posted on September 15, 2000 09:37:46 PM new
OK, let's get down to the real nitty-gritty question that PayPal, Billpoint, etc., are hoping to answer:
Will auction sellers -- possibly under pressure from buyers -- accept a cost for credit cards and transactions similar to that in the non-virtual world? Can we demand 2, 3, 4 percent...and where's the limit?
That's their question. But I think it's also fair to ask whether 2 or 3 percent is fair.
After all, the processing has been an increasingly automated, declining-cost business for years. Shouldn't some of the savings be passed through? And credit card issuers can absorb billions in fraud losses (mostly low-tech) and still be so profitable as to invite entry by just about every bank and dozens of non-banks.
Think about it: 2 or 3 percent of an increasingly large slice of the economy is a huge sum, almost equal to a second sales tax.
PayPal can't control these costs because it's the biggest banks and MasterCard/Visa that are controlling the charge levels.
Many offline merchants are unhappy, contending that MC/Visa is really a monopoly and is engaging in very anti-competitive practices. A VERY important federal DOJ case is working its way through; IMHO it's much more important to consumers in total dollar amount than the much more publicized Microsoft case.
My own take: the 2 to 3 percent charged to merchants could be halved. The actual processing/money-moving costs (like anything highly automated) have been in decline for years.
But MC/Visa will try to avoid passing any savings to consumers as long as it has 70-80% market share and Amex doesn't compete on price. The court case is over MC/Visa practices to shut out new entrants.
That's the REAL problem. PayPal can't help but pass those costs on, since it can't control them. It's MC/Visa and the large-bank owners that are the real drivers of the artificially high credit-card costs.
With a more reasonable 1 to 1.5 percent level and PRUDENT credit card practices (rather than issuing to anyone with a pulse), a model like PayPal's might have a chance.
Just don't automatically accept the premise that 2-3 percent is a "fair share." Maybe if auction sellers are stubborn holdouts against that regime it'll further embolden sellers in the offline world who've thought those amounts are long overdue for coming down.
posted on September 15, 2000 10:20:02 PM new
those are great points and i agree.. the problem is paypal was willing to absorb the fees as long as it built their biz and benefitted them... meanwhiling building expectations in customers (bidders) towards sellers to offer that service whether they previously had or not.
Someone else said they are charging the wrong group and I almost agree.. almost.
I think there is one other factor and that is that perhaps the mutual funds they used for earning interest on float... didn't do as well as last year. Of course i have no clue since I dont' have access to financials. Just an uneducated guess.
I really wish paypal would have just been upfront and did this above board. For now there are other companies that are still offereing it free.. and perhaps they have better money managers who knows?
Not only that paypal after lying to people (see the thing about stating they never meant for it to be free for biz's) now is telling us that the float didn't cover costs... WELLLLLL how do we know??? does anyone have financial statemetn showing their profit or loss? HOW do we know they are telling the truth in that area? It doesnt' seem like float money would do it but the company has no qualms about rewriting history and lying so how do we know they aren't making enough to cover fees?
posted on September 15, 2000 10:24:24 PM new
When I emailed Paypal in May to ask about setting up a business account I was told that it wasn't available yet. That response and several others from them all mentioned that businesses would eventually be charged for the service. I'm beginning to think I was the only one they informed of that.
posted on September 15, 2000 11:32:14 PM new
I am just curious why Paypal felt they needed to extend themselves by adding perks such as $5,000 protection so it became necessary to start charging sellers. Could they have survived on the float without these added expenses? (If this was actually their original intent). And rebating the buyers a portion of their payment....whats that about? They end up looking magnanimous to the buyer, when in fact they are just charging the seller for it.
Regarding the credit card fees, they still haven't answered the question posed numerous times on double, triple, quadruple dipping by charging fees on the same funds as they make the rounds between accounts-maybe not ever originating from a credit card to begin with. Paypal's fees are not merely a recoupment of third party expenses. They should be honest and tell us they are to maximize profit, offset other costs, buy a Rolls Royce for the CEO, something truthful.
I completely agree that if credit card companies didn't have to build in reserves due such high default rates they could possibly keep costs down. They could also do away with frequent flyer mileage, automobile purchase rebates etc, but consumers would cause an uproar.
posted on September 16, 2000 04:44:30 AM new
Visa, Mastercard charges 1.5% while Amex charges 3% & Discover charges a whooping 4%. Amex is an old dinosaur & until a few years ago, they are not even a credit card. You pay your full balance at the end of the month. That was before the Optima card of course. Where do you think Amex makes most of their money if not the high fees they charge the merchant.
VS/MC of course lets you owe them as much money as you want & the banks simply charges you up to 21% is isolated cases.
posted on September 16, 2000 10:03:49 AM new
The declining costs of processing charges is not exactly free. Automation comes at a price and guess who pays for it? Yup! It is very lucrative nonetheless but the credit card companies are always looking for a way to increase their slice not decrease it. The chances of them lowering processing costs are somewhat less than a snowball in hell.
posted on September 16, 2000 10:30:46 AM new
hopefulli,
The CEO of X.com/Paypal may already have a rolls. He could certainly afford one.
What he does have is a MacLaren F1, one of 62 ever made.
http://www.salon.com/tech/feature/1999/08/17/elon_musk/
It's a shame with all those millions he can't purchase some honesty.
As for the original post, I don't mind 1.9% if new services are made available that I will use. (international, shopping cart, etc.) I do object to the 25 cent per transaction fee and the generally dishonest practices of Paypal.
posted on September 16, 2000 10:41:42 AM new
Just close your Paypal account & start using Yahoo Direct or some other free service. Billpoint is also an option. Quit whining, its going to get you zip. Of course a month ago when eBay came up with Billpoint & offered $1 rebate for buyers there was a flood of anti eBay monopolistic tyranny threads. Hahaha now Billpoint is ok... you guys are totally hilarious.
posted on September 16, 2000 11:07:27 AM newComic123, I agree that whining isn't going to get anybody "zip". Paypal's got a remarkable track record of reneging on promises, doublespeaking, and basically fumbling the ball. It's not going to change.
However, I think the grousing-about-Paypal and the grousing-about-Billpoint are two very different animals. The fundamental complaint about Paypal isn't the fees. It's the utter lack of even the remotest attempt at the appearance of honesty: even when confronted with its own contradictory statements - some made as recently as a day apart, it insists that USERS are mistaken/at fault/downright dishonest. Billpoint, OTOH, has been up front right from the get-go: it's an ebay satellite, it's going to cost users, and ebay will do whatever necessary to promote Billpoint and shut out competing services (which is why my joking theory that Paypal's screwups are intentional, made by ebay operatives working at Paypal, is unfortunately not so goofy as I intend it to sound).
posted on September 16, 2000 11:15:37 AM new
Interesting article on the CEO. While it is difficult to summon up much sympathy for someone with that kind of money crying poor mouth for Paypal, I realize its a business separate from his personal wealth, it has an obligation to its investors and is entitled to try to make as much of a profit as possible. I don't think anyone is suggesting that Paypal should exist solely as a benefactor for auction sellers.
They don't even have to explain what they are spending the money on until they are public and have to report to the SEC. They would have been better off keeping their mouths shut instead of trying to justify their fees and insulting everyone's intelligence.
There are so many different ways this could have been handled without causing such an outrage.
posted on September 16, 2000 11:35:53 AM new
hopefulli,
I agree with you. It IS a business separate from his personal wealth.
Throughout the article mention is made of his complete lack of or maybe even disregard for PR skills. Keeping in mind that article was written in 1999, it doesn't look like his PR skills have improved much, does it?
posted on September 16, 2000 11:41:14 AM new
I don't see a problem with Billpoint. I see very little complaints compared to the Papypal ones. The root of the problem is very easy. It is not that Paypal is charging it is how they did it. They lost credabilty with most sellers. I am one and they will pay dearly for that mistake. They have to reprove themselves if they can. They can try to rely on the new sellers coming in but the old sellers and the ones they are losing are the cash cows. You don't see them on the boards here of late because they know they screwed up and may have given themselves a slow and painful death.
posted on September 16, 2000 12:32:27 PM new
I am paying anywhere from 2.5% to 3.8% depending on service and size of the transaction. If there is a window of opportunity where a company can process funds for half that and make as good a return as putting the funds to work somewhere else we will see someone come along and do it. If there is restrait of trade preventing that perhaps this law suit will address that.
There are limits to public acceptance in doing this. For example I would not sign on to a credit card service if it were based in Russia, because I feel the fule and reach of law is much shakier there than in the US.It is true the US government has come to ignore the constitution where it suits them in recent years but they still see the benefit of a predictable business climate.
posted on September 16, 2000 07:38:11 PM new
I think there's another reason behind Paypal's change. Up until this April, when you had an Internet business plan but weren't making money, the response from Wall Street was, Ok, How much money do you want?
Since April, with the crash of the internet stocks, everyone wants to know when ebusinesses are going to start making money (a reasonable question, IMO). So Paypal is probably facing pressure from its investors to make money sooner rather than later. That's problably the reason for the change now, it took them a few months to think of, work out the details and implement (and get approval from their investors), and now they do it!
But because no one has ever done this before, they couldn't predict what would happen. The Internet world is uncharted territory as far business are concerned. (And even non-Internet business make some lulu mistakes - new Coke for example)
posted on September 16, 2000 07:41:30 PM new
I think there's another reason behind Paypal's change. Up until this April, when you had an Internet business plan but weren't making money, the response from Wall Street was, Ok, How much money do you want?
Since April, with the crash of the internet stocks, everyone wants to know when ebusinesses are going to start making money (a reasonable question, IMO). So Paypal is probably facing pressure from its investors to make money sooner rather than later. That's problably the reason for the change now, it took them a few months to think of, work out the details and implement (and get approval from their investors), and now they do it!
But because no one has ever done this before, they couldn't predict what would happen. The Internet world is uncharted territory as far business are concerned. (And even non-Internet business make some lulu mistakes - new Coke for example)
posted on September 16, 2000 07:59:06 PM new
The whole percent deal is crooked. Does it cost Visa/MC more to process a $100 transaction than a $10 transaction? A flat fee per transaction without any % would be the fair way to charge.
posted on September 16, 2000 08:09:40 PM new
Paypal's reasons may also include one we seem to have overlooked.
We all know that many ebay sellers have been selling without a business license, or paying taxes on what they sell. It would be crazy for us to believe that the IRS hasn't been watching ebay closely. We are talking about losses in State taxes as well as federal.
Banks are required to send info to the IRS for business accounts as well as personal accounts every year. But many sellers could get around this by having payment sent as cash or even postal money orders that can be cashed before it ever gets to a bank.
If the IRS wanted to somehow track seller's on ebay, why make it difficult? Simply go to the largest "online" banking services and require them to send info to the IRS on business accounts.
I have always wondered about what rules and regulations online payment services have to follow. Especially since paypal will be offering checks, debit cards, and other services that more closely resemble a bank than a simple online payment service.
I don't work for the IRS, nor am I even close to being an authority on the laws.
Just my 25 cents.
Sorry but I had to raise my rate from 2 cents to 25 cents. Trying to recover my losses from Paypal. You understand, don't you?
posted on September 16, 2000 09:33:50 PM new
Actually... Karen is more on the path I think than any other message I have saw in the thread and I'll get back to this in one second.
We pay 2.35% For Visa/MC, We pay 3.25% to Amex and Discover I believe is 3%.
We get charged a .25 batch closure fee. After a submittal of whatall, 20 orders paid by credit card we close the batch, and we're done. I quoted figures in another thread. The added .25 cents is probably the batch closure fee they process a transaction, batch closes, Chase whos the card processor for PP charges them .25. Perhaps not. They sure aint sayin
AS you can note 1.9% is CHEAP. If however you have 100 transactions a week the .25 can mount up. While I suppose you could bump prices (perhaps making you less competitive) its actually not legal to charge the consumer for the fee.
But back to it...
PayPal makes money purportedly by investing the funds. I am not sure I ever have believed that. Does Chase give them carte blanche on processing time? Our payments come in 3-4 days generally and I have heard paypal is same. We dont use it presently, doesnt mean we wouldnt like to. So where is the TIME to invest it? Not my business (I should shut up LOL). So they invest it. Even if they DO have "time" to let the money grow where are they investing it? This is where Karens point may be HIGHLY INTUITIVE (I never thought of it and I am usually a pretty bright light bulb). The markets are a HIGHLY volitile place for short term investment and it has caused alot of the "money" to take a second look at eCommerce and say "maybe its not so miraculous and SAFE".
Very VERY Intuitive...
Now lets add some fruit to the pie crust. Visa/MC are both getting very concerned about fraud. Our card processor (we've had 2 stolen cards past on us in 3 years of web orders, and about as many chargebacks in literally thousands of transactions) informed us that Visa/MC are implmenting new processing requirements. This includes a secure realtime payment/validation gateway to process at. In other words, instead of us taking order on our secure server and processing them, we direct our buyers to the secure gateway entry point created for us. They also told us that ALL internet businesses will need to comply as its coming down from Visa/MC. They are basically not calling the Internet "Mail Order" sales anymore which is how its presently classified. This also may set forth a trend... Legislation trends if you will. Once associations with "old ways of business" are broken... new legilation and ways to do business pop up. Yes?
PayPal is in a HIGHLY volitile position if they TRULY invest to make their money. Atop that, new requirements are coming down, atop that 95% of their users are now attacking them for them needing to make a living too. I dont think this is greed on their part at all. I think they need some stable money, thats business security. AND!!! Just like we were at one time and many still are they have their eggs basically in one basket. eBays basket. If eBay went "poof" into some magicians hat never again to come out, PP would be dead. Thats also a pretty dangerous spot for a business to put themselves in. For a cherry on the top of the cake, they are doing business in an environment thats getting increasing fraud, increasing focus by authorites and press and....
We'd have no issue with the 1.9%. We have no issue if someone passes them a stolen card and we take a loss on that sale. We dont expect PayPal to be responsible to eat it of some shmuck buying FROM US passes a bad card. Thats the same risk we take now w/ our merchant accounts as does every other place accepting them, except, paypal users. We however DONT expect to have a PayPal account closed, while others can still make payments or closed at all for that matter because someone passes a bad card. Thats ridiculous. Every Walmart in the land all of a sudden cant accept credit cards cause someone passed a bad one in Florida. Ridiculous.
Its OUR contention that A. ANYONE using PayPal to accept payment via credit card/debit card should be subject to the EXACT same rules we and a zillion others are subject to when processing cards. Those are the risks folks. Choose whether to use it or not. Businesses are not scared of this, we deal with it already. Anyone having more than 30 transactions a month should be classified to pay the 1.9%. Simple as that.
Now... the businesses that would LIKE to use the service but are basically SCARED as they already KNOW the rules they contend with in their own merchant accounts. They are scared because PayPal seems to circumvent 90% of what they are used to. Walmarts merchant account does not allow them to make charges there for stuff you buy from eBay, or us, or KMart.... Paypal lets anyone move money to anyone by use of credit card. SHOULD issues come up businesses WANT TO BE IN THE LOOP. If we have a problem we are included in whatever it is, to correct it, eat it, make a consumer eat it whatall. Further, businesses want a fair and level playing field. Thats all we ask for. If one seller is using PP free and competing against us but we pay fee's where is that FAIR and HOW is it of advantage to us?
The ADVANTAGE TO online payment is EASE. Convenience. THats what credit cards are. A high interest microloan that convenient, offers both merchant and buyer protection. Well protection is OUT THE WINDOW with PP.
THey need to TOTALLY CLARIFY all this stuff. Our Merchant account contract comes with a nice little book, all sorts of things to read and sign and this and that. Certainly they need not have ALL of it right out in front but have it AVAILABLE so those who already DO take credit cards can INVESTIGATE and then decide whether its worth doing.
Online payments would save us hours & hours of work but is it worth it? Sure. IF WE GET to KNOW the basic FACTS about what happens in COMMON occurances with CREDIT CARDS and that we ALL are on a level playing field and that we ALL are treated equal and we ALL adhere to the same rules/laws presently in place for merchant processing.
Sure... LOTS of dweeblette sellers will yell and scream. Well... this is what Walmart, your grocery store, the video store even eBay itself contends with. If your going to accept credit card payments you accept the risk that goes with it. PERIOD. Why should PayPal eat it? And if I were them... thats EXACTLY how I'd approach it. Dear Peoples... Do to fraud, complaints blah blah blah... the NORMAL rules for card processing are being applied by Paypal... Sure... They will loose quite a few cheapskates. Hey... eBay has a majority of people who BARGAIN HUNT, thus penny pinch and same with many a seller. Right/Wrong I wont bother to debate. Just its a fact.
PayPal needs to break the mold they put themselves into. They are VERY attractive to tiny seller and not to the ones already past tiny and do their own processing etc. At the sametime, online payment processing as a service itself can be sold. Place like Gateway, Dell etc. have online processing they PAY FOR NOW. Thats a HUGE market place that PayPal totally ignored. Its a MUCH larger maket than ebay. How many buyers in cyberspace buy at eBay??? 3%? more? less? dunno... what I *DO* know is its a minority not the majority.
These are but a few issues, there are more. But we do think that making the playing field level is important and using the EXACT same rules set now in place for merchant accounts is important.
Perhaps this is just a scramble???
Huh? Well I noted Visa/MC changing processing requirements for Internet merchants. Perhaps the Paypal model excludes the "non-business" in effect meaning that where they are headed is JUST where I have said they should go (not necessarily by choice I'd gather). That due to the changes PayPal is basically going to set businesses up with a virtual merchant account. So... While you really DONT know you have it... you do, its just in their hands not yours. Get what I mean? And all the startup fee's are waived as dont need card processing software, or a lease, the rest is fairly inexpensive when going for a merchant account. There are some paper filing fee's, bout it' And of course meeting the requirements to qualify for a merchant account.
Is that possible? That these changes are due to the new processing requirements basically cutting those that do not want or are not lawfully in business out of the fray. At the sametime, it becomes more attractive to other services such as whatall, barnes & noble where they can sell the processing service of online payment. If so... Thats a decent plan. Sure its going to piss off the non-businesses, but, in reality, if you want to accept credit cards you ought have to abide by what we have to abide by, what walmart has to abide by, even what eBay has to abide by when charging out your commissions/listing fee's. Make sense?
posted on September 16, 2000 09:42:17 PM new
One minor point. The banks don't absorb fraud losses, the merchant does. One of the biggest problems our online store has been facing recently has been fraudulent credit card transactions, and we end up holding that ball.
The banks are on the hook for credit risk, but they pan most of the fraud risk off on the merchants.
posted on September 16, 2000 11:47:49 PM new
Just because someone is using paypal does not mean that they are paying with a credit card. They may be using funds that have been sent to them, or funds that have been transfered from their own bank. Yet if I sign up as a seller I will be charged for EVERY transaction, regardless if the person is using bank funds or credit card funds.
Thus the CHEAP 1 point something percent and the $0.25 fee is no longer cheap. Why should I be charged for EVERY transaction???
