PayPal Discourages Use of Credit Cards
October 8, 2009
PayPal encouraged me to pay with my bank account rather than my credit card as I was setting up a subscription payment last night. When I first setup the subscription in PayPal it defaulted to use my bank account as the funding source.
I wanted to switch it over to use my credit card just in case the subscription payment was due and there was no cash in the bank account. In my case it wouldn’t be that I didn’t have the cash, it just might be in another account. So rather than have the payment not go through, I set it up to use my credit card as a funding source. Plus that buys me another few weeks of time I can hang onto my money before I actually have to pay for it.
When I attempted to change my funding options from bank account to credit card, PayPal prompted me with the message below:
You’re choosing not to pay with a bank account. Please note that both bank account and credit card payments are sent instantly, and account numbers are never exposed to the merchant.
You’ll also find that transactions paid with a bank account:
* Will not accrue credit card finance charges.
* Let you stay in control of spending and avoid credit card debt.
No matter how you pay, you get 100% protection against unauthorized payments sent from your account.
Do you want to make this payment with your bank account?
I went ahead and choose the credit card option but thought it was interesting that PayPal is discouraging the use of credit cards and encouraging paying with cash using this approach. Perhaps it’s to avoid paying fees to the credit card company for processing?
I’ve been to plenty of brick and mortar businesses where they don’t take credit cards to avoid the fees but whatever the reason, this is the first time I’ve ever seen something like this online before. Have you ever had a business or payment processor encourage you to use cash over credit online?
I don’t think that PayPal is trying to do anything wrong. They are simply being proactive in assisting those that can not manage their money properly. It is a responsible way of helping those who overspend.
Our country is FULL of people living beyond their means and if PayPal is able to help lessen the burden on our society by suggesting using your bank account (where the money is) rather than a credit card (shopping on credit and incurring fees) I say GO FOR IT!
Everyone needs to learn financial responsibility and this is just one more way to do it. Hurray PayPal!
Paypal has had this message for the last few years. They don’t want you ever going to your credit card instead of paypal for a dispute and I assume that the less people pay with a cc the less likely they are to have this problem.
Yup. The default option is to pay with a pull from checking.
There seems to be no way to change this, only select the card each transaction. Each time, it’s an extra step you need to go through, pretty annoying.
They avoid the fee, and I’d miss the cashback reward on my card. For tiny transactions, I don’t bother. But when spending $100 or more I flip back to the card.
I think it’s a win-win solution for Paypal and it’s consumer base. For Paypal, they will be able to avoid the fee in processing credit cards. And for it’s users, we’ll save on finance charges and other fees associated with using a credit card. One of the reason why I use credit card especially on online purchases is because I am comfortable with it’s security features, which I think is one of the reason why there’s always a hike in it’s fees. Other Paypal features which are pretty annoying sometimes is another issue though
For all of their large business clients, PayPal processes all payments for a flat percentage rate fee – regardless of whether the buyer pays with a credit card, a bank account, or even their PayPal balance. A year or so ago that rate was ranging from 1.65-1.9%. This rate is guaranteed to PayPal’s business client, so it represents a fixed costs for them and a net income for PayPal. But anything PayPal can do to decrease credit card processing fees increases the net income generated by that “blended rate” fee, as PayPal calls it.
You’ll notice that the default mechanisms come in order of their cost:
Default #1: PayPal Balance (free to PayPal)
Default #2: Bank Account (ACH fees of maybe $0.10 per)
Default #3: Credit Card (merchant fees of 2-3%)
As I don’t have a credit card, so, I have also linked my bank account with my PayPal personal account. It takes 2 to 3 days to withdraw the fund from PayPal to my bank account and while paying through my bank account, it occurs instantly. I own a debit card, but I just couldn’t link and confirm it to my PayPal account. Is there any way so that I could link my debit card with the same?
I’ve noticed this too, and it can get annoying. but I understand it from a business perspective, and it makes sense from their end. Just wish there were a way to select a preference!
hey Madison how did u manage to use Paypal without using a credit card? i only want to use paypal while paying through my bank account too but it keeps asking me for a credit card Visa or Mastercard number!!!
It is a simple equation of risk management. Credit card transactions have build in risk for fraud, that could be of identity theft or merchant related. If you are not satisfied with the product or simply it was not you who made the purchase then you can pick up the phone and call your credit card and they will remove the charges. If you had paid using your Paypal account then good luck. It will be a challenge to get your money back. Paypal does not do the level of risk management that comes with credit card purchase.
Anyone who thinks paypal does this to be “responsible” is either paternalistic or just dumb enough to be a cash cow to the credit industry. There is nothing irresponsible about credit card usage – however, using them without paying the monthly balance in full is not only irresponsible but also downright retarded. If you use your cash-back credit card wisely you will never pay a dime to the CC company, while earning cash back on your purchases (in effect, you are making use of the bargaining power of the credit card company to get a better price from the retailer)
Paypal is just trying to save the merchant fees, as noted in some comments above. I find it annoying – of course I don’t want them to charge my bank account immediately if I can also pay through my CC and not only get one month of grace period (time value of money) but also cash back.
Heavily agree with henri 11/15 paragraph 1.
I only had my cash back cc listed on Paypal until they notified me during a recent transaction that I had hit a $10,000 limit which alarmed me at first as it made me think my current transaction of $80 was being seen as alot more. After checking the Paypal account on a fresh page, it informed me I need to verify account by supplying a bank account or applying for a pal plus mastercard. I did the mastercard and now it is primary and I cannot switch the primary back to my cc, but I am allowed to select it during each transaction. What an underhanded attempt to re-route my purchasing preferences. My credit rating is excellent and I refuse to publish my bank account numbers to ANYONE. I do trust my cc company as they have proven to me personally that they monitor my account with MY best interests in mind, providing a very high level of protection. Need an alternative to paypal, but being ebay owned, I doubt that will happen.