| In September of 2000, I posted a three-part journal
cataloguing the year-long process my wife and I undertook to get our
online art business up and running. No sooner had we posted the site
did we begin getting questions about PayPal Many people wanted to know if we would accept payment using their transfer system.
To be honest, I had hardly given PayPal a thought. Yes, I had seen the
little PayPal images while surfing around eBay, but never used it. In
terms of the site, I never considered it past a casual interest.
It wasn't until we began to list auctions on eBay that I really
become strongly interested in PayPal. Others who were helping me on my
quest to sell over eBay told many stories of bad checks and
non-payment. Some went as far as saying they wouldn't accept checks at
all, not even bank checks. They wanted PayPal customers. It really
shook me when a couple of possible buyers on my wife's art site told me
that unless I accept PayPal, they wouldn't buy.
That struck a nerve. When the customer begins making such demands, it's time to look into the service.
What Is PayPal Anyway? Depending on whom you talk to, it's either the greatest thing on earth or the dumbest way to transfer money (nicknamed "beaming"). The basic concept is this; PayPal offers a
secure service through which funds can be transferred from one Paypal account to another.
(Technically no funds are actually transferred. PayPal is just a
running total of how much one account was given from another and vice
versa. It isn't until someone "cashes out" that money is actually
"moved".)
The transfer is immediate and guaranteed. PayPal won't transfer funds unless the buyer has a credit line (or amount in bank acount)
to make the transfer. No, PayPal is not a bank. Thus, their accounts
are not federally insured in the same way as a traditional bank
account, however they do offer their own private insurance. As of the
time of this writing, the insurance was provided through the Travelers
Group.
The fact that the money is transferred from one PayPal account to
another, rather than right to the user, is important. We'll get to why
in a moment.
In order to participate in PayPal, you must sign up to be a
member. Right now (April, 2001) it's free. In fact, it remains a free
service as long as you remain only a buyer, meaning money only moves
from your account to someone else's account or you request from your
own monetary sources.
In order to sign up, you are asked all the basic questions, plus you
choose the traditional login and password. Your email is proven active
by the computer sending you your confirmation number. You get the
number, return to the site, and finish the process.
After signing up, you are asked to enter either a credit card number or bank account. Either way you go, or even if you choose to allow
both, the computer system performs a check. If the accounts are active
and have sufficient funds, you're good to go.
You'll be one of over 7 million beaming money from account to account.
How Does Paypal Make Its Money? This is always big concern of mine before I sign up for any site
that proclaims they work for free. If it's all free...where are you
making your money?
To begin with, PayPal is not free if you are a seller. In fact,
there's a pretty fancy fee structure to use the service. The maximum
amount you can be charged is 1.9% or your sale plus 25 cents. Now,
that's the maximum mind you. If your sale is under $15, you pay a
quarter.
But this thing is, PayPal isn't only getting rich off of those
fees. Where PayPal is making quiet cash is interest. Remember above
when I said that money is transferred between PayPal accounts? Well, as
long as the money hasn't been taken out of the PayPal account and put
to a credit card,
bank account, or sent to you in the form of a check, PayPal holds the
money in their account. While the money is in their account, they gain
interest. It's a process called a "float". Those of you who have taken
money out of your PayPal account also know that the transfer is not
immediate. Even after you ask for your money, there is still a waiting
period. The float is enforced even then.
Don't get me wrong, the process is purely legal and actually pretty clever if you ask me.
Why Would I Use PayPal? Let me put it this way, the site my wife and I put together accepts
credit cards. In order to be able to do that, we had to set up a secure
server, attain a secure certificate from Verisign, and have a shopping
cart / checkout system programmed for us. It cost us a fairly decent
amount of money.
With PayPal, one can basically bypass all of that. I have seen
numerous mom-and-pop level online stores that proclaim they accept
PayPal as payment. The basic concept is that someone sends an email
requesting to buy an item. The seller approves the sale. The buyer then
goes to PayPal and makes a secure transfer of funds.
An email letter arrives in the seller's box with the text "You've Got
Money!" It's a take off on the AOL "You've Got Mail!" Get it?
The email provides a link. The seller clicks to check to make
sure the correct amount of money has been transferred from one account
to another. If all is on the up and up, the seller can download the
payment onto a credit card, into a bank account, or request a check.
The transaction is finished and the product is sent.
Furthermore, the PayPal process is not just for e-business.
Let's say I owe you $20 from dinner last night or I picked the Browns
over the Steelers and lost. If we're both PayPal clients, I can pay you
for dinner or pay off that bet. (Although I don't know that PayPal would be too happy if they knew people were paying off illegal bets).
A transfer, is a transfer, is a transfer be it e-commerce or just two friends making things even-Steven.
Heck, you can now even download PayPal onto your Palm device.
Why Wouldn't I Use PayPal?
Before this begins to sound like a ten-page advertisement, allow me
to address some of the down sides I found with the service. Please
understand that these statements may become invalid as the PayPal
system changes and updates.
For one, you can only deal with a client that has PayPal. If
you run an e-business and only accept PayPal, you limit yourself to
only those who are "in the club". You may not think that is such a big
problem since the service has customers numbering into the millions,
but compared to the number of people who have credit cards...you're limiting those who can use the system. To that end, I
see PayPal being only one possible method of payment rather than being
the end all for an online business.
It use to be that PayPal didn't accept international customers.
Well, they do now so this isn't much of a down side but I thought I'd
mention it anyway.
Lastly, and this will probably tee off some real PayPal fans,
PayPal isn't seen as the "correct" method of online buying. I am only
working with what I have read and heard from others, but I have found
that many people see PayPal as something that works for auctions but
not for true e-commerce. That is reserved for credit cards in many
people's eyes.
To further that statement, I don't see the major online
e-commerce sites rushing to accept PayPal. They are staying with
traditional credit card transactions. I have had people tell me I must
put PayPal on my wife's site while others have told me that a PayPal
logo would cheapen the site.
Wrapping It Up
I only offer this information as an aid to help you make decisions
regarding you using or accepting PayPal. Obviously you can make the
decision to get into e-business using nothing but PayPal. Many are
doing just that. It's cheaper, easier, and some claim, more secure than
any credit card transaction.
To be fair, I should point out that there are other systems
that work in a similar fashion to PayPal; Billpoint, TradeSafe are two
other big ones, but PayPal really does lead the pack by a large margin.
PayPal is now allowing oversea accounts. They are going to sign
up a ton of new people. They are going to be huge. I think the main
concern they will have to contend with is if they can break out of that
"auctions only" stigma and be seen by the e-population as a method of
buying equal to credit card usage.
That's the tough part.
Enjoy!
Source: htmlgoodies.com
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