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Does All-electronic Checkout Make Sense for eBay and eBay Sellers?

August 23rd, 2008 by Skip McGrath

eBay sellers are concerned about losing the ability to accept personal checks and money orders. What will the actual effect be on your eBay business?

In the early days of eBay when PayPal was growing like wildfire, most of our business was via personal check or money order. In those days trust was still a big issue and controls on fraud were minimal.  Since then both eBay and the internet has changed dramatically.  PayPal became dominant on eBay so much that eBay had to scrap their own payment system and ended up purchasing PayPal. Today PayPal has 90 million users and goes well beyond eBay. PayPal is now used by thousands of websites, and major companies like Jet Blue have adopted it. In fact one of our dentists here in town has a little sign on his counter that he takes PayPal.

Nevertheless sellers were perplexed when eBay announced that starting in October, all payment on eBay (with a few exceptions including eBay motors and most Business & Industrial categories) would have to be electronic. Some sellers thought this meant PayPal-only, but that is not the case. You will be allowed to use PayPal, ProPay, your own merchant credit card account and eBay has indicated that some additional payment systems will also be allowed in the future. (However Google checkout and Amazon payments will not be allowed as they are direct competitors of eBay/PayPal)

Here is part of eBay’s reasoning behind the decision:

"Expectations for shopping and paying online have evolved since eBay was founded. People want consistent, secure and fast transactions. Offline payment methods are no longer suitable for online transactions. This opinion is shared by law enforcement and the financial services industry. The vast majority of ecommerce shoppers, including eBay buyers, now use online payment methods. On eBay.com over 90% of transactions are paid with online payment methods and the use of offline paper methods has declined by 40% over the last 3 years.

Today, items paid with check or money order are 80% more likely to result in an item not received (INR) than those paid with credit card or PayPal. Also, buyers who pay with check or money order are 50% more likely to leave negative feedback than those who pay with electronic methods. So starting in late October, 2008, we are moving to 100% electronic payments – credit cards, ProPay, or PayPal.”

OK – I have to take eBay at their word when they state: “… items paid with check or money order are 80% more likely to result in an item not received (INR) than those paid with credit card or PayPal. Also, buyers who pay with check or money order are 50% more likely to leave negative feedback than those who pay with electronic methods.” But after 9+ years on eBay, we have only had two bad checks and both of them were eventually made good –and neither of them resulted in a negative feedback.  If you look on the eBay message boards many sellers are saying the same thing. 

I know a lot of people like to attach devious motives to eBay’s every move, but I also know there is still an awful lot of fraud on the site. The amount of fraud is not nearly as bad as the media and some pundits make it out to be. But the problem with fraud is that it not only affects each person who is victimized –but those folks tell 10 or 20 other people about it and it spreads.  So, within reason, I do support any steps eBay takes to reduce fraud.  When someone has a bad experience on eBay and tells all of their friends and co-workers, that hurts all of us because it reduces traffic to the platform.

Now what does this policy really mean to sellers?  In our eBay business we close about 200 successful transactions per month and about the same number from Amazon and our three websites.  Out of those 400+ transactions per month, we receive between 5-10  checks or money orders. We also get about a dozen people per month who call us on the phone and give us their credit card information because they are afraid to do it on the internet.  This is more true on our web site sales than on eBay –but we still get at least one person per week from an eBay sale who wants to give us a credit card manually rather than do it online.

I honestly don’t know if our experience is typical. It is well known that fraud is highly category specific. There is more fraud in some categories than others. We sell in the Home & Garden, Photographic equipment, Books and the Collectibles categories and personally I see very little fraud and have very few non-paying bidders.  When I talk to other sellers it seems that there is more fraud in the consumer electronics, computers, software and video game categories. The other area where there used to be a lot of fraud was the information category –but that is pretty much gone with eBay eliminating electronically delivered information products. (No more 99-cent eBooks)

Interestingly, fraudulent money orders are a much greater problem than personal checks. Whenever I receive a money order for any large amount, I cash it at the bank or post office first before I ship. The other area where you see a lot of fraud is in certified bank checks.  It is easy to counterfeit a certified check. The problem is that you deposit it and the bank immediately credits your account. So you ship that expensive antique or collectible and two weeks later your bank calls you and says “sorry but that certified check you deposited was a counterfeit, so we are debiting your account.”

When the policy goes into effect you will no longer be allowed to mention anywhere in your listings or post-sale emails that you accept any type of offline payment. In their FAQs, eBay addresses the issue of the buyer who contacts you and insists. eBay says they will allow this on an exception basis as long as it isn’t abused. The one unknown is if eBay will allow folks to call you and give a credit card over the phone. I have asked that question to eBay but they haven’t gotten back to me on it yet.

The bottom line on this policy is that yes –you may lose the occasional sale –and yes some buyers who refuse to use online payment methods may not choose to buy on eBay. But in the long run I don’t see electronic-only payments as a huge negative for sellers and it could be a positive if it does indeed reduce fraud and UPI issues.

Blog Update

Shortly after posting this blog, I heard back from eBay and they will allow sellers to take credit card information from buyers over the phone and enter it manually. You can do this with PayPal’s virtual terminal or your own merchant credit card account.

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