EBay's PayPal rule in Australia draws fire
Associated Press/AP Online
SAN JOSE, Calif. - EBay Inc. is exploring whether to require
customers to use its online payment service PayPal, a move that has
angered users and prompted antitrust scrutiny in Australia, where a
PayPal-only rule takes effect next month.
After repeated queries, the online auction company said late
Friday it will not institute such a rule in the United States. But
it remains unclear whether eBay will still try it in other
countries. EBay often tests big changes in smaller markets before
expanding them worldwide, and says it is open to that in this case.
"We are going to take learnings from it and apply them
accordingly," said eBay spokesman Usher Lieberman.
EBay says it wants to reduce disputes and restore trust in
its marketplace with the PayPal-only plan. Because eBay and PayPal
can share information on each transaction, eBay says use of PayPal
allows it to stop fraud more efficiently than outside payment
services. Pressing that safety argument in a heated discussion with
Australian users, an eBay executive compared the new rule to banning
the sale of heroin on street corners.
But critics lament that PayPal is costlier than other
payment options, and they suspect eBay is just interested in
increasing PayPal's revenue. Australian banks say the plan will
eliminate competition for the sake of exaggerated benefits.
"Competition will be restricted, innovation and
development will be constrained, new entry will be discouraged and
PayPal will be able to increase fees and charges to eBay
users," the Australian Bankers Association said in a filing
with regulators Thursday.
Because eBay sellers are commonly independent merchants who
don't accept credit cards, PayPal acts as a go-between. Buyers use
their credit cards and bank account information to make payments,
and PayPal relays the funds to sellers' PayPal accounts, charging
them 30 cents plus a commission - up to 4.4 percent in Australia.
The second-most common method of payment on eBay Australia, bank
transfers, cost 20 cents each.
Australia's bankers group says PayPal is not as immune to
fraud as eBay claims. While PayPal does keep bank and credit card
account information secret between trading partners, the bankers
group decried that it does not verify identity as banks do.
EBay's financial reports indicate that PayPal, while hardly
fraud-proof, is getting better at cracking down. Its loss rate is
0.24 percent, down from 0.33 percent a year ago. That means that for
every $100 transacted with the service, PayPal has to eat 24 cents
because of fraud. That is slightly lower than the rates seen in
credit and debit card transactions involving the top 20 online
retailers, said Avivah Litan, a payments security analyst with
Gartner Inc.
EBay contends that when users opt for methods like bank
transfers, their transactions are four times more likely to result
in a disputed payment. EBay says reducing that risk will attract new
buyers to the site.
And, the company adds, it doesn't stand to profit directly
from the PayPal rule. It claims its investments in new buyer
protections could outweigh any gains from increased PayPal fees. For
instance, under Australia's new plan, if a buyer doesn't get what he
or she paid for via PayPal, eBay will refund the buyer up to 20,000
Australian dollars ($18,600).
To make the PayPal rule possible, eBay has applied for - and
automatically gets - immunity from Australia's anti-monopoly Trade
Practices Act. But the Australian Competition and Consumer
Commission, which is investigating, could revoke that immunity if it
finds the plan will harm the marketplace. A decision is expected
soon.
Critics say eBay is just trying to fatten its bottom line.
Growth in eBay's core auction listings has slowed in recent
quarters, pushing eBay to expand other parts of its business, which
includes PayPal, classifieds sites and online telecommunications
service Skype. And eBay has already taken other steps viewed as
protecting PayPal, such as banning Google Inc.'s rival Checkout
service on alleged safety concerns months after it was launched in
2006.
Sellers in Australia are "absolutely furious" and
resent that they are subjects of an experiment, said Phil Leahy,
president of the 600-member Australia chapter of the Professional
eBay Sellers Alliance.
Leahy sells DVDs, movies and CDs through eBay, a
high-volume, low-margin business. He says using PayPal instead of
bank transfers would cost him $4,700 per month, based on his January
sales numbers of $332,000. "It's the difference between making
money and not making money," he said.
Leahy estimates Australian buyers use PayPal about 50
percent of the time - eBay would not confirm the figure - versus an
85 percent rate in the United States. He said bank transfers are
used in 30 percent of transactions. The rest are conducted with bank
and personal checks, money orders, or cash on delivery, all of which
are banned under eBay's new plan unless the payments are exchanged
in person. That happens rarely.
Shaun O'Brien, a seller of home theater accessories, said
many Australians trust their banking system more than online
services like PayPal. He worries buyers will leave when they are
deprived of a choice.
"Australians here have been heavily educated against
putting credit card details online," O'Brien said. "There
are plenty of customers out there that refuse to use PayPal."
The Australian experiment could lead to a less-stringent
step, namely requiring sellers to at least offer PayPal as a payment
choice.
No matter how it turns out, however, eBay surely has more
big plans for PayPal, which has grown steadily since the auction
company bought the payment service in 2002. Last year it accounted
for $1.9 billion in revenue, 25 percent of eBay's total.
In fact, eBay's top e-commerce executive, Rajiv Dutta,
PayPal's former president, said last year he was convinced PayPal
would someday be bigger than eBay's better-known auction and
marketplace business.
On the Net:
http://eBay.com.au
http://www.accc.gov.au
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