PayPal is an e-commerce platform that allows payments to be made and received by individuals and organizations of all sizes. This flexibility and the large range of resources provided through PayPal have led to an explosion of users from some 202 countries around the globe including 203 million users and 16 million merchant accounts.
With a service that large and recognized, one would think the risks would be minimal. Unfortunately, this thinking does not always hold water. Today, we will review the ins and outs of PayPal services for small businesses, the associated risks, and review some horror stories from the ecommerce giant.
The Rise of PayPal as a Payment Processor
PayPal was launched in 1999 as an experimental way to email electronic payments. Noted entrepreneur and prolific twitter user Elon Musk became the CEO and chairman of the board in 2000 when X.com purchased Confinity (of which PayPal was a subsidiary). PayPal exploded in popularity by joining forces with tech juggernaut eBay.
The rest, as they say, is history. PayPal continued to grow and expand their share of the burgeoning ecommerce marketplace throughout the 2000’s. While PayPal is no longer married to eBay, it remains the number one provider for ecommerce transactions for many online merchants, individuals, and more.
How PayPal Works for Small Businesses
So how exactly does PayPal help small businesses? According to the PayPal website, their service provides three key features:
Accepting payments: this might include online payments for services rendered, in-person payments through a POS system, and more. PayPal also boasts invoicing services for a fee which allow for merchants to create and maintain custom invoices.
Business management tools: tracking shipments, daily inventory, and other management tools are also available for a price. These tools are meant to promote growth opportunities as well as maintaining daily business operations from a single source.
Offering business loans: finally, PayPal does offer business loan and working capital options. These are fairly standard business loans, and all applicants must go through a rigorous application process to qualify.
The Risks of Receiving Payments Through PayPal
So far we have heard PayPal’s side of the story, which is all sunshine and rainbows. But what are the risks of working with one of the world’s largest ecommerce companies? Turns out, there are quite a few.
Chargebacks can cost you a fortune. Because PayPal is such a large company, they are playing a numbers game. If you, as a merchant, get flagged with a chargeback, PayPal will likely not go to bat for you and you will likely be charged with a huge fee, potential suspension, or even account termination.
Account suspensions and terminations are handed out frequently. For similar reasons, PayPal cannot afford to be lax with their rules and regulations. With a company that large, they are more interested in protecting their own backsides than they are protecting your small business. This can lead to merchant account suspensions and/or terminations at any time.
Customer service can be a nightmare. (More on this below). There are a litany of other reasons why PayPal can put your business in jeopardy, but the biggest difference between working with PayPal and working with a smaller company dedicated exclusively to merchant services will be with customer service. A company with a rep who knows your business and even your name is going to be much more helpful than a customer support hotline.
PayPal Horror Stories (And What You Can do About it)
A brief caveat before we give some examples of PayPal horror stories: google “PayPal horror stories” and your search results will light up with hits from websites like “screw-paypal.com” and “paypalwarning.com”. The fact of the matter is that any company this size will likely have customer service horror stories. It would be convenient for us to paint PayPal as a monstrous disaster, but it isn’t. What it is, is a bloated tech giant who cannot compete with the customer service from smaller merchant service providers.
With this in mind, here are just a few examples of horror stories from real PayPal users:
eBay buyers backing out after a merchant had sent the goods. This is probably the number one complaint, and it is relevant to small business owners as well as eBay users. eBay is notorious for slow recovery of late or missing payments from fraudulent buyers. Some cases have been known to take years to resolve.
PayPal is prone to freezing assets. This is a two-pronged issue, partly because PayPal generally takes four (4) plus business days to release assets and partly because PayPal is known to suspend or freeze accounts for any number of reasons.
PayPal has an extremely lenient return policy, which can cheat merchants out of money after sales have been made.
Chargebacks and other disputes may be resolved, but often only after weeks, months, or even years have passed, which can cause irreparable damage to the financial wellbeing of your business.
True Merchant Offers Affordable Payment Processing for Small Businesses
Rather than working with an aging tech giant, consider working with True Merchant. We are proud to offer a full suite of merchant services for businesses of all sizes including CardSecure for transaction security, ERP solutions, and payment processing of virtually all kinds. With True Merchant, your small business will get the cutting edge technological backing it needs with the touch of a dedicated customer service team. Unlike larger companies, we take the time to work with our clients and deliver the services they need most.
To learn more about how we can help your small business grow, please call or email a member of our qualified merchant services team today!