|Thu Apr 19 2012 22:14:42|
Why PayPal Doesn't Like Credit Card Funding
By: Ina Steiner
Did you know that PayPal incurs varying fees depending on how you fund your PayPal purchases? PayPal pays significant transaction fees for credit card funding, pays lower fees when customers fund payments with debit cards, and nominal fees when customers fund payment transactions by electronic transfer of funds from bank accounts.
PayPal incurs no fees when customers fund payment transactions from an existing PayPal account balance or through the Bill Me Later service, or use buyer credit issued by GE Money Bank.
Why Customers Prefer Credit Card Funding
Customers fund a significant portion of PayPal's payment volume using credit and debit cards. eBay explains that customers may prefer funding payment transactions using credit cards or debit cards rather than bank account transfers for a number of reasons, including the following:
- the ability to dispute and reverse charges directly with their payment card provider if merchandise is not delivered or is not as described;
- the ability to earn frequent flier miles, cash rebates, or other incentives offered by payment card issuers;
- the ability to defer payment;
- or a reluctance to provide bank account information to PayPal.
In addition, some of PayPal's offerings, including the ability for buyers to make a limited number of payments without opening a PayPal account, have a higher rate of payment card funding than PayPal's basic product offering.
Why PayPal Hates Credit-Card Chargebacks
So while credit- and debit-card funding costs PayPal more, it's crucial that it offer users those options, since that's what so many buyers prefer. But as any retailer with a credit card merchant account knows, too many chargebacks can put your account in jeopardy. And that's why PayPal tries to discourage users from filing claims with their credit card companies.
As eBay's writes in its annual report, "if losses incurred by PayPal related to payment card transactions become excessive, they could potentially result in PayPal losing the right to accept payment cards for payment" - just like a merchant would be put on the TMF list.
Pay After Delivery - For Real?
It could also explain why PayPal offers Pay After Delivery - in exchange for giving buyers 14 days to pay for purchases (for eligible users only), PayPal avoids credit and debit card payments:
"Add and confirm your Bank Account so that you can take advantage of Pay After Delivery. PayPal will pay the seller immediately, but won't deduct the money from your bank account until 14 days later. We'll send you a reminder email four days before we deduct anything so you won’t find any surprises. There's no cost to you. And because the money is deducted from your bank account, there's no credit check and no credit card fees."
What's Your Preference?
I haven't heard many reports of buyers having problems specifying which funding source they want to use for PayPal purchases lately.
As sellers, do you prefer to use the money in your account to fund purchases? Which funding method do you use, and why?