A common misconception about PayPal

Reginald Ofori
6 minutes

With many hundreds of millions of active users worldwide, PayPal is now a renowned household name. Many online stores allow their customers to pay for their purchase using PayPal. With a market capitalisation of well over $70 billion, it's a behemoth of a financial institution.

However, ask many merchants who offer PayPal as a payment method, and the vast majority will confess that they have a love/hate relationship with the platform. Much more than with Stripe, Mollie or any other PSP (Payment Service Provider). How come? 

In order to answer that question we need to go back, back to the origins of PayPal. The founding story of the business is the stuff of legends; the PayPal Mafia story is well told, so I will skip over that. Instead, I will focus on the actual initial use case of PayPal, which laid the foundations of the company it is today.

Being a true ‘90s kid myself, I remember when the Internet became a thing. Living in the Netherlands, for me, it became a real thing the moment I discovered the Dutch equivalent of eBay, called iBazar (which was later actually acquired by eBay - fun fact). It's the site that helped me understand the power of ecommerce. Or in my case, the fact that my older brother’s PC game collections could mint me more money than I earned each month with my paper route gig and job at the public library…combined. How? By copying those CDs and selling them for bootleg prices.

All of that ended when my lovely brother turned out to be a narc and told on me to my dad. It still hurts. Just kidding. My dad forbidding me to continue with this illegal practice is exactly what dads are supposed to do. But I’m getting off track here. Back to PayPal…

All of that ended when my lovely brother turned out to be a narc and told on me to my dad

Anyhow, I was not alone. Back in 1999 - 2001, a lot of consumers realised that selling products via online auctions was not only very lucrative but was great fun. However, the one thing that was always a lot of hassle was the payment side of things. Sending money to another person via bank transfer was a convoluted process, which still required filling out a piece of paper, going to your local bank, waiting in line for 20 minutes, only to forget you did not bring ID, go back and rinse and repeat.

The alternative was to ask the buyer to come and pick up the item from your home, but this required you telling them where you lived. Remember, this is pre-Uber and AirBnB; this was definitely not normal practice.

The only scalable alternative was to put money in an envelope and send it to the seller. But this was also cumbersome as items could get lost in transit (or stolen in transit).

Enter PayPal. PayPal offered the solution that both buyers and sellers on iBazar, eBay and every other online auction site could get behind. Simply share your PayPal username with another and you're ready to transact.

PayPal offered the solution that both buyers and sellers on iBazar, eBay and every other online auction site could get behind

As part of this process, the leadership team at PayPal quickly realised a super important lesson. Which was if we do literally everything possible to make the life of the payer much more convenient, we will continue to accelerate growth. Why? Simple: whenever a transaction is being made, the person who holds the money is in charge. They can dictate the form of payment. So as long as every single buyer loves using PayPal, sellers would be willing to accommodate that. Keep this in mind, as I will get back to this later.

And this single-minded focus has proved to be a strategically sound one. Within years, PayPal became the default way payments were settled on eBay. And because these same users also made up the very first crop of consumers who were willing to buy products online from online stores, it became apparent that those merchants too needed to allow customers to pay with PayPal.

Now, fast forward to today. An as online merchant, offering PayPal as a payment method is almost table stakes. In particular, PayPal Express Checkout can help increase your conversion rate. However, most merchants tend to forget that PayPal is a pro-buyer/pro-consumer platform and that this mindset will never change. So, when it comes to who gets the benefit of the doubt in the case of a dispute, PayPal will always be on the side of the buyer.

And this is the misconception that I wanted to point out. Because as a merchant, once you start to consider PayPal’s pro-buyer bias, it quickly becomes clear why dealing with the platform as a merchant can be so tricky. Sometimes, it can feel like you’re stuck in a bad game of hostage negotiator with a schizophrenic counterparty whose actions often just don’t track as reasonable. They never will be. And it’s not to punish or frustrate the merchant, it’s simply because PayPal has chosen the side it wants to support and given you zero leverage. 

How can merchants make sure they stay in the good graces of PayPal? Check out my blog post ‘The importance of your PayPal merchant reputation and how to fix or improve it’. And in the meantime, the single most impactful action any merchant should always take is to sign up to Solpaid to make sure that order tracking information is always automatically uploaded to PayPal.

Not only does it help them become compliant with a key requirement from PayPal, but it also unlocks the opportunity to benefit from PayPal Seller Protection. It should be a no-brainer. Try it out yourself for free with our 14-day trial - no credit card required.

Reginald Ofori