by Lloyd A. de Vries
Vol. 29 - Taking Money
Online and at AmeriStamp Expo last month, several dealers told me they won't use PayPal, the dominant online payment service. Some object to a loss of privacy, others tell horror stories of chargebacks (refunds) in disputed sales that reached right back into their bank accounts.
Well, there are things I don't like about Microsoft's software and operating system, but I use them, although I'm always open to replacements. (I use Eudora instead of Outlook for my e-mail, for example, and as I wrote last month, Firefox instead of Internet Explorer. But I still have both Microsoft programs on my computers.)
I concede both a loss of privacy and the chargebacks are possible. But I also think if you're going to do any significant buying or selling or stamps on the Internet, you have to have PayPal <www.paypal.com>.
Other companies have tried to compete, and failed. EBay abandoned its own Billpoint system and purchased PayPal; Yahoo dumped its PayDirect service, just a month or two after imposing a $5 monthly fee. One of the Citicorp subsidiaries tried to market a payment service to small businesses on the Internet, but soon imposed a significant transaction fee and concentrated on wiring money to and from Latin America.
I'm sort of surprised none of the other financial giants has tried to challenge eBay and PayPal. Maybe $3 transactions and quirky amateur businesses are too much trouble.
In a February 2006 research paper on "online micropayments" (transactions under $5), the Boston research company Celent said, "the chances of creating another universally accepted method of payment in the next few years are slim."
Rather than trying to go head-to-head with PayPal, Celent recommends following Amazon's lead, "allowing merchants to promote and syndicate each others' content through a standardized billing and payments platform." That is, one site or service takes payments for several vendors.
If you'd like to see an example of that, check The Virtual Stamp Club Bookstore, where we accept payments and process orders on behalf of FDC Publishing and the U.S. Stamp Society.
Celent says a "Google Wallet where you pay Google and Google disburses the funds to the actual vendors could mount a challenge to services such as PayPal. But so far, Google hasn't announced such a service.
Orange Bank, ING Direct, <http://home.ingdirect.com>, an online-only bank from a Dutch financial institution, might seem a likely challenger, but so far it's sticking to standard banking services, except for the lines at the local branch.
As for the customer-is-always-right chargeback policy, that's nothing new for small businesses. As a small-business stamp dealer a decade ago, my bank told me that in the case of any credit card dispute with a customer, I was wrong, the customer was right, the money would be deducted from my account, and the burden of proof was on me.
There's one way to minimize your exposure to PayPal chargebacks: Keep only a small amount of money not only in your PayPal account, but also in the bank account from which it draws The agreement with PayPal only gives it permission to go into that designated bank account, not your other accounts.
However, I know an active eBay buyer and seller who keeps several thousand dollars in his PayPal account. Why? Because for Business and Premium customers, it pays a higher rate of interest than any other liquid account he has.
Business and Premium customers who agree to say they prefer PayPal can also get a 1.5% rebate on purchases made using their PayPal debit cards. Several years ago, before eBay bought PayPal, I gave eBay my PayPal debit card number for my monthly eBay fees, so I've been getting a 1.5% discount each month. Now, eBay is encouraging sellers to pay their monthly fees using PayPal - but not offering any discount. I plan to keep my current system!
There are two major differences between regular PayPal accounts and Business and Premium accounts: Regular accounts can't take credit card payments, but don't pay a fee when receiving money. Business/Premium accounts can take credit cards, but pay a fee for every incoming transaction, credit card or not. (They also earn interest on the money sitting in their accounts and can get the debit cards.)
Meanwhile, each time someone does make a run at PayPal, I'll give that service a try. As Celent puts it, "online merchants and marketplaces need more than just single payment service solutions to attract customers."
[A version of this article appeared in the March 2005 issue of Global Stamp News. It has been modified and updated for The Virtual Stamp Club.]
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