Paypal is still the most popular payment processor online. With PayPal, you can electronically send and receive payments. It allows online businesses to accept payments from credit cards, bank accounts, and even eChecks.
PayPal is indeed very easy to use. Online payment transactions are very fast and automatic.
So, should I use PayPal for my online business? Before I’ll explain, let’s have a quick look at the pros and cons:
Pros of Using PayPal
- It’s easy to setup and use.
- Your clients/customers may already be familiar with PayPal.
- You don’t need a merchant account.
- Your clients/customers don’t need a PayPal account to pay you. They can pay you using a credit card.
- You can create and send invoices right through your account.
- PayPal’s fees are less than many merchant accounts (currently 2.9% + $0.40 USD for debit and credit card purchases).
- You can set up recurring payments.
- You can integrate PayPal with a number of shopping cart systems.
Cons of Using PayPal
- PayPal’s Seller Protection policies do not cover digital goods.
- There are hefty fees for chargebacks.
- It can take four business days for withdrawn funds to clear in your bank account.
- There are a number of people who refuse to use PayPal, which may result in lost business.
- It can be difficult to contact PayPal’s customer service department.
Should I use PayPal?
PayPal is good when buying things on the internet.
The dilemma comes when you intend to sell products and services online. You really have to be very careful when using it as a merchant/seller.
If your online business is selling physical or tangible products like gadgets, appliances, clothing, jewelry and anything that needs shipment, then you really have to decide wisely.
You have to be very sure you know your customers well before deciding to accept payments using PayPal. Otherwise, you better accept payments using the traditional way.
PayPal chargeback scams and PayPal disputes are very common nowadays. I experienced both many times just lately.
There are also times when PayPal simply holds a transaction without any reason (buyer didn’t initiate a dispute or chargeback) then reverses the money to the buyer without clear explanation.
A chargeback scam, see also chargeback fraud, is when a buyer comes to your online store, buys your product using a credit card and then, for some lame reason, files a chargeback after receiving/downloading your product. Common reason is “Unauthorized payment“.
A PayPal dispute is when a buyer initiates a request for refund/reversal of a certain payment made to your account. In this case, the buyer uses an existing PayPal balance to pay instead of using a credit card. The common reasons would be “Items Not Received (INR)”, and “Significantly Not as Described”.
In my experience, I lost all the chargeback complaints and paid at least $10 chargeback fees. I’m selling digital products so I’m not covered by PayPal’s seller protection (that’s why I make it bold under the cons).
The credit card chargeback and PayPal dispute system is good for buyer protection since there are lots of fake sellers online. No question with that.
On the other side, it could become a big nightmare for legitimate online sellers especially small business owners. The problem is many people, with the intention to defraud or simply want to get products for free, takes advantages of these so-called buyer protection systems.
So when you’re selling shippable products, it would be a great loss when a dishonest buyer files a chargeback or a dispute and PayPal sides with him/her (which they often do). Not only you will loss the money, you will also loss the product if delivered already.
Chargebacks and PayPal disputes are very easy for the buyer to initiate.
I’m not disregarding the fact that there are legitimate chargeback claims. In many cases, a person’s credit card number is stolen and used fraudulently. But as a seller, you’ll know by the person’s transaction record as well as email communications if there are any, if the chargeback claim is legitimate or not.
In my experience, I’ve seen many people who used stolen credit cards but I’ve also seen many who just want to get my products for free.
What to do?
If selling tangible products like a violin (I hope you heard the story about this), or gadgets, appliances, clothing, etc., you’d rather want to use traditional ways such as bank to bank payment or Western Union transfer especially if dealing with local customers in your locality or within your country.
On the other hand, if you intend to sell digital/intangible products there should be no great problem. This is ironic given that PayPal offers no seller protection for digital goods. But that depends on the nature of digital product you intend to sell.
If you’re going to sell PLR products such as eBooks or templates in prices of less $50’s, you may use PayPal. If someone files a chargeback or dispute, it may not be a great loss but it’s a pain to see when people are downloading your products for free. Plus, you also pay a fee of at least $10 if it’s a chargeback.
Now, if you plan to sell your services as a Web/Graphics designer, then you really have to think twice about using PayPal especially if you’re charging more than $100’s. More so if you plan to offer high quality services and charge $500 or more. It would be better to use traditional payment methods. If your client is from another country, you may want to use wire money transfer or services like escrow.com.
So, why I still continue using PayPal?
Well, I’m not trying to convey here that PayPal is a bad company at all. Heck, I’ve been using them for almost eight years now. It’s just that in a big crazy cyber world like this, there are people who takes advantage of a system’s flaw. Still many others choose to abuse the good privileges bestowed on them.
I sell digital products online so although I have had bad experiences using PayPal including that one time when they reversed an already withdrawn money from my bank account (it’s one of my most horrifying experience), I still continue using them because there’s no other better alternative as of this time. I do hope that a better, safer, more reliable service will arise in the future or PayPal will make things fair for both seller and buyer.
If I were selling shippable goods, I’d rather use traditional money transfer or go to big marketplaces like Amazon or etsy.com.
At the end of the day, I just had to accept those losses as a part of doing business online selling digital goods.
So, should you use it for your online business? It depends on what type of product you intend to sell or service you plan to offer. The choice is yours.