eBay is no doubt the world’s pioneer in online sales and it remains to this day as one of the forefront companies in the online sales business circle. As a multi-billion dollar company with operations in over 30 countries, eBay specializes in both business to consumer sales as well as consumer to consumer sales, becoming a dominant presence in the online marketplace due to their simple process for sellers to list goods and the ease in which buyers can purchase those products. Businesses selling online with an eBay merchant account to accept consumer payments for purchases.
For years, the main way to pay for any purchase made on eBay has been through PayPal, once part of the eBay corporation but has since been spun off into a separate company. The success of PayPal is due its fast and simple setup process for buyers and sellers; with minimal background checks for both buyers and sellers along with a secure method of handling of debit or credit card account numbers, it is essentially the easiest, fastest and safest transactions on the internet.
As a payment aggregator, PayPal operates between the merchants and customers, managing transactions, funding of accounts and the security of transactions. PayPal transactions are fast solutions that provide high levels of security and functionality that required the various credit card networks including Visa, MasterCard, American Express and Discover. The availability of PayPal has continued to grow every year, making it almost a necessity of having PayPal today important for both customers and merchants to operate and easily make payments.
Accepting Payments via PayPal on eBay.
PayPal, initially known as Confinity, launched in the mid 1990's and quickly became a subsidiary of eBay by 2002, becoming the primary payment method used by eBay for all transactions. PayPal remained as part of the eBay portfolio for over 10 years, becoming the fastest growing segment of eBay and a huge revenue generator. In July of 2015, PayPal was successfully spun off as a separate company, but an agreement in place allows PayPal to remain as a payment processing service for eBay transactions.
The success of PayPal comes from its ability to make purchases and sales easily available to both buyers and sellers using the PayPal platform. Merchants who sell through this system enjoy a lesser degree of scrutiny when applying for an account verse applying for a traditional merchant account. Accounts are also almost instantaneously verified and businesses can start processing online transactions immediately, but this simplicity does come with some downsides for merchants selling primarily with PayPal services.
PayPal as a payment aggregator
Payment aggregators assume liability on many transactions, making the aggregator financially responsible for both the customer's protection on their purchases and the funding of merchants once the transaction has been completed. Unlike many merchant accounts, the initial application by a merchant can be quickly approved, many times nearly instantly, which can be good for merchants but also leaves a lot of responsibility to the aggregator to fight fraud and other schemes.
One of the problems that happen to many merchants lies in the terms and conditions that grant PayPal the right to freeze an account for any sort of suspicious trading behavior without any prior warnings or notifications. Funds can be held for months and run the risk of potentially never being refunded, leaving merchants without much recourse. Reasons for suspension of accounts and funds can include a sudden increase in the number of chargebacks, a spike in sales volume or basically anything that they feel is out of the ordinary or might potentially hurt the online credit card processing industry that PayPal has built and maintained.
Chargebacks, which are not all that common but can very difficult through PayPal, are disputes that occur between the cardholder and the seller and are initiated by the customer contacting their card issuing bank as to a problem with a merchant transaction. When a cardholder questions a transaction, the full amount of the sale is automatically returned back by the merchant to the customer account, resulting in the possibility of a shortfall which would become the responsibility of PayPal, and eventually the merchant, in this instance.
This might not be much of a concern to clients who only use eBay to sell goods a few times a year, but it can be troublesome and detrimental to long term merchants who use PayPal and eBay to operate a large part of their businesses. Aggregators have generally very little knowledge about the inner workings of their merchant's businesses, resulting in many accounts being shut down and funds held. This makes PayPal one of the worst options for sellers operating on either eBay or a general e commerce platform.
What to do if you need an eBay Merchant Account
The question arises, is it worth risking business revenue when opening a PayPal account or is it recommended to go through the process of setting up a regular merchant account? What other options do merchants have? Luckily these days there are highly reputable financial services providers, who specialize in supporting businesses regardless of the platforms in which they operate. Here are just a few of these advantages that come from working with an experienced payment processor that specializes in general e commerce other than a payment aggregator like PayPal.
Such payment processors are not only equipped to deal with the tricky issue of chargebacks but can also support and even counsel you on how to greatly reduce your risk in the market place. A good payment processor will already have their own portal for dealing with chargeback issues. Unlike aggregators like PayPal that often charge high fees for chargebacks incurred without any knowledge of the specific situation at hand. Operating via a merchant account processor can greatly reduce these fees and maybe negate them completely depending on the situation and agreements you are able to put in place before signing on.
Working with a payment processor that understands how each business is different and is willing to work with those businesses can be the foundation for a solid partnership. Having a payment processor that will work with you to rectify any potential situations or problems without instantly judging against you can make the e commerce experience a successful one for all parties involved. Payment aggregators have limited influence on the payment card networks, making it very difficult for PayPal or others to fight any chargebacks on behalf of the merchant.
Payment aggregators have the ability to hold funds for upwards of 2 weeks, depending on the agreement that the merchant and payment processor have entered into. PayPal will hold funds in a merchant's account until they transfer them to a bank, allowing PayPal access to that money until it has been cleared. In a normal merchant account, funds will be sent to the merchant's bank account in 24-48 hours, eliminating many of the holdbacks that happen so many times with PayPal.
Partnering with PayPal
While PayPal might be the best option for buyers with their buyer protection program, the policies and regulations of PayPal are much tougher on sellers, making selling through PayPal difficult at times for businesses. Since there are many alternative eBay merchant account services willing to provide payment services, it is of utmost importance to carry out the necessary research into every possible financial services provider you might choose to partner with. As any good business should do, checking out alternative payment processors might lead to a more reliable and cost effective way to accept transactions without the use of a PayPal account.