Sunday, September 22, 2013
I am an online merchant. I use PayPal to accept payments on my web site. PayPal has three services for online merchants to use:
PayPal Standard (no monthly fee)
PayPal Advanced ($5 monthly fee)
PayPal Pro ($30 monthly fee)
For about a decade I have been using their Pro service (also called a Pro "account") because the checkout experience for my customers is very smooth. However, I have always resented paying that $30 monthly fee, especially since PayPal skims about 4% off my sales. I don't make a lot of money from my business (always less than $20,000 a year), but there have been years when I have paid well over $1,000 for PayPal's services.
Unbeknownst to me, in 2012 PayPal introduced the Advanced service, which is almost as good as the Pro service. I didn't hear about the Advanced service until mid-2013 -- they apparently didn't tell their Pro customers because the Pro customers were already paying more money. When I heard about Advanced, I was totally thrilled at the prospect of saving $25 a month. From what I have heard, only a small percentage of PayPal's customers ever used the expensive Pro service (I was apparently one of the stupid ones), so PayPal introduced the cheaper Advanced service in the hope that many Standard customers would upgrade and pay that $5 monthly fee.
For reasons I don't understand, PayPal does a credit check for the Advanced and Pro services. Ten years ago when I applied for a Pro account, my credit wasn't perfect (because my business was new and I was chronically short of money), but PayPal approved my application anyway. However, in October, 2013, when I applied for an Advanced account, they denied my application! They denied it even though I have had a perfect record with them for about thirteen years (no charge-backs and no bounced ACH transactions). One would think that my record with PayPal would be enough to get further credit with them, but apparently not.
With bad credit ten years ago, and bad credit today, I probably sound like a deadbeat to you, but that's not the case. My recent bad credit accumulated in just the last year, during which my business has been in a slump. All I'll say is that I have two pieces of bad credit on my record now, and there are reasons for both which were not entirely my fault.
Primarily, I am pissed at PayPal for not granding me an Advanced account based on my good credit with them -- but there's more to it than that.
As part of all their services -- Standard, Advanced and Pro -- PayPal extends very little credit to their merchant customers, so I don't see any reason for a credit check at all. Mostly what they do is to skim money off the top of each sale. Thus, if four $25 sale comes in, PayPal skims off $4.00 in fees and then puts the remainder in the merchant's PayPal account -- that doesn't involve any extension of credit. There is only one occasion when PayPal extends credit: If, when using his PayPal debit card, a merchant spends more money than he has in his PayPal account, PayPal will extend credit for a day or two until they can pull the money from the merchant's "backup funding" (checking account or credit card). The risk to PayPal is quite minimal, especially since no merchant in his right mind would cheat PayPal, since doing so would result in the loss of his account.
There is yet another irony to this whole thing: PayPal does not require a credit check for a Standard account, but Standard accounts incur the same risk that Advanced and Pro accounts incur. In other words, PayPal offers "backup funding" with all three services. Yet PayPal makes less money from their Standard accounts, which would make their Standard accounts the greatest risk of all.
And here is a third irony: PayPal denied my application for an Advanced account, yet I can continue to use my Pro account! Having been denied an Advanced account because of bad credit, you would think that PayPal would cancel my Pro account -- but they haven't (obviously because they make lots of money from it).
After my application for the Advanced account was denied, I was so pissed that I downgraded to a Standard account. Ten years ago the Standard account wasn't very reliable, apparently because of over-aggressive address verification (in other words, many payments from customers were denied for no apparent reason). However, since downgrading to Standard a couple weeks ago, I have not had a problem. The checkout experience under the Standard service is not as smooth as under the Pro service, but it is good enough -- and I am saving a whole $30 a month.
If PayPal were smart, they would simply dispense with credit checks. The risk of losing money to new customers is very small, and they could cure that risk by limiting the amounts of credit extended via "backup funding". By eliminating credit checks, they would get more fee-paying customers than they would otherwise get, and they would make more money. But no, PayPal has a history of stupid behavior, and they are staying true to character.
PayPal Standard (no monthly fee)
PayPal Advanced ($5 monthly fee)
PayPal Pro ($30 monthly fee)
For about a decade I have been using their Pro service (also called a Pro "account") because the checkout experience for my customers is very smooth. However, I have always resented paying that $30 monthly fee, especially since PayPal skims about 4% off my sales. I don't make a lot of money from my business (always less than $20,000 a year), but there have been years when I have paid well over $1,000 for PayPal's services.
Unbeknownst to me, in 2012 PayPal introduced the Advanced service, which is almost as good as the Pro service. I didn't hear about the Advanced service until mid-2013 -- they apparently didn't tell their Pro customers because the Pro customers were already paying more money. When I heard about Advanced, I was totally thrilled at the prospect of saving $25 a month. From what I have heard, only a small percentage of PayPal's customers ever used the expensive Pro service (I was apparently one of the stupid ones), so PayPal introduced the cheaper Advanced service in the hope that many Standard customers would upgrade and pay that $5 monthly fee.
For reasons I don't understand, PayPal does a credit check for the Advanced and Pro services. Ten years ago when I applied for a Pro account, my credit wasn't perfect (because my business was new and I was chronically short of money), but PayPal approved my application anyway. However, in October, 2013, when I applied for an Advanced account, they denied my application! They denied it even though I have had a perfect record with them for about thirteen years (no charge-backs and no bounced ACH transactions). One would think that my record with PayPal would be enough to get further credit with them, but apparently not.
With bad credit ten years ago, and bad credit today, I probably sound like a deadbeat to you, but that's not the case. My recent bad credit accumulated in just the last year, during which my business has been in a slump. All I'll say is that I have two pieces of bad credit on my record now, and there are reasons for both which were not entirely my fault.
Primarily, I am pissed at PayPal for not granding me an Advanced account based on my good credit with them -- but there's more to it than that.
As part of all their services -- Standard, Advanced and Pro -- PayPal extends very little credit to their merchant customers, so I don't see any reason for a credit check at all. Mostly what they do is to skim money off the top of each sale. Thus, if four $25 sale comes in, PayPal skims off $4.00 in fees and then puts the remainder in the merchant's PayPal account -- that doesn't involve any extension of credit. There is only one occasion when PayPal extends credit: If, when using his PayPal debit card, a merchant spends more money than he has in his PayPal account, PayPal will extend credit for a day or two until they can pull the money from the merchant's "backup funding" (checking account or credit card). The risk to PayPal is quite minimal, especially since no merchant in his right mind would cheat PayPal, since doing so would result in the loss of his account.
There is yet another irony to this whole thing: PayPal does not require a credit check for a Standard account, but Standard accounts incur the same risk that Advanced and Pro accounts incur. In other words, PayPal offers "backup funding" with all three services. Yet PayPal makes less money from their Standard accounts, which would make their Standard accounts the greatest risk of all.
And here is a third irony: PayPal denied my application for an Advanced account, yet I can continue to use my Pro account! Having been denied an Advanced account because of bad credit, you would think that PayPal would cancel my Pro account -- but they haven't (obviously because they make lots of money from it).
After my application for the Advanced account was denied, I was so pissed that I downgraded to a Standard account. Ten years ago the Standard account wasn't very reliable, apparently because of over-aggressive address verification (in other words, many payments from customers were denied for no apparent reason). However, since downgrading to Standard a couple weeks ago, I have not had a problem. The checkout experience under the Standard service is not as smooth as under the Pro service, but it is good enough -- and I am saving a whole $30 a month.
If PayPal were smart, they would simply dispense with credit checks. The risk of losing money to new customers is very small, and they could cure that risk by limiting the amounts of credit extended via "backup funding". By eliminating credit checks, they would get more fee-paying customers than they would otherwise get, and they would make more money. But no, PayPal has a history of stupid behavior, and they are staying true to character.
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