The PayPal Rules: 123 Million Reasons Why Not Using PayPal is a Mistake

In his Blog, Entrepreneur’s Journey, Yaro Starak makes some very good points re using PayPal as an e-commerce payment solution. Forgetting for the moment all of the PayPal negatives that pass for wisdom on-line(e.g. Google search results for “PayPal Sucks” = ~ 87,000 results) , Yaro instead focuses on PayPal’s strengths….and end-of-the-day, these strengths are foolish to ignore.

First a few facts, quoting from eBay’s 3rd Quarter financial results:

PayPal had another excellent quarter, highlighted by increasing penetration on-eBay and excellent growth in our Merchant Services business.

PayPal net revenues totaled $350 million in Q3-06, a growth rate of 41% over the $247 million reported in Q3-05. PayPal had nearly 123 million total accounts at the end of Q3-06, a 41% increase from the 87 million reported in Q3-05. Those accounts helped drive record Total Payment Volume (TPV) of $9.1 billion in Q3-06, a 37% increase from the $6.7 billion reported in Q3-05.

PayPal Merchant Services posted a record $3.3 billion in global TPV in Q3-06, representing a 59% increase from the $2.1 billion reported in Q3-05.

Now, to expand a bit on Yaro’s post:

1. PayPal is the standard. Nothing comes close and they are fast approaching that point(if they aren’t there already, at least in the US market) where the brand is as ubiquitous for payment services as eBay is for auctions.
2. Opting out of PayPal, for whatever reason as a payment option, simply excludes you from a very significant piece of the internet pie. In my experience, the only evidence supportive of not accepting PayPal and still thriving as an internet business is anecdotal. And as for the alternatives, whether merchant accounts or PayPal wannabes, it simply isn’t in the cards. Far from perfect, there is much to criticize in PayPal’s operation BUT not anymore than the general level of complaints visited upon any large enterprise…particularly one involved in the transfer of money.
3. Perhaps Yaro’s most interesting point (or hypothesis) is that psychologically, people treat PayPal as “Play Money”, making the point that an expenditure of funds as a PayPal customer is simply a few keystrokes…and not the step-by-step of credit card input; each step of which is an interruption in the purchase flow. Cart abandonment is a critical bit of forensics for any internet merchant and there are reasons apart from data entry that interrupt the flow(shipping calculation for one). Time-to-completion is on PayPal’s side and the less time thinking about the purchase, the more likely it will be completed. Further, PayPal is known as a brand while your site is an unknown to a potential customer…your site actually benefits from the association by force of the customer’s likelihood of having a successful experience elsewhere using PayPal. Third-Party security statements a site affiliations with Verisign, HackerSafe, etc. do not trump PayPal’s ease and familiar name…and ease trumps all in our society.

One note that I will bring up re Yaro’s post, he states that PayPal doesn’t pay interest on account balances when in fact it does (currently 5.2%) which is even more reason for the ease-minded consumer to leave the money there, ready for the next impulse buy.