PayPal

PayPal is a money transfer system that was originally launched for C2C (customer-to-customer) transactions, but in early Summer, X.com, the company behind the service, introduced B2C transactions, by offering accounts for businesses. Using X.com''s PayPal, anyone with an e-mail address can send money to anyone else with an e-mail address, whether the recipient has a PayPal account or not. PayPal doesn''t even care whether there''s a commercial transaction that takes place. If someone in the office is organizing a party for someone else and everyone needs to chip in, they can all do it using PayPal. In fact, the organizer can send everyone reminders by e-mail via the PayPal system with clear instructions as to how to pay up.

PayPal can accept money from the purchaser in one of three ways:

1. Charging the purchaser''s credit card for any transactions (payments)
2. Debiting a checking account for any payments
3. The purchaser sending a check to create a positive balance in his account at PayPal, and having any payments deducted from the account

Payment recipients can use the money in the account for online purchases or payments, can receive the payment from PayPal by check, or can have PayPal directly deposit the money into his checking account.

For C2C transactions, PayPal is the most popular payment method at eBay with over 50% of auctioning sellers recommending PayPal as the preferred payment method. In my initial review of the PayPal C2C product, from June 2, I reported my dismay that PayPal required consumers to agree to terms that no credit card company and no merchant is allowed to impose regarding chargebacks. I''m happy to report that they have completely changed their policies on chargebacks. In fact, their consumer protection is so strong now, that customers will find that even purchases they fund with checks or debits from their checking accounts are protected as well as credit card purchases.

How It Works
This is truly one of the easiest services for purchasers to use. Setting up an e-mail account at Yahoo takes longer! As a payer, all you have to do is to provide your name, your e-mail address, your credit card information, and your billing address for your credit card.

Recipients of C2C payments provide even less information, unless they want their payments directly deposited, in which case they need to provide checking account information.

The newly instituted business and premier accounts permit businesses and consumers who use their accounts frequently to accept payments via PayPal without requiring merchant accounts. Business and premier accounts get 24/7 customer support by both phone and e-mail. They can also have their accounts automatically swept into their checking accounts daily, as well as taking advantage of other services. Business and premier accounts have the ability to download Quicken/QuickBooks/Excel-compatible transaction logs. For regular PayPal account holders, payments must be made at the PayPal site. For business and premier account holders, payments can be accepted directly on their own sites using a Web Accept button. Finally, business and premier account holders can create automated invoices to send to auction winners and others.

There''s one additional service available that''s worth its weight in gold. Sites that run affiliate programs, sweepstakes, lotteries, or hold marketing surveys might need to send small value checks to many, many recipients. PayPal''s business services let these merchants upload a file with e-mail addresses and amounts, and pay the recipients in bulk. Since checks cost at least $1 each to process, and often have to be reissued, this service, priced at the lesser of $.25 or 2% per payment, is an unbeatable deal.

Fees, Costs, Etc.
For C2C transactions, there''s no fee associated with using PayPal, no doubt contributing to its popularity. PayPal makes money on the float - when your money sits in your account, they''re collecting interest on it.

For business and premier accounts, sellers are charged a 1.9% discount rate on the money, which is better than the rate charged by merchant banks for accepting credit cards, in most cases. If business and premier account holders want the money in their accounts swept daily into their checking accounts, there''s an additional .6% charge.

Consumer Protection & Merchant Protection
X.com has recently instituted a consumer protection and merchant protection policy that sets the standard against which all alternative payment systems should be measured. Anyone who sets up a PayPal account can request to be verified. Verification simply requires the person or business that requests it to provide information about a checking or savings account at a financial institution. X.com will make two random deposits to that account, and if the account holder can identify the amounts of the deposits and the dates, then the PayPal account is considered verified - meaning the person who set up the account is who he says he is. Since financial institutions require proof of identification when setting up accounts, X.com relies on them to have already verified the identity of the account holder.

If a purchaser pays a verified merchant or verified consumer with PayPal, and fails to receive the goods, X.com will reimburse the purchaser for the amount of the goods - this is tremendous protection, since the purchaser normally wouldn''t have this level of consumer protection when using a check or bank debit. If the seller accepts payment from a verified buyer, then X.com guarantees that transaction to the seller against fraudulent purchase. Even if the buyer is not verified, the seller is protected as long as he ships the goods to the credit card billing address. X.com honors credit card chargebacks, as well.

Overall
PayPal is an excellent system for both merchants and consumers. For auctions, it''s a perfect solution. With superior consumer protection to credit cards, it makes real inroads into the Visa/MasterCard monopoly. Small businesses should definitely investigate PayPal before spending the time and money to get their own merchant accounts.

Pros - Easy to create a payment; easy to receive a payment. No fees for consumers. Much less expensive for merchants than having a credit card merchant account, and the money is instantly available.

Cons - Only available in the U.S. They are planning to launch international service in early Fall.

Alexis D. Gutzman is an E-commerce Technology Author and Consultant and author of The HTML 4 Bible, FrontPage 2000 Answers!, and ColdFusion 4 for Dummies. Her newest book, The E-commerce Arsenal: 12 Technologies You Need to Prevail in the Digital Arena will be out in October. She can be reached at agutzman@internet.com