PayPal seems to be a popular tool. At least, many customers and organisations overseas seem to talk about it.
So, for a Kiwi business, what is Paypal and is it worth joining?
What is PayPal?
PayPal is a combined payment gateway and mobile wallet, currently in use by about 392 million people around the world (Statista).
For customers, it acts like a mobile wallet – not dissimilar to Google Pay, but with more functionality. Users create an account and load it up with their personal details, credit or debit cards, and online banking account. From here they can send or receive payments, either to each other or to businesses.
For merchants, it’s a payment gateway. Some merchants use it as a total payments solution, where all payments – no matter the payment method – are processed through PayPal. Others just offer it as an additional payment option, an additional choice on top of their typical credit/debit card, POLi, or Buy Now/Pay Later buttons.
PayPal can also send e-invoices on behalf of its business users, which recipients can then pay using PayPal.
- Fact: 39% of Kiwis are already using payment apps like PayPal, Google Pay and similar (Yabble/Payments NZ Consumer Study 2020).
- “The definitive guide to payment gateways”
- “Inside Buy Now/Pay Later – what is it, and is it safe?”
- “So what’s the benefit of using electronic invoicing?”
How does PayPal work?
PayPal acts like a middleman between buyers and sellers. Each party makes an account with the service and links up all the applicable bank details, and then transfers money into and out of PayPal en route to the recipient.
Unless you ask it otherwise, PayPal will hold onto the cash until you tell it to forward it on into your bank account. In this way, it acts like its own internet banking account, and some users will keep cash within the app if they use it frequently (only cashing out at certain intervals).
So PayPal always holds the money first?
Well, not necessarily. Customers who link their debit or credit cards can pay directly using those, so the money does not need to first go into their PayPal account. But fees will apply.
How fast are PayPal payment transfers?
PayPal can transfer money from account to account instantly within the platform, but withdrawing funds from a PayPal account to a New Zealand banking account may take longer.
Some have reported in the past that their withdrawal took up to seven working days. However, a MoneyHub survey showed that about three-quarters of users received their money within one or two business days.
PayPal vs. merchant bank accounts
PayPal can accept credit and debit cards, as well as other payment transfers, but it is not a merchant account. In fact, it’s what is known as an ‘aggregator account’. That means PayPal is technically one merchant account with multiple users (as opposed to a typical bank, which offers one account to one customer). It’s more complicated than that, but that’s the short version.
If you’re a relatively small e-commerce merchant or other business looking to receive payments online, you can use PayPal instead of going to the bank. There are advantages and disadvantages to this, of course.
Using PayPal over a merchant account
- Fast to set up – in fact, it’s practically instant.
- There are no start-up fees, so you can get online without a big investment.
- Typically has higher transaction fees.
- Your money is beholden to PayPal – if it gets suspicious of your account activity (i.e. a spike in sales) it may freeze or suspend your account without warning.
Using a merchant account instead of PayPal
- Takes longer to set up – the bank will want a lot of information before issuing the account. This also takes time.
- Often there are establishment fees, in addition to annual or monthly fees.
- Receiving payments is usually quicker.
- There’s less risk your account will be frozen or suspended, as banks have other ways to investigate suspicious activity.
Learn more: “What is a merchant account?”
How much does PayPal cost for merchants?
For customers, using PayPal to purchase from a business is usually free – because the merchant is covering the costs.
At time of writing, PayPal charges 3.4% + $0.45 per transaction made within New Zealand. For overseas transactions, the fee is 4.4% plus a fixed currency conversion fee.
These are called commercial payment fees, and are just one of the fees charged by PayPal. Additional fees may include fees for withdrawing money from PayPal, chargeback fees, credit card fees, and more.
Learn more: Simple PayPal fees (PayPal)
Is PayPal safe?
PayPal is generally considered a secure payment platform.
The company uses encryption to protect data on its website and app as it transfers from buyer to seller, and it has built-in anti-fraud technology and 24/7 monitoring.
To help guarantee that its protection measures hold up against genuine attacks, PayPal also pays ‘ethical hackers’ to attack its own systems to look for vulnerabilities and exploits.
Should I offer PayPal, POLi, or other payment options?
The reality is, in modern e-commerce in New Zealand, you probably need a mix of all of the above!
While we’d love to be able to try and convince you that POLi is the only service you need, we will happily admit that most businesses should be offering a variety of payment options to their customers.
You can’t just offer credit cards, for example, because not everybody owns one. And if anyone is not well versed in online banking or just prefers to pay by other means, POLi alone won’t work. PayPal, while used by millions around the world, is still not used by everyone and is more popular overseas than here in New Zealand.
Our recommendation would be to find a payment gateway provider that will enable you to offer a variety of options, then compare the fees of a few different types and implement the ones you think you can afford, and that your customers will enjoy (you can always ask them which ones they would prefer!).
Read next: “NZ consumers’ top 5 ways to pay online”