than it does for its actual product, a trend that sadly continued this week with the shutdown/reinstatement of Regretsy's Secret Santa campaign.

Although Zivity's content -- mainly artsy photos of semi-nude and nude models -- is for mature audiences, the company just experienced the same cycle. Its subscriber-driven site used PayPal for four years with no issues until its account was frozen Monday for no apparent reason as the site's content had not changed and PayPal's acceptable use policy (AUP) had not either, CEO Cyan Banister told LAUNCH. PayPal, however, claimed Zivity "could be considered obscene."

Beyond the fact that PayPal does not explain how it determines "obscene," the situation was all the more ironic because Cyan's husband and Zivity co-founder is Scott Banister, who invented the PayPal payment over email process.

We asked PayPal for comment but have not received a response.

Following a story on local TV news in San Francisco yesterday, Zivity's account was reinstated.

"My support person logged in at 7 to see if we got any inquiries from the segment and discovered they turned us back on after NBC asked for comment at 5:05," Cyan said via email.

"When we originally launched the site, we were reviewed by them three times and given the green light to conduct business using their platform," she explained in a follow-up email. "Their AUP hasn't changed and our content hasn't changed, so I'm not sure what happened on their end." [ see our Q&A with Cyan below. ]

About 60% of Zivity's 76K+ subscribers pay with PayPal. Cyan called the revenue damage "minimal" now that Zivity's account is active again but noted they would have lost "hundreds of thousands" and the blow "would have been difficult for us to recover from."

Not surprisingly, Cyan is now reconsidering using PayPal and planning to check out Dwolla, a new online payment system that competes with PayPal. "Even though we are reinstated, I have an uneasy feeling about trusting them [PayPal]," she told LAUNCH. "I want to trust them. They were once a great service. My co-founder and husband invented the PayPal payment over email process and the people who founded PayPal believed in freedom. Ebay got hold of it and turned it into what it is today. It really is a shame. They should accept payments for anything that is legal."

Earlier this fall, PayPal froze/reinstated social network Diaspora*'s account.

In February, Wired reported that the company froze the account of a group raising money for the legal defense of accused WikiLeaks source Bradley Manning because the group did not meet its nonprofit-groups requirement. PayPal quickly reversed that decision, saying in a statement it had "sufficient information to meet our statutory ‘Know Your Customer’ obligations.'"

SCREEN SHOT

LAUNCH Q&A with Zivity CEO Cyan Banister

LAUNCH: What percentage of Zivity users pay via PayPal and what percentage via credit card?

Cyan Banister: 60% of our subscribers are on PayPal. We've done some A/B testing with
PayPal and credit cards and saw a steep decline when we accepted credit cards alone. It is an established brand that people trust.

LAUNCH:When were you notified of PayPal's decision, and when did the change go into effect?

CB: We were notified last Monday and the changes were immediate. We didn't have time to warn our members, remove broken code from our site (a terrible experience for new customers trying to sign up) or change whatever was bothering them (who knows, maybe it was something we could have fixed?). It was a terrible customer service experience. We have used their service for four years without any issues and when we originally launched the site, we were reviewed by them three times and given the green light to conduct business using their platform. Their AUP hasn't changed and our content hasn't changed, so I'm not sure what happened on their end.

LAUNCH: How much money do you estimate Zivity has lost?

CB: Now that we've been reinstated, the damage is minimal. If they continued? Hundreds of thousands of dollars. It would have been difficult for us to recover from. We could cobble by on our credit card revenues, but losing PayPal would have been a huge blow.

LAUNCH: Why do you think PayPal is changing its tune now?

CB: If I had to guess, it is a big company problem with a lot of communication disconnects. It is somewhere at the core of their culture and internal communication. The subject matter is also incredibly subjective, which I hate. Someone needs to come up with some standards to define the space to help protect companies like mine. I am a legitimate business with real members and people with real needs. People say, "yeah, well, you are adult, what do you expect?" Well, I expect to be treated with respect and for people to have common sense. There's Disney and there's pornography - we're neither.

LAUNCH: Are you currently talking to PayPal about getting this resolved?

CB: I've never talked to anyone over the phone. All of my escalations have happened over email. I had a good friend introduce me to someone in his 500 Startups mentor network that helped put me in touch with people who were higher up at PayPal. We had a few rounds of appeals and notices that their decision was final. Our accounts were frozen. Miraculously, two days ago, we were allowed to start the transfer of our funds out of our account. For most people it takes 180 days. We got lucky.

LAUNCH: What alternative payment systems are you considering if PayPal doesn't reverse its decision? [asked before Zivity's account was reinstated. ]

CB: Everyone is pointing me to Dwolla. I think I'm going to have to check them out. Even though we are reinstated, I have an uneasy feeling about trusting them. I want to trust them. They were once a great service. My co-founder and husband [ Scott Banister ] invented the PayPal payment over email process and the people who founded PayPal believed in freedom. Ebay got hold of it and turned it into what it is today. It really is a shame. They should accept payments for anything that is legal. We aren't breaking the law. We aren't doing anything wrong.

My fight wasn't just for Zivity though. It was for everyone out there who has had issues with PayPal. I want them to be the best they can be and I want people to be able to use them again with confidence. It is a wonderful service if it worked the way it is supposed to.

Before last week, I recommended PayPal to everyone. After last week, I am questioning if businesses should handle their own payments or trust services like these. Even though people are recommending payment services to me, I'm worried that they too will get gobbled up by the Ebays and Googles of the world and forget who they are and crap all over the customers who helped get them there.

Here's a very sad story that has nothing to do with the adult space that is pretty high profile and recent:
http://www.regretsy.com/2011/12/04/fuck-you-paypal/

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