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?


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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17 Responses to PayPal Discourages Use of Credit Cards

  • Mercury Man

    I have purchased a lot of items on EBAY over the past ten plus years.

    Apparently I have now paid for $10,000 of purchases through PAYPAL and they are asking for my bank account number in order to “verify” me (after only ten plus years of doing business?????).

    I will not under any circumstances be giving my bank account information to PAYPAL or anyone else.

    I could always play games and use a different e-mail address and a different credit card but why should I do that when I am the customer???? And a very good customer at that.

    I have over 1000 EBAY transactions over the past ten plus years. However, I will now just switch over completely to AMAZON.COM, since they seem to be glad to get all the business that they can get.

    In my opinion, AMAZON also has a much better system for dealing with returns and any problems that may arise when you purchase something on AMAZON.COM.

  • Boycotting Ebay and Paypal

    Still ticked about this!!! I noticed now that they’ll “verify me” if I sign up for their credit card!!!!

    Oh like that makes me more verified than the AMEX card I’ve been using with Paypal for the past 8 years!!!!

  • Rod Flash

    We had the same problem today with the $10,000 lifetime limit. If you set your PayPal account up with just a credit card, after you reach a lifetime limit of $10K they force you to “verify” your account by either giving them banking information of opening a credit card with them. Whichever you choose becomes your default payment method, with no way to change it back to the credit card. I have an old account with $10 in it, so I used that. But now I will have to force each purchase to the credit card.

    This is not a responsible thing done by PayPal, it’s an bald faced attempt to get more of your money. I pay my card off every month, so I never pay a fee. It’s a cashback card, so I save a percent every purchase. And I agree with Rob, I will make sure it costs PayPal on every purchase by using the credit card.

    I’m waiting for a response from Scott Thompson (CEO) about the underhanded methods they are using. I’m sure he’ll be getting right back to me. lol. The $10K limit is not disclosed anywhere when you create your account, and claiming that they are “verifying” you are who you say you are after 3 years of using your account without a problem, is a pile of crap. I’d quit using them except they are the only show in town if you don’t want to be shipping your credit card number overseas. Plus it’s more satisfying to cost them money by taking the time and effort each transaction to use the credit card and let them incur the fees.

  • Rob

    Whenever PayPal starts holding my funds, I remove ALL AVAILABLE FUNDS to my bank account (otherwise I keep a balance in there for shipping costs and other purchases). However, when they start the money-hold BS, I make sure it costs THEM, via the use of my credit card (and resulting credit card transaction fees charged to PayPal) until my funds are released. Besides, I don’t get any credit card reward points using my bank account to fund online purchases! FU Paypal!

  • freddy1

    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.

  • henri

    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.

  • Raman

    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.

  • sarah_c

    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!!!

  • Patrick

    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!

  • Madison

    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?

  • Anonymous

    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%)

  • Stephen @ Financial Services

    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 🙂

    • Eddy

      This is a Win/Lose proposition at best and certainly isn’t a win/win.

      Number one, I pay my credit card balance in full every month, so there are NO finance charges for using it as a preferred method of payment.

      I use my PayPal account to receive money from ecommerce websites. This is a business. When payments are being made outside our accounting system it’s a game stopper. How can I manage my business when I have PayPal deciding how to manage my money. Why would I want to add looking at PayPal everyday to see if I’d payed something outside of my accounting system and then update my books.

      How would PayPal know if I have cash in my bank account without submitting a charge and incurring a NSF charge. What would this do to your credit rating. The implications are huge.

      If you have reoccurring charges payed thru PayPal, you don’t get the option to use your credit card vs. your bank account like you do with an online purchase.

      I’m now being forced to find a different credit card processor so I can close my PayPal accounts.

      What this says is your too stupid to manage your money so we’re going to take away your freedom and do manage your money to our advantage.

      Simply outrageous

  • JoeTaxpayer

    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.

  • BRB

    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.

  • Ann Marie Fraser

    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!


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