The Pros and Cons of PayPal
By Tiara Rea
Last month, I received a couple emails and newsletter comments, asking for further advice on choosing the right payment gateway, specifically for the pros and cons of working with PayPal over the other more expensive options. I’m keeping this list of pros and cons quite short compared to some of the other literature out there, but hopefully this will help you decide if PayPal is the best solution for your online e-commerce website.
PROS
It’s Easy!
OMG is it easy! Both for the merchant using PayPal to accept payments and for the customer who needs to pay ASAP, PayPal is a great solution. As a merchant, you sign up online and place a link to PayPal on your site. As a customer, you don’t even have to have ever used PayPal to send a payment through its secure gateway. The ease of the process makes accepting or sending payments a breeze.
It’s Cheap!
OMG is it cheap! Unlike most payment systems, you don’t pay any monthly fees and they only require a pretty low per transaction fee. This means that you only pay when someone pays you, which to me is quite feasible for any business. Likewise, you are not required to purchase a Dedicated IP Address or SSL Certificate, because your site doesn’t have to be encrypted – you will be redirecting all the customers to PayPal’s secured systems, which already have their own IP and SSL.
It’s Well-Known!
OMG…okay, you get the idea. 
But literally, almost everybody knows what PayPal is and understands how to use it. If you have a problem, there are many websites that can help you, even outside of PayPal’s help system. You can find PayPal reviews, testimonials, and can even research successful businesses that utilize PayPal for the payment processes.
It’s Convenient!
If you live outside the US and don’t have a credit card, you already know how helpful PayPal can be. Even Lunarpages supports PayPal payments on our website, because many of our international customers need this service to get their online business going.
CONS
PayPal is Law…
Once utilizing PayPal’s payment services, you must at all times abide by their rules. This shouldn’t necessarily scare you away right then and there, as most of their rules are in place for a reason. However, chargebacks for what they deem “fraudulent” can hurt your business or your reputation as a customer. And the fact is, PayPal is always in charge of what is “fraudulent” and what is not.
PayPal is Unprofessional…
That’s just a rumor, of course, but a lot of so-called ‘professional’ webmasters look at PayPal as an amateur payment service or will see your business as amateur if you use it. I personally don’t agree, though seeing a trust logo and personalized shopping cart always helps me feel more at ease somehow than being redirected to PayPal’s secure area. That doesn’t mean I’m not the first one recommending PayPal to startup and home-run businesses, as it’s just easier than going through the learning curve sometimes for work-at-homers or newbie webmasters.
PayPal Fraudsters are Everywhere…
All phishing and spoofing emails are terrible, but PayPal has a nasty reputation for some of the worst. This is because the spammers who make these spoofed emails make them quite believable, to the point that I have actually emailed PayPal twice about suspicious emails because I couldn’t tell if they were fraudulent or not. And that is scary.
Your Site is Not Trustworthy…
I believe this to be another misconception, but a couple people have brought this up to me so I feel it’s fair to list that if your website doesn’t have an SSL and Dedicated IP, customers are actually less likely to buy from you. This is actually, I think, dependent on what kind of business you’re running. If you’re a single mom working as a web designer and I’ve entered into a contract with you but you only have PayPal listed for payment, that’s fine! If, however, you’re Joe Schmo’s Amazing Business Secrets Revealed Online and I don’t see a trust logo or some kind of security, odds are I’ll think twice. Okay, I’ll think twice about that website anyway.
In conclusion, I really think it’s about what makes your business work. When I help out our Sales Department and suggest online payment information with new webmasters, I always recommend PayPal, because it’s easy, affordable, and incredibly convenient. For growing businesses, you may want to look into something more or PayPal might continue to impress you with its options.
March 26th, 2008 at 10:35 am
[...] The Pros and Cons of PayPal [...]
March 26th, 2008 at 11:26 am
I don’t see PayPal going away anytime soon however it would be nice for them to check out your list to see what they could fix.
March 26th, 2008 at 3:11 pm
first up, thank you tiara for continuing to explore this topic.
… imho another pro is that paypal provides a hack-proof (is there such a thing?) trusted 3rd party entity. Even if a site has a trusted logo and shopping cart I am hesitant to ‘flash the plastic’ as I have no idea how good their online data security is, not to mention how honest ALL their employees might be.
… off on a bit of a tangent but the recent smash webisode hit, The Guild (search for it at youtube), had a paypal button on their site and enough ‘little people’ donated $$$ for them not to starve while they did their first 8 webisodes. That says alot about doors that the paypal option can open.
… and no, I don’t work for paypal. (lol) (same with The Guild, just a fan and I’m not even a gamer)
March 26th, 2008 at 4:08 pm
I used PayPal when I first opened my business. It’s a great resource for ppl just starting out, I agree. And then there’s always a time to move on and upgrade.
March 26th, 2008 at 5:26 pm
I see a lot of larger sites using PayPal now (Geeks, TigerDirect, etc.) so I don’t think of it as unprofessional. In fact, I actually feel a little *more* secure, not less, when I see it. Fact is any idiot can fire up a shopping cart, but at least there is some level of accountability that goes on with PayPal.
March 26th, 2008 at 8:49 pm
I have never had any trouble with Paypal, my only problem is that not enough sites use it.
March 26th, 2008 at 9:07 pm
I have used PayPal for years, as a way to send and receive payments. Though I have had many great transactions, I have received two chargebacks that were determined as fraudulent by PayPal. I had to pursue the resolution with my customers (and recovered my money in both cases) but got NO help from PayPal. In fact, I felt that they were only looking out for themselves and didn’t really have much concern for my business at all. So, when things are going well, they are great, but when transactions go bad, they are rotten!
March 26th, 2008 at 10:21 pm
I wish to have account with paypal, but the problem is that it does not offer service in Pakistan. Can some guide how I get account here in Pakistan.
Regards
March 26th, 2008 at 10:21 pm
I have also used PayPal for years with no problem. It allows me to purchase from vendors I do not wish to give credit card info to and purchase from small vendors, Ebay, etc.
I would use PayPal for a commercial site untill it was financially feasable to ADD other shoping cart optionswhile still retaining the PayPal option for those who prefer.
Re E-mail Phishing: These scams have been around for a while as the whole phishing thing has. People need to inform themselves and protect themselves, not blame legitimate services for their own insecurities.
March 26th, 2008 at 10:40 pm
My first business uses a merchant’s site for processing orders. Their monthly fees and other add-ons are outrageous. Not only that, their rates for cards such as ‘reward’ cards have gotten out of hand.
When we started our next business, we went totally with PayPal. It works great! We can predict our actual costs because they have great rates, no monthly fees, no surprises.
We now have a third website that uses paypal exclusively. We are thinking about ending our merchants agreement with our original site and going completely with paypal there as well.
As far as some comments that Paypal makes you less professional, I disagree. I had customers for our first site that would NOT buy from us because we did not use Paypal!
To each his own but for me, it’s PayPal all the way!
March 27th, 2008 at 12:44 am
I’m running 3 different businesses and I had the not so pleasant opportunity to work with Paypal.
Imagine a business where you charge your customers over 50 thousand ( $50,000.00 ) every day in order to ensure shipping services for them , and Paypal not knowing what a 40′ sea shipping container is, or a container shipping business is.
Imagine a situation where your customers that bring you over 100 thousand dollars business every 2-3 months to haqve their money and services blocked by Paypal who wakes up and asks for draconic security measures only after they charged the money from your customers and locked them in their system.
Try to chew on this : after I have given them all possible financial info about the business and the ways of conducting business , to be asked to submit a scanned copy of SSN, birth certificate and other personal stuff , I told them that actually they ask for so many things just because they do not have a clue of what is going on in a business like that and also they should attend general Business courses.
I also asked them as a joke if they would want a DNA sample from me , and my other biometrics : color of eyes , birth marks on body, color and lenght of hair and size of my dick , and their answer was : at this time our system does not accept your biometrics for identification.
In conclusion , I just told them to refund my clients and I charged them with GoogleCheckout, MoneyBookers and other gateways.
I do not consider Paypal more than a company that is good for those who want to pay stuff they buy on EBay.
They are not only amateurs , but also they lack of business skills.
March 27th, 2008 at 3:00 am
You forgot to mention the world’s largest online trading site eBay use it (and own it) - kinda infers stability!
March 27th, 2008 at 3:08 am
Tiera writes that ‘PayPal is law’.
OK, pick any common scenario, like sending an item that becomes damaged during shipment. Who is responsible, the seller or the buyer? Pick another scenario, like insured shipments that get chargebacked. Who is liable, party 1, party 2 or party 3? Answers: Don’t go to their website to find out. They won’t tell you.
So base practices around their prevailing loyalities. My experience will suggest themselves, eBay or any entity bigger than themselves. Like eBay, they are wienies at best. Law makers no, petty dictators yes.
March 27th, 2008 at 3:48 am
I also, don’t agree that PayPal is unprofessional. What I do like about it, is I am not responsible for the security of a buyers credit card info. That is also why when I am purchasing online, I don’t know who I’m buying from, PayPal gives me the confidence that my credit card info is in onbe spot not scattered al over the web. If they don’t accept PayPal it makes me causious. I do also trust Kagi.
I view PayPal as a symbol of a professional because it makes it easy for me to do business with them. And SERVICE is everything to me. And let’s not forget that you can use your credit cards through PayPal also if you don’t have an actual account with them.
March 27th, 2008 at 4:40 am
I have used PayPal for a while to make payments without problem. But the first time I got money through PayPal in my account (through a few eBay sales) and tried to withdraw the money to my VISA credit card (verified by paypal, of course) the money disappeared! PayPal insists the transaction took place, my bank insists nothing happened, and I have been left with 500 Euros less!!!
March 27th, 2008 at 4:47 am
The worst Customer Service is there for them , dont ever expect a reply from this customer care, you will get an automatic message saying that you error is rectified and we are happy that we have served you Blah Blah…
March 27th, 2008 at 5:06 am
I have been using PAYPAL on my business’ website since its inception. As your article so aptly describes, it is incredibly easy, convenient and, most importantly to new businesses, inexpensive. They also have alternate interfaces that, if you do purchase dedicated IP and Secure Certificate, allows you to use their processing in the background on your site…their prices remain the same for that service as they are for the standard service. I run a theatre company and the advantages of people being able to purchase tickets online rather than having to wait and buy them at the door far outweighs the low prices of using PayPal (about $3 for $100 order).
March 27th, 2008 at 5:25 am
I have worked with PayPal for years now and have no problems whatsoever. When a customer questions me about it I just tell them that it is more secure than any other payment method because I only get their money and not their charge card information. As for using it to purchase on the web there are more sites accepting it now and PayPal has a new thing where a person can generate a one time use credit card and use that for a payment on a site that does not accept PayPal. Doing that makes it impossible for someone to steal that number and use it again. By the way, I have had my number stolen when doing business on the net, with a business that had the trust logo and was known to me.
March 27th, 2008 at 6:39 am
Pros: One site i manage uses paypal AND a credit card gateway. Several years ago paypal updated their site and screwed the upgrade and they were totally down for 3-4 days, meaning NO SALES for us. About killed our cash flow. We’ve had that happen with our credit card processor as well. We now use a shopping cart that can do both and let the customer pick, and it’s a nice backup to us, because if one is having problems, we just disengage that option until they’re back up.
Con: Customer Service nightmares for us when people use “echecks” in paypal. Most customers don’t know what it is, and Paypal does nothing to warn them. Echeck is when the customer only has a bank account, and not a credit card or additional form of payment to back up their account should their account be overdrawn when paypal tries to debit it, so paypal doesn’t pay you for 3-5 days while they wait for the money to transfer. There is NOTHING on the customer’s receipt from paypal showing there will be a delay in paying us, infact it insinuates just the opposite, and they get irate seeing the actual debit in their bank account, but we still can’t activate their order because we’ve not been paid. We spend a lot of time in CS and it only makes us look bad, though it is actually paypal’s problem for not better educating (err.. warning) their own customers that there will be a delay in their payment being sent to us. Not a positive way to start a long term relationship with a customer.
March 27th, 2008 at 6:46 am
I been using paypal for many years myself. Although I agree that they have improved substantially over the years, the biggest problem with a system like paypal is the rules! The have convinced the authorities that they are not a bank and act as a quasi-bank. So, they are not confound to the normal banking rules that a normal bank must abide by. This is important and those rules are there for a reason. The main thing in the rules, as the author briefly pointed out is… they “control” your money. They set the rules and since they were purchased by ebay corporation, their customer service is the pits! There are hundreds of horror stories out there that anyone can research. I have been caught up in a few over the years, but was never scammed by paypal. The issues were worked out internally and my money was so-called “unfrozen”. Many horror stories are true. In fact Paypal was sued a few years back for freezing accounts and basically lossing control of the money. As I said, they have improved, but I still deem them untrustworthy because THEY have total control of your funds and transactions without banking rules and over sight (unless you want to spend lots of money taking them to small claims court)… that could be your only way to get your funds back, or unfreeze them… I believe we need better legislative action and force them under the banking rules — and they would be a more reliable service!
March 27th, 2008 at 7:05 am
First off, let me say that I agree with all your PROS.
Secondly, let me add some more to your CONS list. PayPal is that it is not a truly international payment gateway AND it does not accept American Express Corporate Cards. These 2 issues have, unfortunately, been a big problem with us as many of our members are from all over the world and many of them use departmental or business cards to pay for the services we offer. Many markets do not accept all credit cards, some only one. This is NOT evident when you sign up and unless they change some of their policies quickly we will be forced to find another solution.
March 27th, 2008 at 8:02 am
Ed Said:
“I believe we need better legislative action and force them under the banking rules — and they would be a more reliable service!”
And more expensive. If you want a bank, pay for a bank.
March 28th, 2008 at 5:15 am
One of my customers somehow stiffed PayPal for two $500 payments that PayPal deposited in my account. PayPal later came back on me and took the $1000 out of my account. In spite of the fact that I had email confirmation from the dead beat buyer as proof of delivery and delivery confirmation from the post office, PayPal would not honor my disputed claim because they required that I have the buyers signature as proof of delivery. I strongly recommend that sellers read all the fine print on PayPals seller protection plan.
March 28th, 2008 at 8:26 am
I have used PayPal for 8 years or so with pretty decent luck. I’ve only had one chargeback and that was an international eBay customer who I’m pretty sure scammed his way into the chargeback. (He requested surface mail — when that was still an option — then claimed he hadn’t received his purchase. I’m pretty sure this was his retaliation for my refusing to lie about the value on the Customs form.)
RaduJohn, I don’t think PayPal is well-equipped to deal with businesses processing transactions the size of yours. While it’s always nice to offer PayPal as an *option*, a regular merchant account would likely be a better choice for you. And remember, you can deduct all of the merchant account fees on your taxes (well, if you’re in the U.S. you can!).
David, PayPal “tries” to claim that the seller is responsible for the item actually getting delivered safe and sound. Until the USPS allows me travel with each of my shipments to their destination, I am simply not able to ensure that. I trust the USPS much less than I trust PayPal!
PayPal’s requirement of having shipments trackable online is very limiting. For international shipments (originating in the U.S.), this limits me to Priority Mail International and Express Mail International; these are the more expensive international shipping options. If an item weighs less than 4 pounds (which most of mine do), First Class International is an option, HOWEVER it’s not trackable online! It depends on what I’m selling/shipping whether I require online tracking for international shipments or not — and also for domestic shipments too, for that matter. There *should* be a way to track an item with the Customs number; in fact the post office clerk I deal with most often tells me that it IS possible. However, that doesn’t seem to be an option which is available ONLINE and that’s where things get sticky with PayPal. GRRRR!!
If PayPal were to improve just ONE thing, I would ask them to DO AWAY WITH their silly e-check option. What a nightmare!!
BY THE WAY (and yes, I’m yelling *grin*), if you ever need to contact PayPal, CALL THEM, don’t bother with e-mail! Their U.S. phone number is 888-221-1161. They have a variety of phone numbers of course, and I don’t know if this number works internationally. 402-935-2050 *may* work in Canada. Wish I had a number for the other international folks, sorry!
March 28th, 2008 at 2:19 pm
It wouldn’t surprise me if advertisers of more costly payment gateways than PayPal would make an effort to discredit them as a viable option for not only small business, but larger scale operation as well. And when starting up, the idea of paying a fortune when you’re not making one seems a little ill-advised.
I have found nothing that impresses me enough to abandon PayPal. Besides, I think they have better security than I would.
Just a thought.
March 29th, 2008 at 3:32 pm
I think everyone considering using PayPal should read Paypalsucks.com first. I first used it some years ago when payment using Paypal was the only way I could get a broken Palm Pilot repaired — a long story not worth rehearsing. Suffice it to say that I was living in the Philippines at the time.
NB IT MAY BE THAT THAT COMPANY IS TOTALLY DIFFERENT NOW, SINCE THE TAKEOVER BY EBAY. I DON’T KNOW.
I had my account blocked, entirely capriciously, while it was in credit . I seemed a possible prelude to it’s being milked. I read reports of dishonest Paypal staff targeting people in developing countries who couldn’t easily fight back.
The only way to deal with it was to send a boat load of documents, including my contract of employment, my passport, driving license etc. I was helped by an employee whose email was a public secret on Paypal sucks when the company itself was not taking phone calls.
It was ALMOST impossible to get rid of a Paypal account. The only way to do it was to decline to accept new terms and conditions. If you get a chance… take it.
April 18th, 2008 at 5:22 am
Paypal… Sheesh, don’t get me started.. (*cracking knuckles*.. *leaning in towards computer*)..
I’ve been using them to make payments since 2003 (I think).. Using them to process payments since last July (processed hundreds of payments since then) I agree with Martha. When things are going well, they’re great. Quick, easy, well-known and recognized so there’s a good branding thing going on with clients. But when things go bad (e.g., chargebacks, etc) they retreat into their shell like a frightened turtle.
Also their customer service/technical support is beyond pathetic. In fact, they’d have to improve 500% just to get up to “pathetic”… (*chuckle*). I’d consider myself lucky if I managed to get a canned response a month after I requested help. I have long since given up on asking them for help.
And yes they are very unprofessional. Their landing page for a Buy Now button (and possibly for other payment forms) was throwing a Javascript error for over a month before they got around to fixing it even though it was well documented on the Paypal developer forum (we even pointed out exactly what line in their script was throwing the error). As anybody in online sales will tell you, trying to get people to buy stuff on the internet is like trying to get a squirrel to come over and take a peanut out of your hand. The slightest wrong move and they run like the wind. So getting to a page where you’re about to hand over your hard-earned cash and seeing the “Error on page” notice in the bottom of your browser is enough to give anybody the willie-nillies.
Also agree with Bonnie. Apparently when people make payments from their Paypal accounts linked to a bank account and they don’t have enough funds in their Paypal account, the status of their ‘echeck’ remains pending until the funds are successfully transferred from their bank account (which sometimes can take up to TWO WEEKS). Meanwhile, it appears that the buyer has no clue that this is going on. So inevitably they contact me saying “Where’s my stuff?” to which I repeatedly have to inform them that the status of their echeck is “Pending” and they’ll receive the goods when the check clears. Now I’ve taken to automatically emailing an explaination to the buyer telling them about the “Pending” status of their echeck whenever I get a “Notification of a Pending eCheck” email from Paypal. Something that Paypal should be doing, not me. (grrrr!)
Quite frankly, the only thing I think Paypal has going for them is that they’re so well known. If it weren’t for that, I would have dumped them a long time ago.
April 26th, 2008 at 7:56 pm
I believe that Paypal took a major step this week in announcing that they will no longer accept transactions from browsers that they deem “insecure”. The one thing that Paypal has going for it is the trust in the overall security of the system. I think that other financial institutions will have to follow suit making Paypal a de facto leader in online commerce. Very professional I’d say . . .