Should you sign up for a PayPal account?

PaypalIn the freelance world, PayPal provides a way for South African service providers to be paid by international clients. Although the fees are not insignificant, it is still the least expensive and most effective way to get paid. Banks make a lot of money out of foreign currency transactions.

The real growth in PayPal, however, is in the online shopping space. While one may be comfortable entering your credit card details onto a globally recognised website such as Amazon.com, how many individuals want to hand over their account details to a website they are not familiar with?

A friend of mine recently bought a pair of sunglasses online from Hong Kong. She fretted from the minute she made her payment to the day she received the goods. Firstly she worried about the levels of security on the website in terms of entering her credit card numbers. It had security measures on the website but it didn’t give her complete comfort. She then worried whether the company would actually deliver the goods and finally, what if the sunglasses didn’t suit her at all?

I have to confess that until recently I had not really investigated PayPal as a means of online transacting mostly because I only shop through Amazon, but speaking to Efi Dahan, Paypal’s regional director for EMEA,I realised that PayPal would have solved all her problems. Dahan says there are over 10 million merchants in 203 countries that accept PayPal payments.

As a shopper you can open a PayPal account (www.paypal.com/za) and either transfer money from your bank account into your PayPal wallet (a bit like a pre-paid debit card) or you can link your credit card to the PayPal account which then charges your credit card when you do an online transaction.

As the purchaser you pay no fees to PayPal since the merchant is the one who is charged for the transaction – in the same way that credit card fees work in South Africa. There is also no monthly fee for holding a PayPal account. The money does however have to be transferred into the foreign currency before being paid into your PayPal account and your bank will most likely charge a conversion fee of around 2%. This is would be in line with a foreign currency conversion fee on your credit card.

The funds are then transferred from your PayPal account to the merchant’s PayPal account and the merchant has no access to any of your personal banking details so there is no risk of credit card fraud.

My friend would already have felt a bit better about her purchase, but then PayPal also undertakes to request a refund if the merchant fails to deliver the goods. Dahan says that PayPal has a dispute resolution service whereby if a customer does not receive the goods or service, or the goods arrive not as described by the merchant, they can lodge a dispute with PayPal for up to 180 days after the transaction took place.

PayPal will follow up with the seller and demand the money back. Credit cards backed by Visa, Mastercard and American Express offer the same service but the process could take longer.

As PayPal is effectively a closed system they can simply remove a merchant who is not acting ethically. Again my friend would have slept better knowing that there was at least some recourse if her sunglasses had not arrived.

For me the real drawcard over a credit card is PayPal’s free shipping service for returned items. If the merchant has a refund policy, PayPal will pay for the shipping costs of returning the item of up to US$ 30 for 12 returns a year. So if my friend hated the sunglasses she could have simply posted them back for no fee and received her money back.

Withdrawing funds

While making payments via PayPal is fairly simple, receiving payments is where things get a bit more complex. This has to do with South Africa’s exchange control regulations, which state that you cannot hold money paid to you in foreign currency for more than 30 days. You also cannot use foreign currency that is sitting in your PayPal account to pay to another PayPal user. You have to convert the funds to rands (ie, withdraw the money to your local bank account) within 30 days.

In order to withdraw funds from PayPal, you have to open a profile with FNB. FNB will then pay the funds from your PayPal account to either your FNB bank account or non-FNB account. The fee for this is 1.5% of the amount withdrawn.

If you are a customer of FNB it is a fairly simple matter of linking your PayPal account to your FNB account. If however you bank with another bank, you will have to follow a full FICA process to verify your identity and banking details. Another friend who was trying to receive a deposit back from a holiday apartment complained that it took about a week to get the FNB profile operational, given all the red tape.

As I said in the beginning, it is still costly to receive money in ZAR. While there are no fees when you make a purchase using your PayPal account, there are fees to receive money. PayPal charges on a sliding scale from 3.4% to 2.5% (plus a flat fee of $0.3c) on money paid into your PayPal account. Add to that the FNB charge of 1.5% and you will have paid around 4.9% in fees on any money paid from abroad.

This article first appeared in City Press