Monday, June 05, 2006

Putting the "Pay" in PayPal

Have you ever stopped and wondered about how PayPal makes their money? Let's review: With PayPal Personal you can send and receive money electronically to and from other PayPal accounts for free. You can also transfer money to and from your regular bank account at no charge. Sign me up! The other account type is PayPal Premier. With this this type of account PayPal charges a fee, $0.30 plus 2.9% of each and every dollar received. So why would anyone sign up for a PayPal Premier account when they can have a PayPal Personal account which can send and receive funds for free? This is where they have done something clever. It's actually kind of boring, really, which is why few people have noticed the fact that since buying PayPal, eBay has nearly doubled it's revenue for each auction that uses PayPal.

Here's an example scenario: Joe Blow puts his old laptop up for auction on eBay. The high bid is $450, which costs Joe around $18 in eBay fees. But Joe has taken eBay's advice and listed his laptop auction as PayPal preferred. So when the high bidder pays for the item, she of course transfers money through PayPal. Well, because PayPal encourages its users to pay through PayPal using a credit card, that is what most people do. (That is the dafault funding source, if you've noticed. You even get a warning if you try to change it to a bank transfer.)

Well, guess what? You have to pay a fee to receive credit card transfers through PayPal. Actually, if it was just a question of paying a fee for that one transaction I could live with that. No such luck. You can't receive credit card funds at all unless you "upgrade" your free, PayPal Personal account to a Premier account. And once you switch to Premier you have to pay that same fee ($0.30 + 2.9%) for ANY type of transfer into your PayPal account. Oh, and by the way, you can't go back to the free PayPal Personal account.

I told you it was boring. Billions of dollars worth of boring. And the only people who seem to notice are the eBay sellers who are forced into PayPal Premier. Someone in their marketing department deserves a big raise for putting the "pay" in PayPal.

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