Tuesday, 3 December 2013

Probing PayPal

Baby boomers and Luddites excused, who among us has not heard of PayPal - especially with the near saturation of e-commerce in many markets?

Before delving into the technicalities of PayPal, it's best if we understand a bit about the company's history.

PayPal's history begins with the inception of the internet financial services company X.com founded by Elon Musk among others around 2000. By March of that year, X.com acquired Confinity (founded by Peter Thiel and Max Levchin) and the rights to its PayPal system (the gateway was launched only in October 1999). The company renamed itself as PayPal on June 2001 to focus exclusively on internet transactions - particularly on the popular e-shopping portal eBay.

In February 2002, PayPal became the first tech company to go for an IPO after the 9/11 attacks. On 3 October 2002, eBay acquired PayPal for a brisk $1.5 billion - thereby consolidating eBay's hold of online payments and seamlessly integrated the preferred payment means into its shopping portal (as early as April 2000, over 1 million eBay users were already using PayPal for transactions).

Today, the gateway boasts an astounding 100 million active accounts with coverage in over 190 countries around the world. However, the availability of accounts, payment options, fees and other particulars varies from country to country. For that, do refer to their official policies: https://www.paypal.com/us/webapps/mpp/country-worldwide

For starters, PayPal is the internet's largest and most popular payment gateway. Payment gateways, or e-commerce payments systems, are essentially online portals that facilitate electronic transfers of money for online transactions. Gateways serve as alternatives to traditional payment methods like cheques, credit/debit cards and have even swallowed some of the pie away from internet and mobile banking.For companies like PayPal, they act as intermediaries between those who buy (whether individual consumers or businesses) and those who sell (individual or business). PayPal and other gateways (don't forget banks) use sophisticated encryption software involving "tokens" to facilitate money transfer.

PayPal acts as an "acquirer." That means that in exchange for a fixed fee, it will perform payment processing for online suppliers, auction sites and other commercial users. It can also charge fees for receiving money too. The system works with one party with a PayPal valid email address sending an amount to another party also with a valid linked email account. Basic membership remains free as does online purchases through major merchants.

Signing up for an account is quick and convenient. All that's required are your personal details (email address, name, contact address and number). Entering your bank account or credit/debit card information is optional, though it's essential for using many of the gateway's services. Once you choose your country of residence, you have a choice between either a personal, premier or business account. If you're just looking to make occasional purchases and maybe the odd payment receipt, then the personal (the most popular) account is recommended. However, if you're more inclined to accept payments and do other business, then the premier or business accounts are more appropriate.

Once all the details have been entered, you will need to sign and accept the website's user agreement, privacy policy, acceptable use policy and electronic communications policies. Once done, an email will be sent to you with instructions for confirming your address and verifying the account. Accounts are usually verified if your stated bank account or credit/debit card has been verified (usually PayPal will make 2 micro-payments to your account (around 5 cents) which you then enter back into your account as verification).

Accounts are verified if you've completed 1 of 3 options to indicate to PayPal that the address on your account is correct. The quickest method is to verify a bank account or credit/debit card matching the stated address. As an alternative, you can request a confirmation code by mail after 90 or more days upon signing up. Lastly, you can apply for a PayPal Extras MasterCard which verifies your address by running a background credit check.

Once your account is ready and authorized, then you can start spending right away using the funds from your bank or debit/credit card accounts. PayPal has loads of options and it can take a while before you get the hang of it. Fortunately, they have a large amount of text and video tutorials that explain each feature of function of the gateway to make things easier.

(Find me on Twitter @ReduanRahman).

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