PayPal Overview
PayPal is a massive online payment processor that begam in 1998 as a subsidiary service offered by eBay but has since grown into one of the leading payment options for e-commerce merchants across the world. PayPal was spun off from eBay in mid-2015 and claims to have processed over 1.4 billion transactions in the fourth quarter of 2015, its first full quarter as an independent entity. PayPal is best known for facilitating consumer payments over the Internet by enabling users to transfer funds between reloadable PayPal accounts, but the company has also grown into a major credit card processor for online business owners. PayPal has shown an interest in emerging payment trends with its acquisitions of Braintree Payment Systems and Venmo.
PayPal’s business products include web payment processing, mobile payment acceptance via PayPal Here, “Buy Now” buttons, online invoicing, a virtual terminal, mobile-optimized checkout, and third-party software integration. PayPal can process payments from customers’ credit cards or from their PayPal accounts, but merchants will receive payments directly to their PayPal accounts. This means that they must then separately transfer the money from their PayPal accounts to their business checking accounts. To avoid this hassle, merchants can choose to conduct most of their business through their PayPal accounts.
PayPal offers live phone support for its users, but the PayPal website currently shows the hours of this support line as 8:00 to 4:30 GMT Monday through Friday. In the past, PayPal has provided enhanced and premium support tiers for an additional cost, but it’s unclear whether the company is still following this model.
This review of PayPal is intended for small business owners who accept credit card payments and will need to accept credit card payments in the future.
PayPal began as a wholly-owned subsidiary of eBay, and in mid-2015 split off to become its own independent company.
PayPal offers a virtual terminal, shopping cart integration, and donation buttons primarily targeted towards merchants with an online presence.
Paypal uses an all-in-one POS solution called Zettle for their in-person payment processing. The device runs off smartphones and is integrated with PayPal’s merchant accounts and Apple Pay, Samsung Pay, and Android Pay.
PayPal alternatives are better than the merchant account supplied by a credit card processor for business owners who would like to avoid the transfer of funds.
PayPal has received thousands of public complaints and is receiving a “B” rating from the BBB.
PayPal and Venmo are both companies that are competing to be the preferred payment processing service for small businesses. PayPal purchased Venmo as part of its acquisition of Braintree in 2013.
In recent years, both brands have seen a rise in popularity with smaller merchants. These brands have been introducing new products and services to appease their growing number of clients.
While both services have credit and debit processing options, PayPal has a lot more options when it comes to taking cards, and Venmo has less protections for credit card transactions.
Venmo allows merchants to accept credit card payments, but charges an additional 3% fee. PayPal does not charge this fee and has several tiers of physical POS systems.
Venmo and PayPal are both very attractive to merchants that make few or sparse transactions, and neither charge a monthly fee or early termination fee.
Pros & Cons Both services are great for transferring funds, but they have a delay of 1 to 3 days before the funds are released to your bank account.
Venmo can transfer money to a bank account for free in 1 to 3 days, but also offers an instant transfer service for 1% with no fee ceiling.
Both services offer a lot of flexibility, but the end-users and mobile market seem to prefer the low-maintenance, highly mobile payment platform Venmo.
This account type allows customers to buy products through a merchant’s website, but does not allow the business owner to enter credit card data manually using a computer.
PayPal Payments Standard comes with no monthly fees, and allows merchants to accept payments through their websites. However, the customer must leave the merchant’s website to complete the transaction, which can reduce conversion rates and confuse customers.
Transfers to bank accounts from PayPal will be deposited on the next business day. Merchants can also make instant transfers.
PayPal Payments Advanced allows merchants to control the user experience throughout the entire online sales process, but also provides the same features as PayPal Payments Standard.
PayPal Payment Pro allows for a custom checkout page design and self-hosting. This is a good feature for high-volume e-commerce retailers and web developers.
PayPal offers virtual terminals to merchants who need to enter credit card data themselves. You will pay a $30 per month fee for this service.
PayPal charges 2.9% plus $0.30 per domestic transaction and 3.9% plus $0.30 per international transaction.
PayPal virtual terminal merchants can use a credit card reader, but processing fees are the same for swiped and keyed transactions.
PayPal has received thousands of customer reviews, but the grade is difficult to assign because of PayPal’s unique position in the credit card processing industry.
Business owners who complain about funding holds often report difficulty in getting explanations as to why the hold was established, and that the money was held for long periods of time.
PayPal was sued in 2017, agreed to pay out over $4 million to the plaintiffs in Zepeda v. PayPal Inc., and was investigated by the Securities and Exchange Commission and the Consumer Financial Protection Bureau in 2021.
Bloomberg reports the SEC and the CFPB are investigating whether the swipe fees and marketing fees paid by PayPal to banks are consistent with Federal Reserve guidelines.
PayPal Inc. stock dropped significantly following the announcement of a federal investigation that lead to class-action suits.
PayPal offers a phone helpline, but has poor service. Merchants can get higher levels of support by paying more.
PayPal is accredited with the Better Business Bureau and maintains a “B” rating, despite 25,978 complaints filed in the last 36 months, with only 13,257 resolved to the satisfaction of the merchant.
PayPal has received 2,182 informal reviews, with the vast majority being negative. Many of these reviews are from customers, as opposed to merchants.
The BBB justifies its rating of PayPal by citing its size, complaint volume, response to complaints, and the BBB’s ability to access sufficient background information.
PayPal scores well because the company does not use misleading sales tactics and clearly outlines its pricing and policies.
PayPal offers credit card processing and merchant services similar to traditional processors, and although it is more expensive than merchant accounts under the Interchange Pass-through pricing model, it is a great choice for many small businesses and startups who want to accept credit card payments.
At a glance
Founded: 1998
Location: San Jose, California
Acquiring bank: Multiple, undisclosed
Website: paypal.com
Phone number: 1-402-935-2050
E-mail: Contact form here
PayPal Promotional Video
Online reputation and reviews
PayPal’s global presence and ease-of-signup make it the subject of thousands of user reviews. Most of these are negative in tone, as the company has become notorious for fund withholding, sudden account deactivation, long customer support wait times, and chargeback mismanagement. However, given its massive user base, PayPal doesn’t seem to have amassed an especially worrisome body of reviews.
Legal actions and lawsuits
Zepeda v. PayPal is a class action lawsuit that has been settled as of this writing. The suit alleged that PayPal improperly placed fund holds on users’ money from 2006 to 2015 in violation of its terms of use. Each member of the settlement class who makes a claim before May 10, 2016, may receive up to $440 per the terms of the settlement. To see whether you qualify, visit this website.
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