Is Paypal Good for Your Online Business?


PayPal is definitely the most well-known online user payment service in the world. With its start somewhere in 2000 thanks to and Confinity merging, PayPal quickly became a leader of the market and expanded very fast among eBay users. That is probably why PayPal was bought by eBay in 2002 for just under $1.5 billion.

But PayPal means much more than that today. Tens of millions of users tend to pay with PayPal faster than with their credit card. The company functions as an acquirer and processes payments for online vendors, auction sites and many commercial users – all these for a small usage fee. With such a reputation to handle, we might surely ask ourselves how likely it is for PayPal to be the best payment processor for our online services. If you own a design agency, I am sure you have thought of this at least once.

Today we will put in balance the negative and positive sides of using PayPal for a business and we will try to come to a conclusion by the end. I look also forward to hearing your opinions about the great service PayPal is, but let’s wait for that until the end.

What is PayPal NOT?

Well, although it seems like one, PayPal is definitely not a bank. It offers the basic services of a bank, but is has not been classified as one, although it is under rules and regulations which govern a financial institution in the USA. A bank usually uses people’s deposits for its own purposes, while PayPal does not. They only store the deposits in their accounts and do not redistribute any of it. Although PayPal is not considered a bank in the US, it has been regulated just like one by the CSSF in Europe.

In order to be able to talk about the advantages and disadvantages of PayPal, it would be a good idea for me to tell you some quick facts about it:

  • PayPal has more than 230 million accounts registered and allows customers to send, hold and receive money in 190 countries in the world. PayPal features support for 24 different currencies.
  • PayPal allows people to start their own businesses and work as a third-party service in the transactions they make.
  • There is a specific limit of money a user can receive per year. If you want to have an unlimited account, you will need to provide personal information and verify the account.
  • PayPal has a service called Students’ Account, which permitted parents to give students money on a debit card.

The good

PayPal has some clear advantages over any competitor on the market. First, it is very easy to set up and is very elegant. It doesn’t take more than few minutes to set up an online shop with support for PayPal. The “add to cart” and “view cart” buttons can even be customized by the designers themselves. The service is also very easy to use and the payments very easy to execute. There is no doubt about the fact that paying with PayPal could not be easier. Moreover, there is no setup or monthly fee.

Let’s face it, one of the most important assets of PayPal is its brand and name recognition. Being a company with excess of $2.2 billion in annual sales revenues, PayPal is no doubt the star player of the market. Although people are still reluctant to pay on the internet, they definitely trust PayPal the most if needed to process money online. Moreover, because it functions as a third-party service, PayPal makes sure the customer’s credit card and bank account number do not get in the stores’ databases. Security is extremely important and PayPal seems to take care of it as well as possible.

While many other services sustain themselves by asking for monthly or yearly payments, PayPal asks for money only from the users who sell. This makes PayPal feel like your friend because when you don’t sell anything, you don’t pay anything. Can it be more convenient?

Image by 401K.

With so many users having a PayPal account, there is a huge potential customer base for everyone who uses PayPal for online selling. A good example is eBay. The majority of the sellers do not offer support for MasterCard or VISA, therefore buyers need to have a PayPal account in order to buy something – and this doesn’t affect eBay at all, because as said before, PayPal has a huge customer base.

While businesses use PayPal for commercial purposes, individuals can also use it for personal purposes. PayPal offers multiple account options and a single person can opt for one of them. Each account option offers different privileges and have different rules. There is no fee for transactions between two PayPal users with a personal account for example.

The fact that PayPal offers support in so many countries is another strong asset. Giving the option to use 24 currencies and handle international payments is something not many other services can do. Another impressive feature is the option to pay through credit and debit cards directly, which means the transaction fee is also minimal, set at 3.9 percent for any amount up to $100,000.

If you thought this is all, you are in for another surprise. Although it is not a bank, PayPal works as a great accountant. You can see every payment, withdrawal, every inbound transaction – all these with a single click. It is very easy to find every transactions in the history panel and you can even download a spreadsheet file with details for a period longer than one year. Printing is not a problem for PayPal either.

As mentioned before, PayPal is an eBay service, therefore buying from the American online store has never been easier.

The bad

As any other service, PayPal has its own disadvantages too. One of them might be the fees charged for non-PayPal payments. Although PayPal claims they help small sellers, the hidden fees show no signs of it. The fees might be from 1.9 to 2.9 percent plus $0.30 per transaction – this can get very costly. Some of PayPal’s rules are also very strict due to different regulations. The slightest suspicion about your account might get it suspended and it takes a long time for PayPal to investigate and reopen your account. You might find yourself with your money locked for longer periods than expected.

Talking about customer service, maybe the worst thing about PayPal is the difficulty to solve issues and investigate cases. There have been many issues over time with trying to contact customer service. Even when you manage to get a hold of them, sometimes it just seems there is no one at the end of the line and some emails only get automated responses. There have also been reports of accounts being automatically charged without the knowledge of the user.

Although a quite secure service, PayPal seems to lack high-quality customer support.

Image by protohiro.

There is not even the chance of a third-party jury. When being investigated by PayPal, your account and funds get frozen and the only thing you can do is wait. There is no documentation provided to the user and it doesn’t seem like PayPal puts much consideration into resolving peoples issues.

The verification process is also a hassle. Users have to provide several important pieces of private information such as bills, bank account numbers, social security numbers, address proof and so on. Some users might not even be comfortable with offering such information, but they have to in order for PayPal to lift the funds receiving limit.

Although most eBay sellers have to use PayPal, it seems the protection for them is not excellent. There have been reports of funds refunded to the customer even after the seller has shipped the item! This can become a deal breaker especially when the customer service is not as good as it should be.

Who else?

If for some reason you just don’t want to go with PayPal, then there are some other alternatives out there, although none of them is really that impressive. Google Checkout is an alternative, although it is still an inferior product. The main difference is that Google’s service charges fees depending on the sales volume, while PayPal does not. Checkout also offers fewer features than eBay’s service.

A second one could be MoneyBookers, a very well-known British-based service. They have a customer base of around 10 million accounts, although we do not know yet how many of them are active. They offer services to everybody with an email address and they have a flat fee per transaction.

Besides Google Checkout and MoneyBookers, there is not much else worth mentioning. The other few alternatives, Amazon Payments, OboPay and Paymate are really small and, when people deal with their money, they are not willing to work with companies without a powerful brand.

Bottom line

PayPal is obviously not the perfect solution for buyers and sellers, however it is definitely the best one available right now. They lack support, true, but it’s the most secure online payment service and the one offering the most features. Although PayPal seems best suited for medium-sized businesses, there are not many alternatives out there.

If we look at it from the buyers’ perspective, then there is definitely no better alternative out there. Let’s face it, every service has its own problems; it is just a matter of finding the one with the least of them.

Until next time… what do you think about PayPal? Did you ever have problems with it as a seller/buyer? What is your experience with their customer support and how long did it take for your case to be investigated?



  1. susan

    Why does Paypal hold peoples money for over a week? I made a bank transfer from my bank on 29 Feb 2012 the money was taken from bank on March 2 and took until March 10 to show in my PayPal account….Would some body like to explain why funds are “floated”…MoneyBookers, Neteller and some of the other bigger merchants do not float customers money..The other ironic thing is that I see in my PayPal account that it does not state exactly when/what date the money is transferred….i keep getting told if I provide my credit card details it will be much quicker…

  2. Tony

    If Paypal didn’t exist, online business wouldn’t have been possible. Banks have outrageous fees and for a small transaction, the fee could be more than the payment itself. Outside the U.S of A, checks are a pain. Touch wood, I have never had problems with PayPal but the horror stories I have heard, make me fear this can happen to me, too. I get most of my payments via PayPal and I just wouldn’t like to think what will happen, if they close my account. I will be more than happy when real PayPal alternatives become available but for now all the alternatives don’t work for me.

  3. As a business owner I think it’s definitely a good idea to have PayPal as an alternative payment option on your site. PROs: reliablility, security (less fraud), convenience, millions of people knowing it; CONs: security checks can be annoying, not avaliable in all countries, slight delays. The PROs in my opinion outweigh the CONs by far.

  4. Michael Chibuzor

    It’s a great thing to know that PayPal has “bad” sides too. I’ve enjoyed reading this article, it’ll help me in paypal payments on my site.

  5. Rosemary Jayne

    what do you think about PayPal? Did you ever have problems with it as a seller/buyer? What is your experience with their customer support and how long did it take for your case to be investigated?

    Personally I quite like Paypal, I first opened an account to receive some money I made for writing an article on a website years ago, and since then I’ve used it predominantly for collecting money for sales on eBay.
    While I’ve never had any problems my parents have. They both have paypal accounts but they only have one shared bank account. When my Mum opened her paypal account she added a bank account because it told her to, and then my Dad reached his spending limit and had to add a bank account. Because they only had one joint bank account between them he couldn’t. While their situation might seem unusual when we spoke to Paypal they said they couldn’t do anything – despite the fact that the bank account had both names on it. Eventually my Mum was able to unlink her bank account and attach her business bank account and then my Dad attached their account to his – we checked with Paypal before doing this and while they weren’t happy there was nothing in their guidelines to say we couldn’t. The customer support was very quick (they got back to us via email within a few hours on a Saturday morning over the Christmas period in England), and while they couldn’t solve our problem it wasn’t the fault of the support, it’s the way their system is set up.

    So that’s my experience, good for me, not so good for my parents – but now everything’s sorted my Dad’s happy.

  6. Paypal is best for fast and secure transaction. However there are several other alternatives such as Google checkouts. For any e-commerce site its better to have one or more methods for payments.

  7. I would like to use Google Checkout, but i’m in Italy and i can’t use it as merchant, it’s not available! In my country seems available only for Android developers…
    Could you add country-limits to services you have linked to?

  8. I really had a very bad experience with paypal while transferring money to my bank account. My money was struck up with them for 15 days, when i approached them answer was “you haven’t submitted the documents” I just don’t know how they did my previous transactions. The fact is they lost my data base which i came to know after talking to few support executives… And the transfer fee is also high compared to others..

  9. Asher

    Is Amazon not considered a “powerful brand”? Their service may not be so widely used, but if trust is the issue, I would imagine most customers would recognize and be comfortable with the Amazon logo.

  10. Omar Buhidma

    You missed a fairly big bullet point under “The Bad” – Paypal’s censorship regime.

    I’ve been a long time Paypal user, despite repeated indications of deceptive business practices and unreliable service. I was willing to put up with all of that for a convenient way to make and receive payments over the web. No longer. I’ll use amazon payments from now on. Paypal (and ebay) no longer see a dime from me.

  11. I’ve heard people recommend 2Checkout after getting burned by Paypal.
    That reminds me – I’d better not check Paypal while on vacation in Bali, Indonesia, since last time they locked me out of my account for doing so.