Why PayPal makes it a chore to pay by credit card

April 16th, 2008 | by mbhunter |

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My wife and I use PayPal a lot. We buy a lot of things through eBay, and I sell a lot of things through eBay and through other venues. PayPal is a good choice for those who want to be able to accept credit cards but don’t want to go through the hassle of setting up a merchant account.

I prefer paying by credit card through PayPal. I get cash back, and I get all of the other benefits of paying by credit card, like free float, consolidated expense description, etc.

My wife bought something today, and paid by direct debit instead. She usually changes the payment source to credit card, but forgot to this time. It’s easy to do. PayPal does make paying by credit card a bit of a chore.

The PayPal payment options default to the following:

  • First, if you have a PayPal balance, that gets hit first. You cannot pay by credit card if you have a balance in your PayPal account last time I checked.
  • Second, if there is no PayPal balance, it defaults to a direct debit to your bank account on file. (The “eCheck” option.)

Payment by credit card is never a default, and you can’t set it to be a default. Here are the steps we need to go through each and every time I want to pay by credit card:

  1. Ignore the bright orange “Pay $12.34 USD Now” buttons on the page.
  2. Find the Payment Method section, and click on the “Change” link.
  3. Go back and log into my PayPal account to transfer my entire PayPal account balance to my bank account if I don’t see the credit card option. (It’s free to do this, and I can use my credit card immediately after initiating the transfer.)
  4. Try again and click on the Credit / Debit card option for payment.
  5. Confirm that I “still want to make this payment with a credit card” and click the “Yes” button which is right next to a bolded “No” button. (I still have to think each time I click on the Yes button, even after doing it hundreds of times.)

Are you getting the idea that PayPal is trying to trick me into not paying by credit card?

It’s all about PayPal’s bottom line. If a PayPal user wants to accept credit cards, they need to have either a Premier or a Business account. A Personal PayPal account does not allow that person to accept credit card transactions, but there is no fee taken out for receiving money on Personal accounts. However, on Premier or Business accounts, every payment accepted, regardless of source, is charged a fee.

Now, transfers from PayPal balance are free for PayPal, as it’s all an internal shifting around of electrons. Balance transfers direct from a bank account are also free for PayPal, as the bank from which the funds are drawn pays any ACH transfer fee. Payment by credit card, however, is not free for PayPal. PayPal is basically a giant merchant account that fulfills transactions on behalf of about 100 million different user accounts. Each credit card transaction costs PayPal a percentage of the transacted amount plus a flat fee. They pass this on to the premier and business account holders, of course, but they charge the same fee to them regardless of whether it was a credit card transaction or not.

It’s been this way for years, and it’s a pain, and it still catches me once in a while, and it’s not likely to change. Maybe this little guide will help you if you decide to pay through PayPal using your credit card.

  1. 11 Responses to “Why PayPal makes it a chore to pay by credit card”

  2. By Mrs. Micah on Apr 16, 2008 | Reply

    I hadn’t thought about that much, but it makes sense. Does Paypal allow normal users something like 5 credit card receipts a year? I think I remember that before I had to switch up to premier.

  3. By mbhunter on Apr 16, 2008 | Reply

    Mrs. Micah: That’s possible. I’ve had a business account for a while so I don’t remember.

  4. By Brent on Apr 16, 2008 | Reply

    This is funny you mention this, I feel absolutely the same way. I have done this a few times while wanting to pay for something quickly. They definately make you go out of your way to pay by credit card!

  5. By Chief Family Officer on Apr 16, 2008 | Reply

    That happened to me too, a few months ago. It was the first time I’ve forgotten to change the payment “source” - I understand that PayPal does it on purpose for their bottom line, but boy, was I irritated!

  6. By Trisha on Apr 17, 2008 | Reply

    That’s burned me more than once! I plan my checking account sometimes down to the dollar with paying more than the minimums on CC’s. And, when I accidentally choose the default payment option in Paypal (which is VERY easy to do), I have to completely re-strategize my budget and decrease some CC payment amounts.

  7. By The Happy Rock on Apr 21, 2008 | Reply

    It really does bug me too since I will use my credit card for rewards on all online purchases.

    The warning/information message when you try to use a credit card is also a little over the top in my opinion.

  8. By jdb on Apr 21, 2008 | Reply

    We have only linked paypal to a credit card and not to our checking account, and I found that it lets us make up to $2k in total transactions before it demands we “upgrade”. Personally, I’ve heard too many horror stories about them freezing people’s checking accounts to allow them access to ours. So when we hit the limit for credit cards, we simply close the account and open a new one. It’s worked for us so far.

  9. By L@SpillingBuckets on Apr 22, 2008 | Reply

    Hey, just found your blog through the carnival.

    I totally agree with how annoying this is. I used to have an eBay business and bought a TON of stuff with PayPal. I got really good at remembering to switch to credit cards, but sometimes… and often I was buying things that were expensive so it really hurt when the charge was debited instead of paid for with my business card.

    Have you seen the new buttons? Rather than YES and Bolded NO they have “pay with credit card” (normal font) and “PAY WITH BANK ACCOUNT NOW” capitalized and bolded in the confirmation screen.

  10. By Theora55 on Apr 29, 2008 | Reply

    I’ve noticed this, and it annoys me mightily. Bad PayPal, leave my bank account alone! I want the protection of paying by credit card, because I don’t trust Paypal or Ebay to protect me from a scam or malicious trader.

  11. By Simon16888 on May 1, 2008 | Reply

    I have a personal account with PayPal and I could not find a way to change from bank account to credit card today.
    I call Pay Pal and ask the girl can I remove my money on the bank so PayPal will go to next route - charge to my credit card? She said yes but bank might charge me fees.
    I guess I will remove my bank account so PayPal have no way to charge to my bank account. With credit card I can get my reward point I can pay the bill few weeks later. There is totally no reason to pay by my bank.
    PayPal just don’t want to let their user to set default payment method on our account, they give you choices but take you forever to change it and want you to forgot that you have that choice.
    They want cash. They don’t want to pay extra fee.

  12. By acedox on May 8, 2008 | Reply

    I have a personal account with Paypal, i created it the last week of April. I linked my Credit Card to Paypal, after getting the 4 digit code i verified it.
    I was trying to pay for an online subscription with my credit card through paypal, since it’s the only option that i can choose. I noticed that paypal won’t let me get over $100, I used my credit card in paying my online subscription which totaled to $75, 3 weeks ago. This night i was trying to pay $40, paypal won’t let me, it just gives me the error that i have to log on to my paypal account because of the transaction details, I tried logging on to my account but it won’t let me. I tried 40 times and it didn’t let me with my credit card. After the 40th attempt it gave me the error that my credit card can’t be used in that transaction. I called citibank, and asked about my previous transactions, they said that i had 40 transactions with a charge of 1 with no currency, I’m assuming that they charged me $1 every failed transaction, is this true? or did i misunderstood the agent that gave me the list of my recent transactions?

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