PayPal is now the biggest third party payment provider in the world meaning that it now dominates online processing on sites that go far beyond its origins on eBay. A huge number of retailers now try to get you to use PayPal when you make an online purchase. But there are both advantages and disadvantages to doing this. Here, we look at the pros and cons of PayPal.
Advantages of PayPal
PayPal is safe. PayPal encrypts all of its customers’ data to the highest possible standard. Its servers check your browser to make sure that you are using the latest encryption technology. It then stores that data on servers which are not directly connected to the rest of the web. That means that even if PayPal’s public-facing servers are hacked, your data has a higher level of protection than with many other payment providers.
Sending money to friends and family is free. If you ever have to send money to somebody in your family who is at university or abroad, then you’ll know that many providers like Western Union will charge you for the transfer. But PayPal does not charge to send money as a gift, particularly to a friend or a member of your family.
An easy-to-use app. The PayPal iPhone and Android apps make it simply to buy online and transfer money at the touch of a screen no matter where you are in the world. When you’ve downloaded the app and gone through its security procedures, you’ll be able to transfer, send money, pay bills, look at your transaction history and make purchases on both eBay and a multitude of retailers’ sites. The PayPal app relies upon a PIN and/or your fingerprint making it a safer way of sending and receiving money than your credit card.
Discounts. PayPal offers special discounts for loyal customers who use the service to buy from particular retailers. You can find a list of those discounts at www.paypal.co.uk/shopping. Using PayPal to shop from companies like H. Samuel, Ernest Jones and Converse can save you as much as 40 per cent on a host of products like clothes, jewellery and even car insurance.
Disadvantages of PayPal
You lose your Section 75 rights. If you use PayPal with your credit card to pay for an item that costs more than £100, then you are missing out on extra protection when making your purchase. Section 75 of the Consumer Credit Act protects you when you pay for something costing between £100 and £30,000, specifically on a credit card. This is because the card company is jointly liable with the retailer should anything go wrong. But Section 75 applies only when there is a direct relationship between the debt (using the card) and the product. It doesn’t apply when you get a loan or use a payment provider like PayPal.
PayPal charges you to receive money. If you use PayPal to receive payments – particularly on eBay – then it will charge you anything between 5 and 10 per cent of the total price. That means that eBay sellers not only face the fees imposed by the auction service, but will also be charged when they finally sell their item and receive the money through PayPal.
PayPal often freezes a user’s account. Sometimes, PayPal users report that their accounts have been frozen without warning. The company’s algorithms are constantly checking every transaction to look for unusual behaviour which might be something as innocuous as a larger-than-usual sum being moved through its systems. When it freezes an account, it is impossible to transfer funds to a bank account or send money to another person. PayPal can also put a freeze on money that was sent when an item was bought online and it may refuse to lift the ban until the item is delivered – making life difficult for retailers who rely on its service.
PayPal may hold on to your money. You might not get immediate access to funds from PayPal if you sell something on eBay. The payment provider sometimes holds payments for up to 21 days to guard against the possibility of a problem with a transaction. This can happen to sellers who have not had much activity, have a history of chargebacks or who sell certain kinds of materials such as electronics, gift cards and event tickets which are subject to higher levels of fraud.
Oliver Jones has written for Solution Loans since 2016. His passion for personal finance comes through in the 200+ blog posts he's written since that time. His talent for explaining all things money means he's covered topics as diverse as...Read more about Oliver Jones