Is It Time You Accepted PayPal?

We've just published some new research on online shoppers' payment preferences in Europe. Payment habits across Europe remain diverse, with shoppers in different countries using different, and sometimes entirely different, payment methods to shop online.

One of the findings that struck me most during our research was the growing popularity of PayPal. That PayPal is used by many online shoppers across Europe is well known, and partly explained by the success of eBay. What struck me as new is how many big European online merchants now accept PayPal, among them leading fashion retailers and airlines. Perhaps I didn't spot that sooner because the British merchants have been much slower to adopt than those in Italy, Germany, France and Spain.

The growing acceptance of PayPal raises questions for two groups of eBusiness executives: 

  1. If you work at a retailer or other merchant, is it time you accepted PayPal payments online?
  2. If you work at a bank or card issuer, what does the growing use of PayPal mean for your relationships with your customers?
  3. For both groups, what payment methods are customers likely to want as they start buying from tablets and mobile phones?

What do you think?

If you are a Forrester client, you can read the full report here.

Comments

Paypal=Visa & Mastercard

I don't think a website can offer too many payment (or shipping) options - why not let the end user decide? Conversions can never go high enough - the can only get lowered by reducing options. I found that in countries like here in Australia and in New Zealand where paypal is NOT the most popular payment, the average Joe here believes that you cannot pay using paypal if you are not a Paypal account holder - However that is wrong and needs to be Marketed better by Paypal. Therefore, paypal or not, having Paypal on the website also means that you can accept all major credit cards and the customer must not have a Paypal account and can pay with Visa, Mastercard, Amex and Discover using the paypal gateway.

The main reason I suggest to my customers to use Paypal is to have an easy and cheap start and once the transaction reaches a serious quantity per month, only then to add on a custom bank credit card faciluty with SSL security on-site and all the rest. That can cost from $400-$1000 just to get onto the website + the monthly fees. All that is free with paypal but you pay a higher transaction fee.
In a nutshell if you don't sell for over $2500 per month, you do not need anything but Paypal to save money and offer more than ONLY credit card for those Paypal-only people out there

Can't offer too many payment options

Ronald

Thank you for your great points. I agree that offering PayPal makes particular sense for smaller merchants. What is (relatively) new is seeing so many bigger merchants accepting it.

Marketing payment systems to consumers is tough. We've always found that many people just don't think that hard about individual transactions and tend to stick to established habits, so educating them about new options takes time. PayPal appears to be devoting significantly larger sums to marketing as it grows.

Benjamin

Educating Aussies is Easy

In Australia I do find open ears to my suggestions more than I would in Germany. I guess it's also different from country to country. However the people that don't want to deal with Paypal at all give the impression that Paypal is somehow "dodgy" and makes their brand look cheep- they always add on: "When I see paypal in a website I lose trust and leave on the spot"

Strange...I would love to know how & when Paypal got such a reputation to some ears

Need competitors for PayPal

I have used Paypal extensively on eBay, both as a buyer and seller. eBay does not allow sellers to use any other online payment processor. Paypal is not only expensive, but their policies are very arbitrary - they have no hesitation about penalizing sellers even when they are not at fault and even though it is from sellers that they make their money. Further, their customer service is non-existent. Ask them specific questions about account restrictions they set up at random and they do not even bother to answer. It is great for buyers because Paypal literally bends over backwards for them and buyers don't even pay for the service! In Paypal's book, only buyers are required to be wooed for commerce since sellers will anyway not go anywhere else no matter how badly they treat them.

Is Paypal as wonderful as the media makes it out to be? I'm sure many will echo my sentiment when I say I would take any alternative in a heartbeat. Unfortunately, competitors have not invested the effort required into making themselves a viable alternative to Paypal, specially for individual, non-corporate small sellers.

Competition to PayPal

Kamesh

My original post was aimed at eBusiness executives at larger merchants, but you make some excellent points here.

- You are absolutely right that the failure by established or new competitors to create a viable alternative for small merchants and individual sellers is one of the main factors behind PayPal's current dominance of that part of the online payments market. I'm not sure which country you are in, but there are competitors to PayPal like Skrill (previously Moneybookers), Paymate and ClickandBuy. The problem is that network effects make payments a natural monopoly and most of the alternatives have nothing like the number of users. We've tracked numerous other online payment systems come and go over the years at Forrester. (Indeed, you may remember that eBay actually acquired PayPal in 2002 after its own payments service Billpoint failed to compete).

- I agree that one of PayPal's biggest weaknesses is its lack of customer service. The company has to some extent chosen to operate a low-cost, limited service model. The issue here is the economics of customer service: the cost of resolving many smaller disputes would be greater than the transaction amount. PayPal's use of online communities and virtual agents to provide more customer service support makes sense. Would you, and small merchants like you, be willing to pay higher fees in return for better service?

- eBay's use of its dominance in marketplaces to drive use of PayPal is troubling (though I'm not saying eBay is doing anything wrong). It may attract regulatory scrutiny or a backlash from merchants in time, but is it worse than or different from the requirements that the card networks impose on merchants?

I don't think there are many payment systems in developed economies that charge customers directly for payments.

Best regards,

Benjamin