PayPal makes its money on fees for playing the role of Internet transaction middleman. Along the way to becoming the most popular service of its kind, PayPal has also made quite a few merchants unhappy.
One of those is "Notch", a game developer whose account of about a million dollars PayPal froze for suspicious activity. That is an extreme example--because most PayPal accounts aren't so flush with cash--but it suggests an institutional high-handedness that has upset many sellers. Here's a breakdown of how key alternatives to PayPal work for business customers.
Google created Google Checkout to compete with PayPal and to offer users a superior platform for conducting transactions online. For processing your sales, it charges you 1.9 percent plus 30 cents per transaction, depending on your monthly sales volume, without monthly setup or gateway fees, and with no fees for buyers.
Pros: Google is no fly-by-night Internet startup, so you can deal with Checkout with confidence. Google also provides solid customer support--albeit through e-mail only.
Cons: Some people fear that Google is a global Big Brother with access to too much information already. Sharing financial accounts and transaction details with the company would be another log on the fire for such critics.
Amazon is the largest online retail site, and it has expanded to include trusted third-party merchants, so it makes sense that the company should have a means of transacting cash. Customers who shop using Amazon Payments can complete purchases using the shipping and payment details stored in their Amazon accounts. Businesses can provide a simple means of payment without forcing users to leave the site to log in elsewhere.
For sellers, fees are assessed on a per-transaction basis; they vary by dollar amount and volume. The base fees are 2.9 percent plus a 30 cent fee for each transaction of $10 or more, and 5 percent plus a 5 cent fee for each transaction under $10.
Pros: You can use the service without sharing your payment information and without having to re-enter shipping details, simply by using the details stored in your Amazon account. Purchases are protected by Amazon's A-to-Z Guarantee, which ensures the condition and timely delivery of the products bought.
Cons: The service has limited implementation outside of Amazon.com. It is nowhere near as widespread as PayPal.
Revolution Money Exchange
RevolutionMoneyExchange is a newer player in online finance, launched by America Online founder Steve Case. The service doesn't have the brand recognition of Google or Amazon, but it allows users to make online purchases, transfer funds, and make payments to and from each other with no fees. Even businesses can request and accept RevolutionMoneyExchange payments without paying fees.
Pros: No fees except in certain situations such as stop payments or overdrafts. Good account security. Accepted as a method of payment by a number of reputable companies such as Walgreens.
Cons: You can't send or receive more than $1000 per day or more than $2500 in a calendar month.
Moneybookers has the unique honor of being accepted on eBay as a PayPal alternative. In that regard, it's arguably the most comparable option. Moneybookers lets members transfer money to and from each other based on their registered e-mail addresses. Consumers can also use the service to make online purchases, and businesses can use it to receive payments for purchases. Though it's a more obscure PayPal alternative than others, it's a good choice if the goal is to buy and sell on eBay.
Pros: Members can receive payments for free--a significant savings over PayPal, especially for international transactions. Customer support is solid.
Cons: The fee for requesting payment by check is high--at 3.50 euros, it amounts to nearly $5 depending on the conversion rate. Sending money incurs a fee of 1 percent of the transaction amount, putting the fee burden on the buyer rather than on the merchant. Outside of eBay, the service is not widely used or readily available.
DigitalRiver is more of an e-commerce system for merchants than a method for transferring or exchanging funds between users. Still, for businesses with an online presence that need a shopping cart and e-commerce service, it's worth a look. There are no upfront costs associated with setting up an account, and the fees for receiving payments start at 2.9 percent plus a $1 transaction fee. In some cases Digital River is the company responsible for back-end processing of credit card payments made through PayPal.
Pros: Tools and services are particularly well suited for online sales and downloads of software. Digital River enables customers to retrieve or redownload previously purchased content.
Cons: In many ways--especially for consumers, Digital River is not a viable alternative for PayPal. Customer service has been a frequent target of complaints, and many critics have expressed concern over costly rip-off services' being linked to Digital River transactions.
What to Choose
If you are among the 25 million sellers who conduct business on eBay, there is really no escaping PayPal. Because eBay owns PayPal, using that service is a requirement for setting up a seller account in the first place, and most competing online transaction services are banned. eBay has been tied up in litigation, defending itself against a class-action antitrust suit related to PayPal, but the dust is still settling.
If avoiding PayPal is a priority, but buying and selling on eBay are imperative, Moneybookers is your best option--at least for now. Google Checkout and Amazon Payments are solid options from credible online brands, and Digital River provides online merchants with powerful shopping cart and e-commerce tools.
Of these alternatives, RevolutionMoneyExchange is the most compelling overall for businesses. More than just a method of transacting money exchanges on eBay, it seems most like PayPal in its ability to transform the way money is used and exchanged, including such simple tasks as paying a friend for your half of a lunch tab.
PayPal is likely to remain the most recognized brand in online transactions for quite some time. But other companies are availing themselves of the opportunity to jump on the Internet commerce bandwagon and compete. Ultimately, both consumers and merchants will benefit from the competition because it will drive innovation, keep costs in check, and provide choices.