When I first began taking payments online, I chose PayPal for its ease of integration. When a payment comes in, their system calls your script with a HTTP POST. You crunch the data, and the unique code you received in the POST. If everything is fine, they return OK, and basta.
Over time however, I began to realise some additional benefits to using PayPal. My income was in US dollars but my expenses were in British pounds. This meant regularly converting dollars to pounds. If you live and run your business outside the USA it is quite likely that you are in a similar situation. I was interested to see who would give me the best rate, PayPal or my bank.
I made a small withdrawal of US dollars into my account at Barclays, and looked at the exchange rate they gave me. Then I moved a similar amount into my British Pound balance inside my PayPal account. I was shocked at the difference. PayPal was offering major currencies at near interbank rates whereas Barclays was charging me nearly 5% over the market rate.
It was clear to me who would get my exchange business from now on. Seven years later, if I have a large amount of money to exchange I transfer the money to PayPal first and exchange it there, even if I do not plan to use PayPal to make any payment. It just makes financial sense.
Like most new online entrepreneurs, whenever there was money building up in my PayPal account, I was anxious to withdraw it into my bank account. It just felt safer. Somehow, until the money was in my bank, I felt it wasn’t quite mine yet. PayPal was somewhat of an unknown.
However today I would just as soon leave it there, because unlike banks, PayPal is honest. I am not suggesting that your bank manager is untrustworthy. It runs much deeper than that. PayPal’s business model is an honest one. They may not have given you a fair deal when you raised a dispute with them, but that does not make their business fundamentally dishonest. They do what they say and they say what they do. They are an online payment facilitator. They offer a service and charge a fee.
Your bank however is not so straightforward. They lead you to believe that you deposit money with them when in fact you are lending it to them. Most people believe that they have money in the bank when they don’t. In fact, the bank owes them money that it does not have. Subtle but important difference.
Consider the following:
- Unless you live in a strong banking jurisdiction like Switzerland or Hong Kong, PayPal is more than likely better capitalised than your bank, which means your money is safer there.
- You can buy just about anything online anywhere in the world with your PayPal balance.
- You can get a PayPal debit card to pay for things offline.
- If you do need the money in your bank account you can withdraw and have it there within minutes.
So keep your PayPal account as a spare bank account. It makes financial sense.