Feb 02, 2019 - 09:33 AM
I don't know much about PayPal's current success or marketshare but here is what Elon Musk has to say about why they were successful initially (excerpted from the Ashlee Vance bio which I highly recommend):
Almost no one understands how PayPal actually worked or why it took off when other payment systems before and after it didn’t. Most of the people at PayPal don’t understand this. The reason it worked was because the cost of transactions in PayPal was lower than any other system. And the reason the cost of transactions was lower is because we were able to do an increasing percentage of our transactions as ACH, or automated clearinghouse, electronic transactions, and most importantly, internal transactions. Internal transactions were essentially fraud-free and cost us nothing. An ACH transaction costs, I don’t know, like twenty cents or something. But it was slow, so that was the bad thing. It’s dependent on the bank’s batch processing time. And then the credit card transaction was fast, but expensive in terms of the credit card processing fees and very prone to fraud. That’s the problem Square is having now. “Square is doing the wrong version of PayPal. The critical thing is to achieve internal transactions. This is vital because they are instant, fraud-free, and fee-free. If you’re a seller and have various options, and PayPal has the lowest fees and is the most secure, it’s obviously the right thing to use. “When you look at like any given business, like say a business is making 10 percent profitability. They’re making 10 percent profit when they may net out all of their costs. You know, revenue minus expenses in a year, they’re 10 percent. If using PayPal means you pay 2 percent for your transactions and using some other systems means you pay 4 percent, that means using PayPal gives you a 20 percent increase in your profitability. You’d have to be brain dead not to do that. Right? “So because about half of PayPal’s transactions in the summer of 2001 were internal or ACH transactions, then our fundamental costs of transactions were half because we’d have half credit cards, we’d have that and then the other half would be free. The question then is how do you give people a reason to keep money in the system. “That’s why we created a PayPal debit card. It’s a little counterintuitive, but the easier you make it for people to get money out of PayPal, the less they’ll want to do it. But if the only way for them to spend money or access it in any way is to move it to a traditional bank, that’s what they’ll do instantly. The other thing was the PayPal money market fund. We did that because if you consider the reasons that people might move the money out, well, they’ll move it to either conduct transactions in the physical world or because they’re getting a higher interest rate. So I instituted the highest-return money market fund in the country. Basically, the money market fund was at cost. We didn’t intend to make any money on it, in order to encourage people to keep their money in the system. And then we also had like the ability to pay regular bills like your electricity bill and that kind of thing on PayPal.
Feb 02, 2019 - 03:12 PM
Isn't that pretty much par for the course for all these huge behemoth companies?
Amazon & eBay treat their sellers like shit too. Unfortunately, as they've all killed the competition in their particular area, you've just got to suck it up. There are few [if any] worthwhile alternatives.
Apr 02, 2019 - 01:51 PM
I highly doubt their success will continue. They just announced another money grab today.From May 7th, they will no longer refund fees to merchants, when merchants refund a customer. this is pure greed and just makes it more difficult for merchants to do refunds, which in turn, makes customers hesitant to buy, which in the long term will reduce PayPal's revenues.
Here is the text from the announcement:
"We're changing how we treat refunds. If you refund (partially or fully) a transaction to a buyer or a donation to a donor, there are no fees to make the refund, but the fees you originally paid as the seller will not be returned to you." An EcommerceBytes reader explained what the change will mean to them: "In the past if a refund was process Paypal has retained the fixed part of the processing fee but did return the % part of the fee. Now it appears that if a seller now does a refund, PayPal will be keeping 100% of the processing fee.
"Previously if a buyer purchased something for $100.00 and paid through PayPal the seller was changed a $.30 fixed transaction fee and 2.9% of the $100.00 or $2.90, the seller ended up with a net payment of $96.80. If the seller refunded the payment for whatever reason PayPal returned the entire $100.00 to the buyer but retained the $.30 fixed transaction fee.
The end result was that it still cost the seller $.30 to process the fee. Now it appears that PayPal is keeping the entire fee of $3.20 even if the refund is immediately processed."