In a blog post, Seafile said: "From Sunday, June 19, 2016, we are no longer allowed to accept payments via PayPal. PayPal has demanded that we monitor data traffic, as well as all our customers’ files for illegal content."
The company further said that PayPal was asking it to share detailed statistics on the kinds of files its customers were syncing on its platform, which is a violation of German and European data privacy laws and is against the company's moral code.
With PayPal being the only available payment method on the file storage website, the company said it has been left with no choice but to bill its services free until it figures out an alternate payment method for its customers.
Seafile, which was founded in 2009 by students from a Beijing-based university, gained enough momentum over the last couple years to branch out to the German market with a new subsidiary there.
The company's solution offers an open-source file synchronization solution that businesses could use by installing it on their personal server for a fee, Fortune reported. For enterprise features, the company offers a paid version, which holds data on Seafile's German servers.
According to Seafile CEO Silja Jackson, PayPal wanted to know more about its customers to get visibility in the company's enterprise plan, which led it to send the company a notice on Seafile's PayPal account saying it was in violation of certain unspecified clauses of PayPal's terms and conditions of use.
In an interview, Silja told Fortune that PayPal appeared to be under the impression that Seafile's platform was being used for illegal data sharing. This prompted the company to explain to PayPal that it wasn't offering free accounts and that it had protocols in place to identify users, including collecting addresses during signup.
“In our opinion and our lawyers’ opinion, that would violate privacy laws,” Jackson said. “We also think that giving PayPal [statistical] information would violate our customers’ privacy rights.”
On June 14, Seafile got a notice from PayPal saying that the only way it could resolve the issue was by discontinuing its offerings as a payment form for the company. Despite an answer from Seafile explaining why it was unjust for the users, PayPal decided to put a kibosh on its service.
“To meet our compliance obligations, we periodically review the operations of our file-sharing merchants,” PayPal said. “This process includes determining how these companies are addressing laws around content distribution and how they comply with our partners’ rules. Merchants who do not meet the requirements of our review may no longer be allowed to use PayPal’s services.”