eBay Australia isn’t exactly making friends by requiring its sellers to use eBay-owned PayPal to receive their money. No more direct bank deposits, cheques, money orders or your own card merchant account. I’ve written about this twice for Crikey [1, 2], but today there’s more news: the Reserve Bank might weigh in against eBay.
Here’s how I first described the scenario:
Imagine that you’re Alice, proud owner of the new shoe shop at your local Westfield. Bob is buying a pair of brogues. As Bob opens his wallet, suddenly Frank Lowy appears. “There’s some terrible con-men around,” he intones gravely. “Let me handle that.” He grabs Bob’s cash and pockets a fiver. “I’ll give you the rest next Wednesday,” he says, and disappears.
Alice, understandably, is mightily pissed off.
Sellers on eBay have been mightily pissed off overnight too, because the world’s biggest online marketplace has just pulled the same stunt. From 21 May, all eBay sellers must offer PayPal as a payment method. And from 17 June — unless the buyer is physically collecting the item from you or for a few big-ticket categories like real estate and motor vehicles — they must pay you via PayPal.
Now as Alex Willemyns pointed out, Alice could just set up shop elsewhere. Bob could choose another shoe store. However since Westfield and eBay both dominate their respective markets, that could well be a poorer choice.
The ACCC has also pointed out that eBay must prove that the public benefit from this move outweighs the detriment of what could be a breach of the “third line forcing” provisions of the Trade Practices Act. eBay has requested immunity from legal action. The ACCC is accepting public comments until 2 May.
Today’s Reserve Bank angle is interesting. As The Age reports:
The Central Bank has long called for buyers and sellers to have as much choice as possible in what payment systems they use and strongly opposes any moves that reduce competition in the market…
The Reserve has expressed support for new methods of payment that could act as competition for international card schemes. New methods could give merchants and customers more choice about how they make and receive payments.
A 2006 speech by an Assistant Governor of the Central Bank, Philip Lowe, documented the growth of alternative payment schemes overseas that had not yet been adopted in Australia.
For example, a number of countries had adopted “online debit” schemes that allow customers to transfer money directly from their bank account to the merchant without needing to use a credit card or scheme debit card.
Reading between the lines — and without doing any further research on the point — it seems to me that the Reserve Bank sees its role as ensuring the money flows as smoothly as possible. Delays and fees are friction in the pipes which need to be engineered out.
Computers and network efficiencies should cause the cost of transactions to go down. eBay’s move causes them to go up. Market FAIL.
Now PayPal isn’t necessarily evil. Indeed, for small businesses setting up an online presence, they’re often the most cost-effective way to accept credit card payments, and the easiest to set up technically.
But delays and fees are certainly the problem. eBay sellers don’t like PayPal’s extra transaction fees of 1.1 to 2.4%, nor the 5 to 7 working days it takes to access your money. If a transaction might be “risky” (PayPal’s call), they can freeze it for 21 days. During this time, says their Product Disclosure Statement, “Any money in your PayPal account will be pooled with money from other holders of PayPal Accounts and deposited by PayPal with a licensed bank.”
In other words, PayPal banks your money and earns interest. You don’t.
According to a CNN report, US PayPal users can keep their account balances in a Money Market Account — provided they remember to opt in. Australians don’t have the choice.
PayPal also has a poor reputation for dispute-handling. The internet is littered with stories about people’s accounts being frozen without warning, about consumer credit rights being ignored because PayPal claims their terms of service over-ride them — at paypalsucks.com and screw-paypal.com and here for starters.
eBay is spinning this as being “for your protection”. Their announcement uses words based on “safe” 6 times, “protect” 12 times, and “secure” twice. But then bullies demanding a percentage of your business takings has always been called a protection racket.
The CEO of PayPal competitor Paymate, Dilip Rao, isn’t impressed with the security spin either. “eBay have presented no data to show that Paymate is a less safe way to buy or a less reliable way to sell on eBay compared to PayPal,” he says. Ironically, Paymate was created by eBay Australia but sidelined when its US parent bought PayPal.
eBay is burning bucketloads of goodwill here. So far their response is to tough it out. But any online business can be replicated with a few programmers, and goodwill is your only real asset.