PayPal Overall Rating
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PayPal Overview
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This PayPal (paypal.com) review is intended for small business owners and not necessarily eBay or personal users. For this reason, the contents of this review will focus on the factors that are important to small business owners who are interested in possibly using a PayPal account for the purpose of accepting credit card payments.
PayPal is a wholly owned subsidiary of eBay and is heavily used for payments between buyers and sellers of eBay auctions. PayPal is one of the most accessible electronic payment methods in the industry because it allows for anyone with an email address to sign up to send and receive payments from other individuals. Additionally, PayPal introduced a “merchant services” division that allowed businesses of all sizes to accept credit card payments much like a normal merchant account.
PayPal is unlike traditional credit card processors because merchants cannot use PayPal with traditional credit card processing equipment. Instead, PayPal offers several other services including shopping cart integration, “buy now” buttons and donation buttons that are primarily targeted towards merchants with an online presence. PayPal also offers a virtual terminal with an optional credit card reader that plugs into the USB port of most computers. The virtual terminal allows merchants to enter credit card data themselves and use PayPal much like a traditional merchant account. Additionally PayPal has introduced a couple mobile payment applications, but they are more for person-to-person payments rather than accepting credit cards from customers.
One important difference of PayPal versus a merchant account supplied by a credit card processor is that merchants must request the transfer of funds from their PayPal accounts to their checking accounts. Typically, most merchant account providers transfer the money as a “batch” automatically with 48 hours of the close of a business day. PayPal also offers payments by check and a debit card that can be use for purchases or withdrawing money from an ATM.
PayPal Sales Strategy & Tactics | A+
PayPal scores well in this section because the company does not use independent sales agents or misleading sales tactics. PayPal primarily markets itself online and through eBay, and in many ways has become a household name. The company’s policies and pricing are transparent and easily understandable for anyone who takes the time to read them.
PayPal Costs, Fees & Contract Terms | B
In this section, only PayPal fees, and contract terms associated with PayPal’s business account for accepting credit card payments are being considered.
Basic Merchant Setup (aka: Website Payments Standard)
This account does not allow merchants to enter credit card data themselves but does allow for customers to pay by credit card through a merchant’s website. Merchants wishing for an easy way to accept online payments, PayPal offers a basic setup with a few advantages over traditional merchant accounts. First, there is no setup cost, no monthly fees, no time commitment and no cancellation fee. The basic setup allows merchants to easily accept payments through their websites using “buy now,” “add to cart,” “donate” buttons and recurring payments from other PayPal users (To accept recurring payments from non-PayPal customers, there is a $19.99 per month fee). The basic setup is also compatible with most popular shopping carts. One of the disadvantages is that the customer must leave the merchant’s website and be redirected to PayPal to complete the transaction, which can reduce conversion rates and confuse customers. With no monthly fees, PayPal credit card acceptance does come at a higher than average processing rate. As of this review PayPal is reporting the following rate structure for basic U.S. accounts transacting in U.S. dollars (International rates may differ):
PayPal Standard & Pro Rates
*Note that PayPal charges different rate tiers based on sales volume whereas traditional merchant accounts charge different tiers based on the customers’ card type.
Advanced Merchant Setup (aka: Website Payments Pro)
The next account up from the standard account allows merchants to keep the entire checkout process on their own site. Like Website Payments Standard, merchants cannot enter credit card data themselves, but do get all the same features as the basic setup and can control the user experience throughout the entire online sales process. The PayPal rate tiers are the same as Website Payments Standard, but there is a $30 monthly fee. PayPal also offers additional services for data handling, PCI compliance and customer support, but these come at extra costs.
Virtual Terminal
As mentioned earlier in this review, PayPal offers a virtual terminal for merchants that need to enter credit card data themselves for face-to-face transactions and/or mail orders and telephone orders. Merchants who wish to use this service will need to go through an extra application process even if they already have a PayPal account. Apparently, it takes about 48 hours to find out if you have been approved for a virtual terminal account. Generally speaking, the cost for this service is fairly high in comparison to other virtual terminals and merchant account providers. In addition to a $30 per month fee, US merchants will pay the follow processing fees:
PayPal Virtual Terminal Rates
*The crosses next to the fees indicate that merchants must be approved for those rates.
Even though merchants can use an optional credit card reader that plugs into nearly any computer, the processing rates appear to be the same for swiped and keyed transactions. PayPal’s swipe rates are unusual because nearly all other merchant account providers offer lower swipe rates.
PayPal Complaints & Customer Service | C
The grade for this section was difficult to determine because of PayPal’s unique position in the credit card processing industry. Unlike traditional merchant accounts, virtually anyone can sign up for a PayPal account and PayPal has over 100 million users. As one could imagine, PayPal has thousands of complaints. The two most common that appear to come from actual merchants are complaints of sudden freezing of accounts that disable the merchant’s ability to accept further transactions and withdraw money, and poor experiences with customer service.
Merchants that complained of experiencing holds often reported difficulty in getting explanations of why the hold was established and that the money was held for long periods of time. Holds are a common practice in the credit card processing industry and are often used on merchants that are deemed as “high risk,” or have experienced numerous chargebacks or fraudulent transactions. Many merchants do not transfer their PayPal funds on a daily basis, so days or weeks worth of sales can get locked up during an account freeze. However, holds and account freezes are never a problem for most merchants, even though there are quite a few reported cases online.
As for complaints about customer support, PayPal offers several options for resolving problems including a phone helpline. The basic support line is open to all account types and appears to suffer from periodic long wait times and poor service. Merchants can get higher levels of customer support by paying either $159 per month for “13X7 Enhanced” support, or $495 per month for” 24X7 Premium” support.
PayPal earned a “C“ in this section because it does a good job of providing many customer service options, has a small proportion of complaints in comparison to its users but still has room for improvement by working to reduce the amount of complaints being filed online.
PayPal Better Business Bureau Report | C (CPO Adjusted)
As of this review, PayPal is accredited with the Better Business Bureau (BBB) and maintains an “A+” rating despite having 6,615 complaints filed in the last 36 months. Of the complaints, 3,407 are related to problems with the service, 1,709 with billing and collection, 1,287 with advertising and sales issues and 212 with other issues. The BBB justifies the high rating with the length of time PayPal has been in business, the complaint volume versus PayPal’s size, the company’s response to complaints, the rate of resolution of those complaints and that the BBB has sufficient background information on PayPal.
Based on PayPal’s complaint count, resolution ratio and size, we are adjusting this section’s rating to a “C” for the purposes of this review. You can learn more about why we adjust BBB ratings in our rating criteria.
Bottom Line
PayPal is a huge company and in some circles has a bad reputation. In spite of this, the company remains one of the best options for easily accepting electronic payments and continues to gain popularity. PayPal is comparable in cost to many merchant account setups, but is much more expensive than merchant accounts under the Interchange Pass-through pricing model. Although PayPal has a lot of complaints, most of them are due to the fact that even the most inexperienced and naïve business owners can set up an account in a matter of minutes. Overall, PayPal is a solid choice for accepting credit card payments and can be offered as an additional payment option alongside a normal merchant account and payment gateway setup.
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6 comments
Nick Curry says:
February 2, 2012 at 6:17 am (UTC -8 )
Ebay and Paypal are a scam. They hold on to your money for 21 days if you have had any complaints about shipping even though the customer received the merchandise and gave you a positive feedback. Im a verified seller with 100% postive feedback with over 2,200 transactions. I wish I could get away with holding peoples money for 21 days just the interest earned on that would make me millions. This should be looked into by the better business bureau. Thank God Whitman didn’t make Govenor of California.
JohnL says:
February 1, 2012 at 1:37 pm (UTC -8 )
On January 18, 2012, a customer registered for an event on our website and paid through PayPal. We confirmed her registration via email. The event is to be held this weekend, Feb. 3-5, 2012.
On Sunday Jan. 29, 2012, we recieved a notice from PayPal telling us the customer did not know who charged her card and that PayPal was opening an investigation.
I immediately responded to PayPal that I had no idea about this and that I would contact the customer right away. As I was typing the email to the customer, within 4 minutes of the PayPal email, I received a email from PayPal saying the investigation was complete and the charges were reversed back to the customer. I completed the email to the customer as well as made 5 attampts to contact her by phone. No answers from either.
Later that day I researched PayPal’s site to see if I can respond to this and to submit the proof of registration and a copy of the registration stating a cancellation fee of $35 would apply if cancelled prior to 30 of the event. I found that once the case is closed, there is no means for the merchant to appeal. I then wrote a email to their cistomer service with the information hoping they would direct me as to how I can appeal. No reply what-so-ever.
Last night, Jan 31, the customer’s husband called via phone. He told us he had received the emails and that his wife was out of town but was returning for the weekend event. He said that there must be a problem on PayPal’s part and that he would take care of it. One hour later, he called again saying that his wife was out of town on family business ans that she will not make it to the event and that she woud hopefully make an event at another time. He did not want to discuss a cancellation charge.
It is now clear that she (the customer) found that if she used PayPal to reverse the charges, she would not have to pay the cancellation fee with us.
Today, Feb 1, I called and talk with a PayPal representative. She explained that the reversal was correct and when asked about our cancellation fee, she said they do not get involved wit that! She said that any time a customer did not know who cahrged their card, they take that very serious and normally reverse the charges. I asked why i did not get the chance to submit any proof that she registered for this event, and proof that she was coming with a friend with her name clearly on the email to us. Te rep told me that they have closed the case and there was nothing more she could do about it.
The one interesting comment the representative said was, “If the merchant is selling a service, the seller does not have the same guarantee or protection as if they were selling merchandise” I find that vey interesting!! I understand that selling merchandise normally includes shipping and proof of shipping is a factor of proof for the merchant however, This goes far beyond that.
Wheather it be proof of shipping or proof of registration including the customer’s email, what is the difference? Why was I not allowed to submit the proof?
All I was requesting was the $35 cancellation fee. Now I am out the entire amount. I believe PayPal is wrong on their handling of this transaction and I have completely lost trust in PayPal.
Theresa Conti says:
January 30, 2012 at 9:19 am (UTC -8 )
i called PayPal at least five times to get information on how to link my credit card to my account. i was told PayPal would charge my credit card $1.95, which would be reimbursed once my card was authorized. I attempted to pay for an item using my credit card once the card was authorized, but was unable to do. I called PayPal and was told I was unable to use my credit card because I had cash sitting in my PayPal account and could not use my credit card until I either withdrew the cash or used it to pay for the item. I was also told the $1.95 PayPal charged me would not be reimbursed until I made a payment using my PayPal account. I have been waiting two weeks to purchase this item, because I wanted to use my credit card. I was never told I had either eliminate the cash in my PayPal account or use it before being allowed to use my credit card or that I would not be reimbursed the $1.95 charge until I made a purchase.
Stephen Utermahlen says:
January 28, 2012 at 3:29 pm (UTC -8 )
Copy of my last letter to PayPal regarding approval for a Debit card.
PayPal,
In your last letter you mention that this process may be frustrating. Yes it is. I have faxed information to PayPal twice. Twice when I called PayPal to confirm PayPal says they have not received the faxes. They have, but somewhere in PayPal someone has not posted them on my account or there is some other reason.
PayPal requests information from my bank displaying my address. I have faxed that information. PayPal says they have not received it. I am now waiting to get my next bank statement . When this arrives I will scan it and email it to you. PayPal says this is the best way to transmit my information. So I will do this and see what happens. I expect my statement soon.
I have called PayPal over ten times. I never talk to the same person to discuss my progress. Each person has provided me with different direction from the previous person. this is very frustrating.
Could you please send me the PayPal area where I can submit a complaint. If you check my account I have been attempting to obtain a PayPal debit card for nearly a year.
Would you be frustrated.? So would you please do me a favor and DO NOT apologize. This is a automated response from PayPal for I feel it has no meaning coming from PayPal. It is merely a formality and very shallow.
At PayPal’s convenience please send a survey asking my opinion of the PayPal service.
Stephen Utermahlen
Sara says:
January 10, 2012 at 1:02 pm (UTC -8 )
Paypal has now joined my list of worst companies in the world. Not only did Paypal repeatedly ship to the wrong address and use the wrong payment method after I specifically told them which one to use but now they refuse to close my account. I had the account for many years to use occasionally on eBay and they have caused nothing but trouble when I actually use it. They won’t even let you change your name or delete your old bank account or credit card information. Now they are basically holding my account and financial information hostage to use whenever and however they want against my wishes. What they are doing is illegal and I am in the process of reporting them to the authorities. I have tried calling customer service multiple times but each time they are nothing but rude to me and flat out refuse to help me. All I want to do is close my account with this fraudulent company. I would never had joined had I known how horrible they are to their customers and I can’t believe eBay makes you use them. eBay has now lost my business and I will do my best to warn others about this scam before Paypal takes advantage of them. I am just glad I didn’t enter my new bank account information because they probably would be taking unauthorized money out of there too.
Bacon Nivison says:
December 4, 2011 at 11:05 am (UTC -8 )
Paypal was magnificent for many years, but now they’ve begun mismanaging the funds with which they’ve been entrusted. After 8 years of trouble free business via Paypal they began withholding customer’s monies. Their customer “service” department has been condescending and unhelpful. Paypal definitely played a role in my building of more than one internet businesses as well as transacting thousands of exchanges for me but now they are putting me out of business. There are much better alternatives out there.