The payments firm said Wednesday that it had restored Seafile's account following an "additional review" of its business. "We regret that we made an error in the case of Seafile and apologize for any disruption this may have caused to their business," it said in a statement.
However, the German company's CEO, Silja Jackson, told Fortune that Seafile would not go back to using PayPal for payments as it "cannot trust them anymore."
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Seafile is a Dropbox competitor that offers a secure, hosted service for file synchronization between computers, as well as open-source software that lets organizations install file-sync systems on their own servers.
As Fortune reported Tuesday, Seafile claimed that PayPal suspected it of offering file-sharing services for illegal content, and had demanded that Seafile monitor the files its customers upload and download.
When Seafile refused, it said, PayPal effectively dropped it as a customer. This left Seafile offering its services to its customers for free, as they had no other means of receiving payments.
On Wednesday, PayPal insisted that privacy was "at the core" of its business model and it had never "required a merchant to intrude on the privacy of its customers."
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"They said they realized we are not a high risk business," Jackson said. "In my opinion, they realized all the waves it caused and they're trying to do some damage control. They wouldn’t have changed their mind if so many people weren't yelling. I appreciate the gesture on their part, but for us the trust is gone."
Jackson said Seafile is now considering using a German payment gateway. "It's still not as convenient as PayPal because, I can't lie, they are the dominant force and most people use PayPal for everyday purchases," she said. "But I'd rather have a few customers less and a payment gateway we can trust."