PayPal: A new bank or a Web 1.0 dinosaur?


blog Over at Business Spectator, veteran internet banking commentator Charis Palmer has been wondering whether online payments giant and eBay subsidiary PayPal is a threat to Australia’s major banks. Quoth Palmer:

“While banks have remained focused on over-the-counter payments, and the card swipe terminals attached to those cash registers they love so much, PayPal has been building out a robust environment to support online retail for the millions of small businesses that want an easy way to get paid online.”

Palmer’s thesis is that the major banks have ignored the online payments market, allowing the likes of PayPal to steal a march in online payments.

Now at a certain level Palmer has a point — PayPal is practically indispensable at the moment for anyone doing business online in any serious way. There aren’t many alternatives and the ones that are out there don’t work well. However, she overlooks one crucial fact about PayPal which stands in its way to long-term dominance of the online payments field: It’s a mediocre service which most of its users would dump in a heartbeat if there was something better on offer.

Delimiter recently sold a piece of equipment through eBay for the princely sum of about $1,000. And it’s fair to say the process that the online auctions site made us go through was draconian. Firstly, we didn’t even want to use PayPal, but the site makes it hard to avoid including it as an option.

Secondly, when we did try and transfer the funds out of our PayPal account and into the real world, the process took way too long. First we had to prove we weren’t money launderers, through uploading copies of our driver’s licence and relevant telephone bills (security risk, much?). Then it took several days for the payments to clear.

And, of course, PayPal takes its cut from all of this.

At no point, when interacting with PayPal’s service, do you feel as though you’re getting your money’s worth. Its complicated and hard to navigate site looks like it hasn’t been updated since eBay bought it in 2002 (the Web 2.0 revolution might as well not have taken), its rules are complex and arbitrary, and the service it provides is only used, in short, because it’s the only option.

Sure, at a basic level PayPal’s system works, which is why everyone uses it. And, for online payments, it works better than the current systems offered by the banks. But I would bet that a majority of those using it would welcome competition into the market. Or at least a little innovation from PayPal itself.

If Australia’s major banks — or, indeed, anyone in the world — can come up with an alternative to PayPal’s dubious internet payments monopoly, I say bring it on. As quickly as possible. Let’s not simply cede the future to this outmoded company, which in many ways is as slow moving as the banks themselves. This is about as far away from “real-time banking” as you can get.

Image credit: Mario Alberto Magallanes Trejo, royalty free


  1. The problem is that, especially with eBay owning PayPal, any alternatives that come to market (think Google Checkout) always have a hard time gaining market.

    But we can’t exactly say to Online Retailers to open up their options when it comes to payment methods can we? That would be like saying to store retailers for example, that if someone offers to pay you by EFTPOS, even through it costs you money in adminstrive costs, or you can’t even afford to get an EFTPOS machine, that you must accept it.

    If the banks manage to offer a wholely better alternative, that instantly handles the transaction, etc, e.g EFTPOS for the web for exmaple, then sure, everyone would love to take it up if it offers better service and less overheads than PayPal, but it is going to be a hard road for them.

    But that shouldn’t stop them from trying. I say bring it. :)

  2. Fair comment Renai – I agree – and in fact I think it adds weight to the argument that PayPal has done so well despite charging quite a lot for its service and not outperforming any banking the service stakes. You only have to read the comments on my article to see merchants have a love/hate relationship with PayPal – they love it for the up front convenience, despise it for the cost/problem resolution. PayPal knows consumers and merchants will pay for convenience.

    The other point to make is settlement takes time because PayPal is still reliant on the BECS system owned and run by the banks – until this is fixed and we move to a real-time payments system like that in the UK, it will be very hard for any competitor to take on the incumbents.

    • To be honest I think this is the real devil — I don’t know much about it, but this BECS system seems like it’s much of the problem behind slow internet payments. But it likely won’t be the banks that will fix the problem through collaboration — it will likely be an innovative third party that will come up with a solution to work around it somehow.

      Either way, the entire system needs a bit of a shake-up. The reality is that today’s online ‘money’ is just bits in a system being transferred around — records in CRM systems. Those systems can interact with each other much faster than humanity is letting them :)

  3. When Infonomics needed a low volume payment system, we deemed PayPal unsatisfactory for the same reasons as described in the article. A little digging turned up, which offers a very professional interface, modest fees, comprehensive information to the seller and next-day payment right into the designated bank account. On the down side, Paymate recently relocated to the USA – perhaps indicating a lack of support itn eh Australian market, or maybe showing that to break into the US market one has to “live” there (as suggested years ago by Rupert Murdoch).

    Paymate is available for ebay sellers too, though one might have to dig hard to find it. There’s relevant information on their website.

    Maybe Delimiter should ask them why they relocated.

    Or maybe ask the bankers (and the regulators) why they have not yet delivered a compelling proposition for online small to medium value payments with the “ACID” qualities that were considered essential when ATMs were first being deployed – Authenticity (nowadays meaning including robust authentication of all parties), Confidentiality (maintaining the privacy of all parties), Integrity (preventing change to the data for each and every transaction and raising alarms in the event of attempted tampering) and non-repudiation (no party can deny the existence or legitimacy of a completed transaction). The necessary underlying technology has been available for years!

    • Interesting, I’ll have to look into Paymate. A few people have mentioned it to me, and it seems they are directly meeting a need in the market.

  4. We use PayPal for managing our incoming and outgoing funds, its horrible. The limitation of withdrawing (presently in Canada) takes approximately 1-week, and the customer service associated with their convoluted system is poor, we would openly adopt a new provider. Competition is healthily for consumers.

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