This article was updated to reflect eBay's paperless payments policy, which took effect Oct. 20, 2008, and additional approved payment service providers.
Deciding which forms of payment to accept for an online sale sometimes involves as much strategy as designing the listing itself. Offering too few payment options can keep potential bidders away and blow your chances for a lively and successful auction. And limiting buyers to certain payment methods—particularly non-traceable ones like cash and money orders—can give you the appearance of a shady dealer.
eBay is a staunch proponent of electronic payments, which—when due care is used—are less prone to fraud. That preference is now built into the company's policies. As of fall 2008, acceptable forms of payment for most categories on eBay are limited to electronic methods. Currently approved payment providers are PayPal, ProPay, Moneybookers, Paymate and direct credit or debit card payments via a seller's merchant account.
There are exceptions to this rule. But for the most part, sellers may no longer solicit payments by cash, personal checks, money orders or bank-to-bank wire transfers—but they may accept one of these payment types if a buyer specifically requests it.
While eBay merchants may long for the freedom to choose, it's worth noting that every payment method comes with its own set of risks—not to mention inconveniences—for both buyers and sellers.
Online payments have also become the preferred method for the vast majority of eBay users, who favor the speed and simplicity of electronic commerce over the clunky, old-fashioned means—which often involve standing in line at the bank, or waiting a week or more for funds to be received and then clear.
Not that all forms of e-payment are hassle-free, or impervious to fraud for that matter. But by and large, they still offer the safest and fastest modes of completing eBay transactions.
True, online payments usually involve seller's fees—sometimes hefty ones—but these are far easier to bear when you consider how much you have to lose if you accept what turns out to be a rubber check or a counterfeit money order.
Got PayPal?
PayPal is the most popular e-payment option on eBay. It's eBay's favored method—which is hardly a shocker, since eBay owns PayPal. It's also become the method of choice for the lion's share of eBay users, at least in the United States. (PayPal transactions are growing internationally as well, though the service is not available in all countries). Some 75 percent of eBay buyers confirm they'd rather use PayPal than other forms of payment.
Citing its own research, eBay claims that listings offering PayPal as a payment option are 6 percent more likely to sell and have a 5 percent higher average final price, simply because it's a method buyers have grown comfortable using.
Among PayPal's virtues is its flexibility. Buyers can pay directly from their PayPal balance or a linked bank account, or they can plug in a credit card number—a neat feature that allows occasional sellers to accept credit card payments for a lot less than the cost of maintaining a merchant account.
Sellers can access the funds by bank transfer (which takes about three days), PayPal debit or credit card, or have PayPal issue a check. PayPal also offers sellers protection against chargebacks and has a dispute resolution program—although some sellers report difficulty in getting the company to take action.
Another drawback is the potential for fraud and identity theft, either through phishing or hacking. While few eBay users actually report these types of problems, the risk is great enough to send some buyers in search of alternative payment methods.
If you have a fairly steady, high-volume turnaround, consider subscribing to a credit card processing service
More choices added
eBay's other sanctioned payments vendors include ProPay, Moneybookers and Paymate. ProPay has designed a special type of account for eBay sellers called ProPay eAuction. This account setup offers online payments processing in a way similar to merchant account providers—and with similar fees, including an annual fee and transaction fees based on your sales tier. However, the service is currently limited to PowerSellers.
One of the more attractive features of ProPay is its ease of use for buyers. Unlike with PayPal, buyers can simply input a credit card number to make a purchase, without having to open an account.
Moneybookers and Paymate offer services with fees and function similar to PayPal. These companies also offer buyers the convenience of paying by credit card without opening an account.
Paymate recently got the added endorsement of being covered by the eBay Buyer Protection policy. To use its service, Paymate requires that sellers have a minimum of 10 feedbacks in the last six months, with a positive score of 98 percent. While the payment service is not yet integrated into eBay's Checkout system on eBay Australia, it is an accepted form of payment on the site.
If your sales are primarily off eBay, there are plenty of reputable firms worth checking out. A Google search for online payment providers is a good place to start.
Charge it
Getting set up to electronically accept credit cards can give sellers a slight edge, considering that in the wider world of online shopping, credit cards are the primary mode of payment. And most major credit card companies offer some form of liability coverage in case something goes wrong with the transaction.
Credit card processing services, also called merchant accounts, typically have processing fees between 2 percent and 3 percent, and transaction fees anywhere from 20 cents to 30 cents. Depending on the service provider, there may be additional costs associated with the processing terminal, and sometimes monthly account fees apply.
If you only sell on eBay occasionally, or your sales volume is low, a merchant account probably doesn't make sense. But if you have a fairly steady, high-volume turnaround, consider subscribing to a credit card processing service.
One other online payment option worth mentioning is an escrow service. An escrow service is a licensed and regulated company that collects, holds and sends a buyer's money to a seller according to instructions agreed on by both parties. Then, once the buyer receives and approves the item from the seller within an agreed timeframe, the escrow service forwards the funds to the seller.
Escrow is recommended for transactions greater than $500. But proceed with caution. There are tons of escrow scammers out there in cyberspace. eBay recommends Escrow.com. There are other reputable services out there, but make sure you verify the authenticity of whichever one you use. And if a buyer insists on using an escrow service you are not comfortable with, run—don't walk—away from the deal. It could be an attempt at fraud.
Although e-payment is fast, easy and usually pretty safe, it's a good idea to accept a variety of payment options to allow more people to bid on or buy your items. Be upfront about any lead times associated with the different payment methods to avoid misunderstandings down the road that could result in a buyer leaving you negative feedback.
For example, you might state in your payment terms that all personal checks are subject to a 10-day hold. It's also a good policy to never ship an item to the buyer until payment in any form has cleared—and include this policy in your terms and conditions.