Think of the most basic fundamental features of an e-commerce website - selection of products, transparent prices, and ability to pay online. For the latter, your business will rely on other service providers like PayPal, Authorize.net, Braintree, Stripe, Dwolla among many others. We used PayPal’s Pro Payment services as it was one of the cheapest solutions with no upfront cost in the market for a new e-commerce site like ours to get started. Alas, one day the service ended abruptly and we wish we never fell for that marketing gimmick.
Below, I will give you three reasons to look beyond PayPal from the beginning.
PayPal is not a reliable business partner
Your payment processor is more than a business partner. You need it to be there as your business grows. PayPal failed miserably at that. When our transaction volume increased from 5 folds in a week, one of PayPal’s underwriters called us to inquire the cause of the spike. After I spent time answering her twisted questions, 2 minutes after the call ended, we got a dreadful email, “effective immediately, your PayPal Pro account has been cancelled.” In less than an hour, our best week of sales was turned upside-down.
The reason? PayPal gave us none! We made several attempts to reach their underwriters via email and phone, but they preferred to remain faceless and voiceless. Two days later, PayPal emailed it was due to increased risk from our business.
It seems that our success had become their risk. Would you want a business partner like that?
PayPal earns ‘huge’ interest on your cashflow
PayPal levies a “reserve” to most first-time accounts. You will easily buy the story, “since you are a new business, we hold X% of your money in case of a chargeback.” Ask them two years after you have had an account with them with no chargebacks, they’ll say “once a reserve has been assessed there is no way to remove it.”
Reserve is X% from your sale that is held by PayPal for 60 - 90 days. For us, it was 20% for 90 days. Here’s the bitter pill to swallow. PayPal earns interest on this reserve for itself.
Cash flow is the lifeblood of any business. When 20% of your sales is unavailable for months, a PayPal-type solution will harm your business’ cashflow as it grows.
PayPal’s customer service is like a robotic assembly line
PayPal employs service reps who deal with merchants and customers alike. After Level 1 support is done babysitting your problem, they will transfer you to another department. I cannot remember a call to PayPal lasting me less than 45 minutes for even the simplest of problems.
Furthermore, in dealing with PayPal service reps I always got the “you are just another problem in my day” attitude. Contract that with the service we received from Authorize.net, American Express and Dwolla, the attitude was “you are the one I want to help”.
The Bottomline:
I wish I had someone to advise me, so I am forewarning fellow entrepreneurs. If there was a do-over, would we
- use PayPal in the beginning stages of the business? No! Because it is not business partner we can rely on to grow.
- recommend PayPal to our enemies or competitors? No! Paraphrasing Steve Jobs here, just because we compete with someone, doesn’t mean we have to be rude to them.
- recommend other startups to invest money upfront into premium solution? Absolutely! If e-commerce is what you are doing then you should consider a more advanced solution like Authorize.net or Braintree. There are others on the market like Dwolla, Stripe as well.
