Reviews Bank

Let me start by saying that my personal experience to date with Paypal has been 100% satisfactory. I have never had a complaint and besides a sometimes difficult to navigate website the system has always done what I wanted it to do. I’ve processed over $20,000 worth of transactions and never had trouble accessing my money.

An online payment processor is one of the most important parts of an online business. Without the ability to receive money online you can’t really run an Internet business. Sure you could work only with offline payment methods such as money orders, cheques in the mail or cash, but all of these methods are slow and you will definitely be losing potential customers if you don’t offer some form of instant payment method that handles credit cards.

When I first hunted for a payments processor, which at the time was for a web hosting business I was planning, I came across Paypal. That was about seven years ago and I’d say my story is a pretty common one since Paypal was one of the first providers of “email currency”, a system where you could send money via email and there were not many options particularly for Australians back then.

As usual I conducted extensive due diligence before deciding to use Paypal. As I read forums and surfed around the web I quickly came to realize that Paypal had a terrible reputation, so bad that some of its detractors had set up a website called PaypalSucks.com, which still functions today.

As someone who has been hit several times by credit card fraud I’m particularly wary of chargebacks from customers who use Paypal to buy things from me with a credit card. To be honest I have very little confidence in Paypal to protect me from chargebacks, but that is more because of the way online transactions work – protecting the buyer, especially when no signature is present (as in all online transactions) – rather than the seller. The best chance I have, and this is where I would expect services like Paypal to protect me, is to stop fraudulent transactions before they occur.

Once the payment is made and the service or product is provided then it’s too late. Chargebacks hurt the bottom line of your business and chances are you won’t be able to beat a chargeback claim as an online merchant with no signature. However if a payment provider can stop a suspect payment using historical data and other fraud detection methods then I will not send the product or provide the service hence eliminating my exposure to loss from chargebacks.

I’ve written extensively about why I’ve recommended Paymate.com.au, an Aussie Paypal-style service, over Paypal in the past, and most of my justification was based on Paymate’s superior fraud prevention. I’ve since changed my mind during the last two years because Paypal has performed well for me and their fees are a good 30% or so cheaper than Paymate and now offer Australian-centric services. I still offer both services to my customers but prefer when they choose Paypal because it’s cheaper for me.

I’ve read the book Paypal Wars which gives a good explanation for why Paypal has such a bad reputation. In a nutshell there were times in the company’s past where it was the target of all kinds of criminal action and it suffered millions of dollars worth of losses. As part of the retaliation against these criminals many honest customers were affected, losing access to their accounts and later resulting in the class action lawsuit which cost Paypal $9.25 million dollars.

Paypal also suffered because of it’s tremendous growth rate. The managers of Paypal are largely to blame since they were focused on customer acquisition above all else during the growth phase of the business. This resulted in a company that simply could not handle the amount of customers it had to deal with and hence the poor customer service reputation.

Despite all the negative history Paypal managed to grow and maintain it’s de facto standard as the leader in online payments. The grumblings from users seems to have reduced in the last few years and my feeling is that the company turned a corner and now has systems in place to deal with fraud and customer support that are far superior to what they had in the late nineties and early two thousands. Paypal has matured through it’s growing pains, and while no doubt there are still issues, the bad stories just aren’t quite as frequent as they used to be (of course this could be because the publicity has been spun in a more positive light, but lets not be skeptical).

The fact is there are some pretty bad horror stories of people booted from Paypal for no good reason, having their funds locked away (sometimes thousands of dollars lost) and many tales of poor customer service. I read many negative stories while researching Paypal and became very paranoid. In the end though, I still signed up to be a Paypal user because it had become the standard method of sending money online, which is tantamount to how strong their business model was despite all the negative stories floating around – you couldn’t afford not to use them. I had to offer this method of payment to my customers because I wanted to keep resistance to buy as low as possible, even if it meant risking being the next victim of a Paypal horror story.

Seven years later and happily I have no horror stories to tell. However since this is a review and I always like to discuss both the good and the bad I will tell you what I do and don’t like about Paypal in terms of my experience with it.

The customer service isn’t great. The website attempts it’s hardest to give you answers so you don’t have to query Paypal customer support via email, or heaven forbid, via the phone. Once I have tried to ask a question of their phone support but I gave up, it was just too time consuming. The email support is okay, but often has trouble answering your specific question and tends to send you preformatted template responses, which, if you are lucky, answer about half your question. Mind you the last time I required support was about two years ago and the service has likely improved. It had greatly improved over the previous two years when I last tried customer service so I think they were on the way up and may even be reasonable today.

The website is simply-complicated. Yes the design is simple, which I like, but often you can’t find the answer you want. If all you want to do is use the core functions then the Paypal website is a breeze. In my case I receive credit card payments regularly and spend money from my Paypal balance on auction items and other online purchases. Paypal is perfect for this. The more complicated your needs the more difficulty you are going to experience.

Sometimes the basic functions you would expect are not available or difficult to find. I’ve had trouble for example forcing a payment to come from my credit card and not my Paypal balance. Sometimes what you think would be an intuitive option just isn’t available and you don’t know if it’s because you couldn’t find it or because it doesn’t exist or has been deliberately made not available.

The multiple currencies system, which finally started servicing Australia recently, is fantastic and I love the way I can transfer balances in and out of different major currencies easily (you can do currency trading just within Paypal, although the rates aren’t great for short term profiteering).

The cut and paste shopping cart functions are ideal for me since I prefer to use very simple plain text “buy now” links. Once again the more complicated your online shopping cart needs the steeper the learning curve you will face integrating it with Paypal.

Paypal recently launched a merchant account service called Payments Pro that functions as a completely seamless online shopping system for your website. Provided you have the shopping cart software you can use Paypal as the gateway and payment processor and it’s completely private label, which means you can brand it as your own. I have not needed to use this service as yet so I cannot make a comment on how good it is.

All-in-all, for what Paypal does – primarily to allow you to send money through email and take credit card payments online – it does well. It makes what could be a terribly complex function, one full of potential security and privacy issues, and turns it into something as simple as sending email. For that they deserve kudos and I’m extremely happy with the core function and recommend it to everyone.

Yes there are customer service issues. Yes Paypal has a fairly rocky history. Yes you open yourself up to potential losses from chargebacks. The fact remains that Paypal is the largest online payments provider and you really can’t afford to not offer this method to your customers.

I recommend making other payment options available to your customers since it’s never good to rely only on one provider. I also recommend you regularly withdraw funds from your Paypal account and put that money to work for you. There is no interest in a Paypal account and you never know when you could be the next victim of a horror story or fraud attack so keep your money where you know it’s safe – in the bank or in investments.