From security to crowd funding, I’ve taken a look at the pros and cons of the digital payment company in this review.
PayPal can be a handy way to pay. For a start you don’t need to have any cards on you for quick online payments.
For many the main reason for having one was to sell on eBay. But that’s changing, and by the end of 2021 all private sellers will be using a PayPal free system.
Plus, from 16th December 2020 you’ll be charged to have a PayPal account you aren’t using.
And with so many other advancements in the ways we pay, such as Apple Pay and Curve, do you still need PayPal?
I’ve taken a look at the good and the bad of PayPal in the video review below, or keep reading for the full article.
What is PayPal?
PayPal is essentially a digital wallet. You can connect your bank account and as many of your debit and credit cards as you want. You can also keep cash in there, either money that’s sent to you or money you withdraw from your bank.
There are two main PayPal accounts – personal and business – the focus here is on the personal accounts. This personal account is free – though as I explain below there is a new charge for inactive accounts.
Once you’ve got your PayPal account you’ll probably use it for one of three reasons:
You can use it to buy things
You’ll mainly see PayPal at the checkout for online shops. It’s the most common way to pay outside using your debit or credit card.
But you can also use it to pay out and about. Generally the retailer would produce a QR code for you to scan which then gives you the details to pay with from your PayPal app.
You can use it to send money
As long as who you want to pay has a PayPal account you can send them cash via your wallet. If they don’t have an account they’ll have to set one up.
This is obviously quicker and easier than typing in all their account details to your banking app – though services like Paym also get around it.
You can use it to request money
Asking for money works the same way. You just put the email address they use into PayPal and how much they owe you and send it across.
Pros of PayPal
You can use cards without sharing your card details
I think most people will have used PayPal because they had to (on sites such as eBay) or because you didn’t want to put your card details into a website.
The merchant will never see your connected card details when you use PayPal, so it’s a good way to pay when you’re not sure about the security of a website.
It’s a quick way to pay
It’s also pretty fast and convenient method of payment. If I’m at home on the sofa using my laptop there’s a good chance I won’t have my wallet with me. But a few clicks via PayPal and I’m able to pay and add my delivery details for a speedy checkout.
Using PayPal with an American Express card
This is a great work around for people wanting to earn cashback and rewards at retailers that don’t accept Amex credit cards but do take PayPal.
Very simply you pay with PayPayl and use your underlying Amex to fund the transaction. It’s a good fix, though do read some of the downsides of using any credit card on PayPal below.
You can crowdfund
I didn’t know about PayPal Money Pools until the other week.
It was my brother-in-law’s 40th during the lockdown so celebration plans were cancelled. Instead, my sister set about crowdfunding contributions from friends and family to help buy a special present. She used Money Pool and it worked great.
It’s free to set up, free to make contributions and free to make payments from! It could be handy for anything from wedding lists through to group holiday funds.
It’s launching a virtual card
So far virtual cards have been something you only see on Fintech banking apps – and often only with paid for accounts like Monzo Premium. well, PayPal is launching its own one – PayPal Key.
Essentially a virtual card is as it sounds. There’s just a long number, expiry date and three digit CSV. No plastic (or metal) to go in your wallet.
This has a few benefits. First, It means you can use your PayPal accounts even on sites which don’t have a PayPal button.
And it also provides an added level of security. You can generate a new virtual card whenever you want. So if your details are compromised, you can just create a new one to replace it.
At the moment it’s only in the USA, but hopefully we’ll see it here in the UK soon. This link should help you enrol when it is live.
PayPal has extra offers
From time to time you’ll see special deals to earn you a little back on your purchases. Most aren’t great, but it’s worth looking at from time to time as there can be some winners.
To find these you need to log in to your PayPal account and hit the offers tab.
These change regularly. At the time of writing there’s a £10 referral bonus offer if you invite new customers and £20 back on £90 of shopping at select retailers. You can find out more about the latest offers in my PayPal deals page.
The Cons of PayPal
You lose Section 75 Protection
Using PayPal with a credit card breaks the direct connection between you as the buyer and the retailer as the provider. You are instead paying PayPal who then pays the retailer.
This, in turn, means you lose Section 75 protection – a law that means credit card companies are equally liable with the the shop or business that’s sold you to you if something goes wrong, such as a delivery not arriving.
Section 75 only works for items or services costing more than £100, so if you have something you want to protect above that value, use a credit card instead.
Instead, you can claim via Chargeback or PayPal’s own Buyer Protection Promise. Neither are a legal consumer right to your money back.
If something you buy isn’t what you expected or doesn’t arrive you’ll be able to make a claim (in most cases) via PayPal Buyer Protection. You’ll be covered for the full purchase price and packaging.
However Which? magazine recently found customers are frequently let down if they’ve been victim to fraud.
You’ll be charged if you don’t use it
PayPal is free for buying things and sending money, right? Well yes. As long as you use it. If your account is classed as inactive there’s a new £9 annual fee starting on the 16th December 2020.
Fortunately it’s easy to avoid this. The charge is only added to your account if:
- You’ve not signed into your account for 12 months
- You’ve not used your account for 12 months
So very simply you just need to put a note in your diary to log-in once every 12 months. Or if you’re not going to use it at all just close it down.
If you do forget the £12 will be deducted from the funds you have in your account not your connected card or bank account. And it won’t take more than the amount you have there. So if there’s just £8 in your PayPal account, you’ll only lose £8. So it makes sense to not leave any cash in there – just in case.
You’ll also get reminders 60 and 30 days before a charge is due.
Scammers love pretending to be from PayPal
One of the most common scam emails I get is from someone pretending to be from PayPal. No doubt that’ll increase on the back of the new dormancy fee.
These can look professional, so the best way to check if it’s a legit message from email is to look at the sender’s actual email. If it’s not “@ PayPal.com” then it’s not real. Here’s more on how to spot a fake email.
If scammers do get access to your account and use it without your authorisation you should be covered by PayPal’s protections.
But if you send them money, then your rights in terms of getting the money back are much reduced.
Watch out for businesses asking you to pay as “friend”
If you are selling something, either yourself or as a business, then PayPal takes a fee. You’ll have seen this if you’ve sold on eBay.
Sometimes if you’re using PayPal to buy from a brand they’ll ask you to send the money via the “Sending to a friend” option. This will save them fees, which they might promise to pass on to you.
But doing this instead of the “Paying for an item or a service” option will mean you lose the purchase protection. So if something goes wrong or it doesn’t arrive you’ve nowhere to go to get your money back.
It’s hard to use in-store
Though you can use PayPal in participating shops, it’s rare to see it accepted. And it’s not really any easier or quicker than just tapping your card to pay. But I doubt anyone would want to use this to replace paying with cards so it’s not much of an issue.
It encourages you to take out credit
It can be very easy to get credit from PayPal. Which can be dangerous.
Don’t get me wrong, it could be useful. 0% credit to spread out the cost of something expensive can make things you need more affordable. But it’s not all 0%. And even if it is, you need to make sure you can afford it.
But what I really don’t like is that it’s pushed at you when you checkout, and that’s about to get worse.
PayPal is trying to compete with the like of Klarna via a new service called Pay in 3. It works in the same way as the others, letting you split the cost of something across three payments with 0% interest.
I’m not a fan of this type of borrowing. There are moves to bring in regulations to cover Buy Now Pay Later lenders, but for now you need to be careful of using them too readily.
The currency conversion rate isn’t great
If you are someone who sends money internationally you can use PayPal. But my limited experience of this (when buying things in US dollars) has seen a worse exchange rate than I’d get elsewhere.
I’ve not looked into this enough to recommend the best alternative, but it’s worth checking the exchange rates and charges elsewhere to see if you can get a better deal.
Conclusion: Should you use PayPal?
Though the negatives listed above outweigh the positives in number, I still think PayPal is a decent option if you are aware of the risks.
It’s certainly not going to be the main way to pay, but I don’t think anyone would want it to be. It’s simply a choice you’ve got.
Just remember you do need to be extra careful with the scammers, so always check a PayPal email really is from PayPal. And make sure you log-in once a year to avoid that annual fee.