Paypal is probably the most commonly used and popular mechanism for accepting payments for electronic goods as well as tangible products available today on the Internet.

It is not without its problems though, as we will see.

But let’s take a look at Paypal, warts and all, to see why it is still the best way to accept payments for your goods.

Paypal is owned by EBay, and not surprisingly therefore, EBay therefore encourages the use of Paypal as a payment processor. If you buy or sell anything on EBay, you might also be asked periodically if you would like to sign up for a Paypal account. People who are unwilling or unable to get a Paypal account are often at a disadvantage when it comes to EBay auctions, since there are a lot of sellers who only accept Paypal payments, and a lot of buyers who are only prepared to make payments using Paypal.

But what is Paypal? How does it work?

Paypal does not offer a banking account or a merchant account. This is important to realize since it does govern the way that Paypal manages your money. More about this issue a bit later. Paypal offers the following features:

1. It offers a Paypal account holder the ability to make payments to other Paypal account holders, through either using funds already available in their Paypal account, or by using funds from your Credit Card account, or using funds from your Banking account.

2. Conversely then, if you are a Paypal account holder, you can receive money into your Paypal account, from where you can withdraw it to your Banking account or use it to make other Paypal purchases. You can also sometimes use your Paypal Debit Card to withdraw funds.

3. Paypal makes it easy for their account holders to accept payments by offering them merchant tools such as ‘Buy Now’ buttons, and shopping cart facilities.

Paypal claims to have about 120 Million users worldwide and it is definitely the easiest way on the Internet at the moment to accept payments. It also offers multi-currency payments in the following currencies: CHF, CZK, DKK, HKD, HUF, NOK, NZD, PLN, SEK, SGD.

But Paypal is not without its problems – let’s take a look at some of the potential problem areas. 1. Because Paypal is a privately owned company, it is not ruled by any Federal Banking Regulations. This means that they can freeze an account and hold on to the funds in the account with no explanation if they suspect any fraudulent activities. With a customer base of that size one has to understand that they should be very careful when it comes to potential fraudulent activity, however, detractors of Paypal will argue that Paypal often freezes accounts with little reason and leaves very little recourse for the account holder.

2. Even though Paypal claims that they operate in 103 countries, there are only 21 countries where Paypal Account holders can withdraw money into their own banking accounts. There are 14 countries where account holders can withdraw money to a US Bank account (or in some cases request a USD based check). And the rest? Well these countries sit in the unfortunate situation where they can make payments, but they cannot receive payments. In other words, the majority of countries whose citizens have Paypal accounts can not use the merchant tools such as ‘Pay Now Buttons’, nor the Paypal Shopping carts, to receive payments. And after 9/11 and the implementation of the Patriot Act, it is also very difficult for non US citizens to obtain a US Bank account.

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