German banks halted 10 billion euros in PayPal payments on fraud concerns, says newspaper

BERLIN (Reuters) -German banks blocked PayPal payments totalling more than 10 billion euros ($11.7 billion) over fraud concerns, the Sueddeutsche Zeitung newspaper reported on Wednesday, without specifying its sources.

The payments were halted on Monday after lenders flagged millions of suspicious direct debits from PayPal that appeared last week, the newspaper said.

Asked to comment on the report, a PayPal spokesperson said a temporary service interruption had affected "certain transactions from our banking partners and potentially their customers", but that the issue had now been resolved.

A banking source, who spoke on condition of anonymity, told Reuters the value of payments stopped by banks fell somewhere between hundreds of millions and billions of euros.

The digital payments giant has a security system that usually filters out scams trying to extract money from banks.

But the Sueddeutsche Zeitung said that system was either completely or largely disrupted late last week, meaning the payments app was sending unvetted direct debits to banks.

"We quickly identified the cause and are working closely with our banking partners to ensure that all accounts have been updated," the PayPal spokesperson said.

Shares of the U.S.-based payment app were 1.9% lower after market open at $68.89, versus broadly flat indicators for the main Wall Street indexes.

Germany's Savings Banks and Giro Association, representing more than 300 local savings banks and financial service providers, said in a statement on Wednesday that instances of unauthorised direct debits from PayPal had a "significant impact on payment transactions" throughout Europe, and particularly in Germany.

The association added that PayPal transactions for customers at Sparkasse banks were operating normally as of early on Tuesday and said supervisory authorities had been informed of the incidents.

Germany's BaFin financial regulator confirmed it had been informed but did not provide any further details.

A spokesperson for the CSSF regulator in Luxembourg, where PayPal Europe has its headquarters, said there were currently no major ongoing disruptions which required the regulator to intervene, declining to comment on PayPal specifically.

($1 = 0.8542 euros)

(Reporting by Hakan Ersen, Kirsti Knolle, Klaus Lauer and Elizabeth Howcroft; Writing by Rachel More;Editing by Kirsten Donovan and Helen Popper)