PayPal May Not be the “Pal” You Think

The PayPal system is great! It allows people from all around the world to buy and sell off the internet and use a protected system that is safe and reliable for transferring money in exchange for goods. All you need is to create an account with PayPal, and give the some of your private information for security check, etc. and you can do business over the internet with anyone around the world. PayPal says the customer doesn’t even have to have a PayPal account; all they need is an email address! Now that is very convenient.

Traditionally there are a few ways of making a payment: in cash, sending a checque, through a bank transfer, by a credit card.

In international business where the buyer and seller are not facing each other across a counter, cash payments are not an option. Personal checques are usually not accepted internationally in most circumstances, and if they are, they take a very long time to authorize and the service charges are extremely high. This leaves us with bank wire transfers and credit card payments.

For decades people have been able to wire transfers through banks to other people, but that has often been limited to businesses. There are many countries that will not easily allow citizens to send money out of the country (Italy is an example) so the barriers are fairly high. Also, the bank fees that are charged on both sides of the transaction to send and to receive money are very large. This can hamper small business from profiting because you can often lose more money in the transfer than your profit margin allows if your business is competitive and the margins are low. And for individuals who are paying for something from a friend who is doing them a favor, everyone loses money in the transaction using the banks. shipping label on paypal

Customers pretty much expect a business to accept credit card payments these days. Individuals who are not incorporated usually will not qualify at a bank for a “merchant account”. This means they will not be allowed to accept credit card payments from customers placing orders. They will lose these customers. Only the corporations have traditionally been allowed to do this. Since a lot of business is carried out over the internet these days, if you cannot accept a credit card, you are going to have big problems getting a sale.

Enter PayPal, an online money-transfer system that Thomas Friedman, Pulitzer Prize columnist for the New York Times and author of “The World is Flat” describes as the following:

“PayPal is a money transfer system founded in 1998 to facilitate C2C (customer-to-customer) transactions, like a buyer and a seller brought together by eBay.”

Yahoo! has a similar system and I would not be surprised if does not come up with an innovative way to do C2C business in the very near future.



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