I need payment processing from my website. I hear horror stories. Does PayPal really suck?

I don't have a "sucks" story about Paypal. I have been using PayPal since they went into business in 1998. I get good service, I get good value, and I feel confident about data security.

To put things in perspective, I have also read horror stories about nearly every other payment processor, third party processor, gateway, and merchant bank. I have had far more trouble with banks than with PayPal. One bank let me be charged every year for fraudulent magazine subscriptions I did not approve. Every year, I would file a chargeback and they would say it was blocked... until the next round. I even changed credit card numbers without stopping it. I finally had to close the bank account entirely. The bank seemed completely helpless to deal with the issue. They just threw up their hands and said, "Oh well, that's the internet."

To compare, I also once had a merchant account, that I paid a terrible amount to set up. They heldback 15% of my money every month against chargebacks; it took 60 days to get my first payout; they charged me a fee to send a check; they charged a fee to give me a report of my account; and they provided no account services to help me fight car fraud. And they charged a higher transaction fee and discount rate than PayPal.

PayPal has no set-up fees, low transaction rates, lots of fraud prevention, instant cash availability with a debit card, and loads of fraud prevention activity. They have even let me carry a negative balance occasionally, with NO penalty or fee... a bank would never do that. Once instance was years ago, when a charge had to be reversed because the card was stolen, leaving me $500 in the negative. They did not freeze my account... they let me continue to accept payments until the balance came back up. A bank would have frozen my account until I repaid the negative balance from some other source.

I have the direct phone number of a PayPal Small Business advisior who was assigned to me, and an 800 number on the back of my debit card, which I have used with success. I have always been able to get phone help when I needed it, and they have been cooperative when I have had trouble with vendors charging me incorrectly. I did have two incidents where I was paid with a stolen credit card, but I was not blamed for that, and PayPal helped resolve the problems.

I have NEVER heard of a PayPal data security breach. On the other hand, CardService International, a huge processor, had a huge breach last year that exposed millions of cardholders.

I believe that many people who have trouble with PayPal often play a role in the trouble themselves. Often, they seem not to have understood what they signed up for, and don't understand how it is different from a bank. Or they are victimized by a phishing scheme, and blame the crime on PayPal. Large banks also have phishing and identity theft victims that lose money, credit, and are terribly impacted. If PayPal were truly fundamentally flawed, it would have fewer users. By far, the vast majority of users do not have serious trouble.

PayPal did lose a lawsuit about how it handles account closures, and had to give a dollar to a lot of account holders, and a larger amount to a small number of account holders. They have revised their policies regarding account closure, to more closely align with banking law. They are in a weird place that is bank-like and yet not a bank. PayPal is unique, built entirely around the Internet.

By far, the biggest problem I have had with PayPal is with other users who don't know what they are doing. They sign up for the service and don't keep track of the user/pass info, or they let the email address lapse and don't even recall what it was. They infrequently use it, so they forget they have it, and are baffled when we try to open a new account and PayPal says, "You already have an account... just log in." Or it turns out that their spouse/partner/child/employee opened an account with their CC, and they have no access to the account, nor can they remove the CC without access to the account.

But, Paypal does let merchants collect CC payments without signing up for an account, via invoices we send out, or via website payments. They also have NEW options, Web Payment Pro and the Virtual Terminal, that allow you to collect CC payments online without ANY reference to Paypal, even if the person's CC is registered to a PayPal account. I have been using the Virtual Terminal, which allows me to take CC payments by phone, fax, or live anywhere I have Internet access. It's $20 a month, and has been worth it for me. Transactions deposit the payments right into my PayPal account. Clients don't know who processed the card payment, any more than they know who processed their payment at a restaurant or store. My business name appears on their bank statement. I don't keep CC info, and so I do not have to worry about data liability.

Tips for success:

-- Don't leave large amounts of money in your Paypal account. Spend it down, take it out via debit card, or transfer it to your bank account. Nothing bad can happen to money that is not there. Paypal is not a savings account.

--Don't attach your PayPal account to a bank account with a huge balance. I attach mine to a small account with a debit card. That way, if something bad happens, I have limited the impact. You can easily find a free checking account, even a free business bank account.

--Never clink on a link to Paypal in an email or on a website. Always type the address in your browser, or use your own bookmark. I don't save the password on my computer, and my password is different from anything else I use. Yes, there is a high level of phishing targeting PayPal users, but it is not hard to avoid it.

--Pay attention to your account records. Watch for mistakes and overcharges. I had trouble with GoDaddy double-charging me for a while, and PayPal helped solve it.

--People selling merchandise from shopping carts are much more at risk for fraud than consultants and other service providers accepting payments from clients.

--Immediately apply for the free Mastercard debit card, so you can use it to pay from your PayPal account in stores and online where CCs can be used. I pay almost all of my business and personal bills and vendors online, from car insurance to datacenters. Using the debit card has even gotten me business from store owners seeing 'PayPal" on my card and asking what I do. There are eBay users everywhere, and they recognize it.

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