PayPal Frustration ("Open Mike" Update)

Question: What would you use if you were going to stop using PayPal?

I got schooled by readers (especially Brian H, but thanks to all) about that errant cash transfer. My dearly-held conspiracy theory might be all or mostly wrong; could be that the ACH (Automated Clearing House) system is just antiquated and slow. Even with the ACH explanation, however, you'd think the longest a transfer could take would be three days—two to get the job done and an extra day thrown in as a buffer. So I still suspect skullduggery of some sort. But then, people tend to let go of conspiracy theories grudgingly, and maybe I'm no exception. (Conspiracy theories appeal to ego: it pleases us to be convinced that we know what's really going on even if nobody else does.)

The transaction in question doesn't involve a check. Or another party. It's a purely electronic transfer from me to me. What I'm trying to do is to put money from my bank account into my PayPal account, which I use as petty cash for online purchases. If I buy something for an amount that exceeds my balance, PayPal will extract the money from my bank by itself. But that happens on a per-transaction basis, and creates accounting headaches, so I don't like to let it happen.

It's now Day 6, fifth "business day." (As if the rails moving money around all shut down on weekends—the computers running the system all go home and put their feet up.) It's Friday, and the transfer I initiated last Saturday still hasn't come through. The bank says it released the funds last Monday. PayPal Customer Service says it has to go through ACH and there's nothing to do but wait.

Meanwhile, the exact thing I wanted to buy appeared on eBay and then got sold out from under me, which was bitterly frustrating. And this morning my PayPal account went below zero anyway because of a small automated contribution I make to Wikipedia every month.

This experience has been so irritating it makes me want to leave PayPal. PayPal is a "known known," and comfortable, and I'm in the grip of considerable inertia: I've been using it almost since the very beginning, forever ago. The early 2000s. But what has it done for me lately? The fees are astronomical. Someone gave me $6 today, but I only get to keep $5.21. PayPal snagged the rest. What value are they giving me in return when they won't even let me cover my own account in a timely fashion?

Can somebody who's deeply "in the know" about this kind of thing recommend a viable and better alternative to PayPal for online purchases and payments? I would look into that.

Mike

Original contents copyright 2023 by Michael C. Johnston and/or the bylined author. All Rights Reserved. Links in this post may be to our affiliates; sales through affiliate links may benefit this site. As an Amazon Associate I earn from qualifying purchases. (To see all the comments, click on the "Comments" link below or on the title of this post.)

Featured Comments from:

Bill Tyler: "Dunno if it affected you, but ACH had problems recently, and that delayed a lot of transactions. If that's the situation for you, it's not your bank and it's not PayPal."

UPDATE to the update, Fri. evening: The transfer did finally come through today. And Bill, your comment highlights something I should have thought of, which is that maybe my experience here is not typical.

Les von Pongracz: "Use an Amazon no-fee credit card and pay off the balance every month. You get cash back plus additional percentages back on Amazon purchases. Also gives you appreciable discounts at Whole Foods, if you have one nearby. This is just my opinion, but I don't feel that PayPal gives as much peace of mind when dealing with disputes."

Roger: "We bank through a credit union: No fees for having accounts with them. Being fee-free, we set up a dedicated account just for PayPal. We just top that up from time to time and let PayPal reach in a grab cash as needed. Any fraud that might occur will only hit the small amount we keep in there. We do have to wait several days when we move cash from PayPal to the checking account, but that's a pretty rare event.

"Having that second account came in handy when T-Mobile decided we won't get our discounts if we didn't switch from credit card payment to direct withdrawal. No problem; we just linked the T-Mobile account to the PayPal checking account, and their grubby mitts are nowhere near the 'real money.' Credit Unions are the bomb—join one if you aren't a member already. Almost no fees and you're treated like a human."

Comments

[Kirk]

I doubt your bank has any culpability in this transaction. I used to use PayPal for clients who wanted to pay invoices by credit card. It was easier than setting up a merchant account. But last year one of my clients wanted to use PayPal to pay for a $40,000 job; including pre-paying for model fees I would be incurring. PayPal had never put a hold on my account before but all of a sudden, because of the amount, they held onto the money for nearly two weeks before releasing it into my account and allowing me to transfer it into my bank account. While I was able to fund the project costs out of pocket I was really pissed because I had processed funds through PayPal on other client projects often and without a hitch. But those weren't in the same range of cost. You say a couple of times that you are sending money from "you to you" but from PayPal's perspective you are sending money from a third party bank to them and then to you. They are vetting the transaction to eliminate any risk for them. And, ostensibly, to you.

I have never used PayPal to pay for anything. I only use it to get paid. When I buy stuff on the web I use a credit card that is NOT linked to any of my other accounts. The credit card (Not a Debit Card!!!!) has lots of consumer protections and since it gets paid off in full each month it incurs no transaction or processing fees. It costs me nothing to have the card and it works everywhere.

If you are the victim of a scam that's done via PayPal your remedies are more restricted and take longer than working through a credit card company. Debit cards are a different animal and don't offer the same level of protections that a credit card usually does.

When I transfer funds from my brokerage account to my bank account they always clear overnight. With a credit card for purchases you'll never have to wait for transferred funds to clear at all.

If you wanna buy something you can...buy something. You can also pause a card and/or manage the credit limit. If you are afraid of possible fraud you could have your stand alone credit card set to a specific limit. But, unless you often deal with shady characters (EBay?) you'll probably never hit a situation that your credit card company can't handle for you.

It's pretty much how we've done stuff for as long as I can remember. That, and a checking account which is just a repository for deposits and a series of routing and account numbers you can use to pay known vendors directly. Electronically. We even occasionally write out a paper check. Still works.

Hope this helps.

[Andrew B]

You might consider the 'instant' bank-to-your-account transfer option but in PayPal it'll cost you 1.5%. Maybe there's a competing outfit that'll charge less? Venmo, a service I've often used, charges 1.75% for instant transfers.

[Alan]

I use Paypal for EVERY online purchase, and I buy a lot online. Both for myself and my business.
If you link a credit card to your paypal, you really never have to worry about funds backing up the Paypal transaction. It's also a great mitigator for purchases that are not what you expected or was wrongly described. As an example I recently purchased a Sinar large format camera and when I received it, the camera was not what was described at all so I filed a complaint and got my money back including shipping. Without Paypal I would probably have been screwed.
That also happened on a recent DJI Phantom 4 pro drone purchase.
Frankly for the buyer it's the best secure/confident method and most recognized transaction service you can get in my opinion.

The flip side is that for the seller, there is a fee (similar to a CC fee) they have to absorb from the sale price and of course if they sell a misdescribed item or other issues, the buyer has an effective recourse against you.

[David Haynes]

I have a debit card attached to my checking account that I use exclusively for online purchases. There is no transaction delay, no fees, and I can check transaction amounts, balance, and so forth using standard online banking techniques. This method works for me, your mileage may vary.

[Dave Crawford]

I use Apple Pay. I have an Apple Credit Card and an Apple High-Yield Savings Account. I keep my extra cash in the savings account. When I want to purchase something online I either transfer funds from the savings account to Apple Cash to pay for it, or just use the Apple Card. The Apple Card is relatively safe to use online since Apple changes the 3 digit security code periodically.

[JimF]

Why would you not use a credit card for transactions like this and just pay off the balance each month? Credit cards also have better fraud alerts and fraud protection as I understand it. Also I never ever use a debit card. Or maybe I'm the one doing it wrong. I'll wait for the comments from people who know the system better.

[Ben]

Credit card with cash back for payments. Give yourself a limit and pay it off every month.

Venmo for receiving payments?

[Kenneth Tanaka]

I do not know what's delaying your transfer. Without knowing more about the context, offhand I might speculate that it may involve any of a variety of money-laundering check-points that have been implemented in the past 10 years or so.

As an aside, do realize that PayPal is -not- a bank and is not subject to banking regulations. Deposits with them are also -not- covered by FDIC insurance. While they may pay an attractive rate on cash balances I would not maintain a substantial balance with them, as you have virtually no recourse for errors.

I recommend (and practice) letting PayPal draw from your bank or a credit card.

[James]

Here’s another vote for using a credit card and paying it off in full each month. Lots of benefits, little to no risk.

[Moose]

Paypal is lost in its roots as a piece of eBay, for buying on eBay. I imagine it stays healthy and profitable because folks (I almost said fools) like you keep paying its fees.

Paypal knows its problems, so it has (started, acquired?) another branch, Venmo (i.e. Sell More?)

The best way to transfer money between banks seems to be Zelle. Zelle was developed by banks, not third party folks looking to make money on handling your money. It transfers money directly between accounts at participating banks (most? all?) The transfer is made within my bank's app or on its web site.

The Cash App is also free and essentially instant for intra personal money transfers. I use it to send money to kids and grandkids.

As for using PayPal to buy stuff on eBay, I use a credit card. I don't use bank transfer and don't maintain a PP balance. I have no idea who eats which fees, but it's always worked, for decades and who knows how many hundreds (thousands?) of buys. PayPal takes money from the CC, gives it to eBay, I get the stuff, with no fees. As I use a CC with cash back, I even get 2% back a little later.

Apparently, once PayPal decides you are a business, they will charge a fee on every transaction, no matter what the nature. A friend recently said 'choose "Friends and Family" and no fee will be charged on either end.' Turned out not to be true, and we paid half the fee for her.

She's gone to Venmo. It doesn't impress me, with its social media vibe, but money I sent got to her quickly, without fees.

I have no idea what the fees for business sales transactions are with Venmo and Square/Cash App, but you could find out.

[John Krumm]

I would also suggest a credit card. The main trick is to keep track of purchases like you do a checkbook, and have the total monthly balance set to automatically withdraw from your checking account. Then you avoid interest.

However, if you are prone to spending willy-nilly without paying attention to balances, don't do this.

[robert e]

Maybe I'm missing something, but rather than using your Paypal balance as a petty cash account, you could open a bank account for the purpose and link it to your Paypal account. Transfers between your own accounts at the same bank are usually a lot faster than ACH. Most banks offer some form of free low-impact checking account. Some have minimal hoops to jump through to avoid fees, like x-number of transfers per month. I had an account like that once, so I set up an automated monthly $1 transfer to make sure I stayed qualified.

For sending and receiving money to/from individuals, I prefer Zelle or Venmo. Most banks subscribe to Zelle so there's minimal setup involved, and payments are instantaneous and free. Venmo is not as seamless, and it has a weird (to me) social media vibe, but more people seem to use it. But it has the same issues as Paypal re bank transfers.

[Kent Wiley]

As Ben and others said, a credit card account for payments. But I've heard of system leaks at Venmo, so I would recommend a bank system instead, like Zelle, to receive funds.

[ASW]

I have to agree with many previous comments. I got my first and only credit card when I was in graduate school, now many years ago. I have always used it as a debit card, meaning I don't spend money I don't have, and I pay it off in full every month (except once when I was very sick and didn't really know what day it was). I have been getting two "points" per dollar spent for all those years, providing me with a couple "free" round-trip flights, including one overseas trip. If you're worried about missing a payment I'm sure you can automate that as well.

[Calvin Amari]

Lodge a detailed complaint on the CFPB complaint portal. That will get PP moving.

[Bear.]

USA is way behind the times because of its antiquated banking systems due to cross-State border regulations. In Oz, we’ve had person to person electronic banking for nearly two decades, and post “Osko” (instantaneous) - can instantly move funds to any telephone or email address linked to a bank account. The number of cheques (ok, checks) in the system have reduced from billions a few years ago to a few million a year, almost all of them from governments. That’s to the extent that the Federal government here announced that the whole cheque system will be closing in a couple of years - no clearing houses, banks won’t take them, no regulation supporting them. Having said that, I really like PayPal for online transactions - by funding PayPal through a credit card, I get a double protection against fraudulent transactions. I happily pay the fee cost for that protection.

[Luci]

What Kirk said.

[David Dyer-Bennet]

"Business days" are relevant because most of the time is really buffer to allow humans to investigate issues thrown up by the software (they don't examine each transaction, of course; way too many). And those humans do work the work week.

[Scott]

ACH transactions take one day between banks. Anything longer than that is PayPal or someone else holding the cash to earn a few pennies on the float. It’s easy enough to link your two bank accounts directly and use the bank to move cash from one bank to another, usually for free, and in one day.

One additional reason PayPal (and others) delay crediting you is that ACH payments are reversible - the sending bank can claw back the money after the fact (this is different than wires, which cannot be undone).

[Regular reader]

Stay as far away as possible from Paypal (they are truly not your Pal). Once upon a time -- a zillion years ago in Internet time, they were a thing. Now there are legions of stories about them holding people's money "hostage" ... for reasons which they won't tell the true owner's of the funds. Businesses have failed because of it.

And because they are not really a "bank", per federal law, they can pretty much make up whatever rules they want. US banking laws, on the other hand, are very precise and there is no funny business allowed. If you have a bank with "NA" in the name it means "National Association", which means they are bound by federal level rules (mainly Office of Comptroller of the Currency) which supercede state laws.

Get an account at a Credit Union. The rules "of affiliation" changed years ago and while previously you needed to be a member of a related function -- like an employee of a company, member of a non-profit assocation, etc... credit unions now can accept anyone they please. Many (not all, but many) Credit Unions are now open to all. You'll get better service, low or no fees, and all around better treatment.

If you really need to move money instantly, the new thing (run by the banks themselves) is Zelle. No fees. Instant (really!) transfers. And coming soon is FedWire -- an instant transfer system run by the Federal government themselves, but not sure if that will be available to "retail customers".... it may be what prompted the banks to roll out Zelle.

But Paypal -- run away as fast as possible. If you haven't been screwed by Paypal yet is only a matter of "when". Stick with credit unions and banks where the law is on your side.