Paypal is probably one of the easiest way to set your online business up to accept and process credit card transactions. You do not even have to set up a shopping cart. All you need is to copy and paste a piece of HTML code onto your website, and you will have a “pay by Paypal” button. You do not even need a secure HTTP (https:// before your URL). However, if you do not have your own merchant account to accept credit card directly and rely completely on Paypal, they will chew you up and spit you out!

Last year, 2010, Paypal added a rule which grants all item-not-as-described claims from buyers. The rule adds a huge risk for the merchants. So far this year, 2011, I have personally had 3 transaction reversals in which I lost the entire amount of money, the merchandises, and the shipping costs (paid to UPS or USPS). In a most recent incident, customer asked for refund for 1/4 of the total transaction because 1/4 of the items received did not work for him. While the customer sends the item back, Paypal has made a decision to give the customer full refund! Paypal asked the customer to send the item back this time. (In previous incidents, Paypal issued full refund even the merchandises were not returned.) Obviously Paypal invented this rule to prevent themselves from any possible losses to disputes. They also encourage buyers to file claims! It looks like they have enough seller accounts already! I will be surprised to see a class action suit coming against them.

Other than the possibility of account suspension which will freeze your cash flow, another ridiculous thing Paypal does is that they do not require customers to provide a phone number. Among the most popular transaction processing methods, as far as I know, only Paypal does not ask for a phone number.

If you are serious about running an online business, Paypal should not be your only way of processing customers’ credit card transaction. Get a merchant account!