PayPal has become a hugely popular method of accepting online payment for small to medium size merchants. It’s easy to see why – The setup requirements are minimal and PayPal’s history as an eBay partner means that it has a broad customer base. There are, however, sound reasons for either beginning or continuing to accept payment cards.
Customer Choice
The more payment methods you support, the more chances there are that you will offer the customer’s preferred method. While PayPal has made its ease of use a major selling point, there are still compelling reasons for customers to prefer credit and debit cards. For example, some banks use incentives to motivate people to use their payment cards, which can encourage them to prefer cards to PayPal for any size of transaction. However, as transaction value increases, so do the incentives to use a credit card.
Although PayPal has its own consumer-protection scheme (as well as the payment-card companies), Section 75 of the UK’s Consumer Credit Act provides extra protection to people who use a credit card for making a purchase of over £100. This protection only applies if a credit card is used to make the actual purchase rather than to fund a PayPal account. This can therefore be a significant incentive to use a credit card for larger purchases.
More Potential Customers
PayPal has about 143 million active accounts in 193 markets. Their website does not state how many users they have in the UK, but estimates have put it at around 18 million. The 2011 census put the population of the UK at 63.2 million, which means that less than a third of people in the UK are active PayPal users.
By contrast, almost all adults in the UK have a bank account, which means they have access to a debit card. It is also worth noting that 88% of PayPal customers are under the age of 55, which means that only accepting PayPal is potentially a huge risk in terms of attracting older customers.
While it may be a reasonable assumption that this demographic will change with time as users literally grow up with PayPal, at present, merchants should think very seriously about whether or not a potential customer from an older demographic will sign up to PayPal in order to make a purchase on their site, or whether they’ll simply move on to one which accepts their preferred method of payment. It’s also worth noting that although younger people make up the majority of PayPal’s users, it does not mean that they necessarily want to use PayPal. It may be the case that they have their own reasons for preferring other payment methods.
Reduced Exposure to Payment Outages
PayPal’s terms and conditions give it the right to freeze merchant accounts at any time. In reality, it will only do so if it suspects fraud and will unfreeze them again as quickly as possible. However, for individual merchants, even a short payment outage could be a financially painful experience, particularly if it comes at a peak time.
It is also fair to say that any company can have an outage. The RBS group inadvertently caused chaos when it suffered a massive IT failure in June 2012 and has made headlines since then with more minor issues. Other banks have also had issues.
While PayPal strives for reliability, if they were to suffer an IT systems collapse, merchants who rely only on them would find themselves in a challenging situation, particularly if it was at a key period for their sales. By accepting cards as well as PayPal, you mitigate this risk.
Overall, while PayPal certainly has its benefits, it is still potentially beneficial for smaller merchants to continue accepting payment cards for online payments.
