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PayPal

PayPal is one of the world’s leading financial services companies. Its use in e-commerce is ubiquitous and it is by far the most popular means of sending person to person payments online (outside of China). In this guide, I review it and provide information on how to open an account.

Review

PayPal has been around for two decades, in one shape or form, and has been instrumental in shaping how we pay online. Personally, I have a love and hate relationship with it. I love how easy it is to integrate, how wide its support for banks and payment cards is and how large its user base has grown. I hate how expensive it is, how risk management is handled and how bad customer service is. In any cases, accepting it is a must and will continue to be, at least until the likes of Apple Pay and Google Pay increase their user base and improve support for in-browser payments.

The account opening procedure varies from country to country and from easy to very complicated. For example, an Australian PayPal account can be opened in minutes without having to provide any documentation while an Estonian PayPal account takes days to open and a number of supporting documents must be mailed or scanned and emailed. In some countries, residency is required (such as the US where an SSN / ITIN must be supplied once a certain threshold has been reached) while in others it is not. Verification also differs from country to country and from basic to extensive. It is worth mentioning that in some countries, such as Hong Kong, it is possible to open a business account in person (offline).

For obvious reasons, a PayPal account should always be linked to at least a bank account (either directly or via a debit card) and a credit card. That said, bank support varies from country to country and in many cases, is fairly lacking. In fully supported countries, it is possible to link a local and sometimes a US bank account as well as any Visa, MasterCard, AmEx, Discover and Unionpay card. In “half-supported” countries, it is only possible to link a card (it is possible to withdraw to it in some cases) and sometimes a US bank account. In “poorly” supported countries, it is only possible to link a card (no withdrawal possible) and sometimes a US bank account. Restrictions may also apply, such as being able to send but not receive any funds or being forced to wait a number of days before being able to withdraw funds.

In terms of fees, PayPal is brutal. While there are no account or monthly fees, transfers are very expensive and that is especially true when multiple currencies are involved. In my experience, the total cost including the bank withdrawal can often be as high as 10%. In the UK and US, PayPal offers a “Pro” membership which allows businesses to process credit card payments directly on their site via an API. The cost for this membership is around 30 USD per month. While this may seem expensive when compared with fee-free Stripe, it is important to note that it allows the processing of PayPal Credit payments and this can be a very powerful feature for US and UK-focused businesses selling high ticket items (it allows you to offer instalment plans while still receiving all the money upfront). Another huge advantage of PayPal Pro is that you have access to your money immediately (as opposed to a number of days later with Stripe and most other merchant accounts).

A major gripe many, including me, have had with PayPal over the years is their risk management system. They will often limit accounts when the volume of transactions increase suddenly, when the products / types of customers changes or sometimes for things as simple as logging in from a new country. I understand why they prefer to err on the side of caution but this can be a major source of friction, often at the worst possible time.

Other than that, the service works fairly well and the addition of Braintree and Venmo to the PayPal ecosystem has added a lot of value for business users. It is uncertain where PayPal will go in the future and if it will be able to compete against the likes of Apple Pay, Google Pay and the Chinese wallets but what is certain is that right now, it is a must for any online business owner.

 
Noteworthy
1. If you intend to access your PayPal account from outside the country it was created in, what I recommend doing is to do so via a VPS hosted in that same country. This way, as far as PayPal is concerned you will always access your account from the same IP and computer. This will eliminate the risk of getting limited due to a geo-triggered red flag. You can buy a VPS from the likes of DigitalOcean for as little as 5 USD per month, you can even get one for free via Amazon AWS (free tier).

2. If you want to accept PayPal payments but your company is based in a “half-supported” or “poorly-supported” country, I recommend doing so through a UK payment processing subsidiary (UK LLP). Not only is the cost of setting up such a subsidiary low but the PayPal fees in the UK will also be much lower than in the country where your main business is located. Not to mention that this will create no additional tax burden. You can read this article for more details.

3. In many countries, PayPal limits new accounts until they have established a sufficient history. This usually means 5+ transactions worth over 150 USD and a 30-60 wait period. To ensure that such limitation does not affect your business, I recommend having friends send you money right after you create your account (5 transfers, large enough to go over the minimum amount). You then wait for the limitation period to run through before starting to use the account to accept payments from real clients.

4. If your account gets limited, do not write to PayPal support, always call in. In most cases, you will be able to sort things out over the phone.

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