PaypalA History Lesson
In the beginning, there was eBay.
What is Paypal?
Perhaps the greatest confusion regarding Paypal stems from a basic misunderstanding of who Paypal are and what they do.
Paypal is not a bank!
Repeat the above line five times to get it firmly into your head. Got it? Great - on we go. Money in your Paypal account is not covered by any kind of bank account protection. I dare say that Paypal does not want to be a bank; why should they? The cost of compliance with banking rules and regulations would be horribly prohibitive, and I suspect that it would also place them under rather more oversight than they would like.
So what is it?
Paypal is most accurately described as an online payments facilitator (try saying that five times quickly). They simply transfer funds from your account to someone else's... after a brief sojourn in their interest-bearing account.
Epilogue: Why I no longer accept PaypalWhen I started writing this part of the guide, it was in praise of Paypal. I accepted Paypal and recommended it as the fastest and easiest form of payment. This is no longer true.
There are two ways Paypal makes money. One is by charging sellers to accept Credit-Card-Funded transactions, the other is by charging monthly fees for "Merchant accounts". Both of these collect from the seller - Paypal is almost always free to the buyer.
It was also free to the seller, as long as you had a "Personal" (free) account and did not accept credit-card funded payments. Like many small sellers, I could not justify extra Paypal fees, and refused to pay a monthly charge for a "merchant account", so I fell into this category.
I always stated my terms clearly on my listings, and yet too many sellers blithely attempted to pay me using a CC, which I refused.
It was only a matter of time before eBay noticed this and started trying to wring a little more money out of the small sellers, and on August 19th 2005, the other shoe finally dropped. eBay changed their rules for sellers concerning Paypal. The official reason for this change was to "ensure a consistent user experience", but the only inconsistency that I encountered was that too many buyers would bid without reading my terms.
If you advertised that you accepted Paypal, you had to accept all forms of payment, including Credit-Card-funded ones. You also had to commit to upgrading to a "merchant" (i.e., paid) account. Some went along with it, but as a matter of principal, I refused.
As a result, I no longer accept Paypal on my listings, and I take pains to explain why.
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