Why I Use Paypal

Responding to a post I made earlier about a temporary error which affected my access to my Paypal balance, a commenter Xanadu said the following :

The solution might be to stop using PayPal-based payment systems (such as e-junkie) and start using a real registration provider, such as Advangate, Plimus, etc.

Yes, their commisions may be higher. However, PayPal introduces an uncertainity factor.

There are hundreads of stories of people who used PayPal, were happy, and then got their accounts closed and funds frozen for no reason at all – and couldn’t do anything about it.

This is a comment point of view among folks running uISVs, and it comes up in the Business of Software boards fairly frequently (as night follows day, so shall PaypalSucks follow Paypal).  I respectfully believe it to be mistaken, and as this is a crucial decision for a business to make, have decided to address it here rather than in a comment.

I have used a “real” registration provider.  The experience was worse for me, and for my customers, than the experience with Paypal has been.  Whereas I have never lost a dime on Paypal in 7 years, I have never successfully recouped a penny off of close to $100 in sales on eSellerate due to obtusely difficult processes to connect me to my money.  Their ordering pathway is also inferior to Paypal’s, and their workflow is tedious and overly complicated for my needs.

My relationship with Paypal (since 2000), like my relationship with my bank, with Google, and with the Java community, is a calculated risk.  I cannot be sure that my Paypal balance will not be frozen tomorrow.  I also cannot be sure that my bank will not suddenly lose my records, that Google will not consign me to PRgatory, and that the Java ecosystem will not evolve in a way iminical to my interests.  In the meanwhile, these calculated risks save me hundreds of dollars versus the next best alternatives.

Why is this a crucial issue?  The dollars make sense.  On my 2006 sales, Avantage would have cost me $270 extra.  Plimus. approximately $150 extra.  etc, etc.  That is on a pre-tax profit of approximately $1,250.  That cost, unlike almost every other cost in my business, scales linearly with sales.  When phenomenally successful Andy Brice asks “What am I getting for an extra $880 per thousand transactions?” that is not a hypothetical question.  (Ahh, a thousand transactions — maybe next year.  My 2007 goal is 400.)

Even if RandomSharewarePaymentProcessor were able to offer me 4.16% processing fees (($24.95 * 2.9% + $0.30)/ $24.95), I would be very hesitant to leave Paypal.  In my market, where non-technical customers abound and eBay is a way of life, customer trust for Paypal is a heck of a lot higher than customer trust is for Patrick McKenzie.  Trust is currency, because without trust I get no currency.  The Paypal name means “Buy here and you’re covered” to the astoundingly high seventy percent of my customers who have an account with them.  Its like the Good Housekeeping Seal of Approval, 2007 Edition.

Finally, speaking of ecosystems, Paypal is big enough to have one.  This has resulted in numerous services springing up around Paypal, such as e-junkie and Payloadz.   I have sung the praises of e-junkie on many occasions.

P.S. If the prospect of having your Paypal account frozen is still too scary to contemplate, consider a) telling them to “auto-sweep” (transfer the entire balance daily into your bank account) or b) sweeping manually, keeping perhaps 2 sales worth to cover any refunds you may need to issue or chargebacks you may need to absorb.  This limits my maximum losses on Paypal to approximately $50, plus whatever damage to my business continuity the freeze would cause before I could type “mv purchasing_esellerate.htm purchasing.htm” into a terminal somewhere.  If you’re particularly paranoid, get an extra account at your bank to link Paypal to, since they can’t then use ACH to muck with the cash in your real bank account.  Most banks will hand out checking accounts like they are candy (although it might cost you a hard inquiry on your credit report).

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4 Comments on “Why I Use Paypal”

  1. Phil Says:

    It is unbelievable how much money people will throw away on superstition. PayPal’s customer service sucks, but I still have yet to see anyone (that I know) get their account frozen for no good reason. I used a “real” provider for years (Authorize.net) and it just ended up costing me a fortune and customer service was just as bad.

  2. Deborah Says:

    I have used Paypal for over 6 years and completed over 1000 transactions through it (both buying and selling) with 0 problems. I think it’s probably true that their customer service is bad but in all this time I’ve never needed to experience it. There is another plus with Paypal. I have a debit card and you get 1.5% back everytime you use it to purchase anything. It’s not a credit card, it’s a regular debit card. Using it for business purchases and getting that 1.5% back helps make their effective rate even lower.

    I’ll risk the small amount of money I keep in it for the low fees. I have read of people having their accounts frozen but it was never “for no reason”. It was caused, in the case I read of, by a sudden huge increase in payments received on a newly set up account. And, in that case, their money was not lost, only frozen until it could be looked into, then released. It was a fund someone set up to receive donations for huricane relief. There was a lot of fraud going on with that type of thing at the time.

    I would venture to guess that there is probably not a payment processor around that hasn’t made their share of errors and failed in customer support.

  3. Robin Says:

    I love PayPal’s customer support. It was terrible 2 years ago. Now, it’s the BEST. They talk to you, they hear what you have to say and they help you. You can even talk to developers and there is a direct way to alert their engineers of the system issues (which only happens after upgrades).

  4. Joe Says:

    PayPal can freeze your account for any reason they deem suspicious! But, I still use them because their around and therefore can complain about them. And other people continue to use them and complain about them! So it all works out. Hopefully!!

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