I'd like to dissent from the view expressed at Concurring Opinions's A PayPal Christmas. Prof. Waldeck suggests that we'd all be better off if we used PayPal because “PayPal and other payment providers are intermediaries that can make both consumers and merchants better off” — primarily because “PayPal and similar services charge merchants lower processing fees and offer other advantages, such as not requiring retailers to reimburse them for fraudulent purchases.”
But in fact most consumers won't see the advantages — quite the contrary.
First, consider how Paypal gets its money from you. Unless you are a seller who puts money into Paypal from other consumers, odds are that you fund your Paypal account the way I do: with a linked credit card. It may be that Paypal gets charged a lower fee than a merchant account, but it can't be that much lower because it is still a “card not present” transaction, and those tend to be on the high end.
No, the real 'savings' to merchants is that by inserting Paypal into the payment chain, consumers waive their rights to cancel transactions if the good is not delivered or the service is performed improperly. That's because the credit card payment agreement is with Paypal, and it's not Paypal that has failed to perform. It's done exactly like you asked it, by sending money on to the merchant. And now the merchant is just a third party from the point of view of the credit card.
So, my advice is that if you are buying anything at all expensive, use your credit card. (Unless you are carrying a balance – in which case you want to pay that off first before you buy anything, even with Paypal!) Don't use your debit card, and certainly not a payment intermediary unless you trust that intermediary to have as generous chargeback terms as the credit cards.
It's certainly true that credit cards take a big bite out of merchants and that ultimately these charges are passed on to consumers. But unlike debit cards, credit cards give you a small float, even if you pay your bill in full every month (which you absolutely should). More importantly, they are in effect insuring the transaction. That's valuable now and especially valuable if you are buying something online, sight unseen, and trusting in delivery.
It may be that pressure from the paypals of the world will in time — lots of time — get credit card companies to cut their fees. But at best this is an N-person prisoner dilemma game; at worst it's a category mis-match because the service you are switching to is one that is significantly inferior to the one you are switching from. Paypal does have a “buyer protection policy” but this isn't mandated by law, and it is very significantly more limited than what your credit card will give you.
But don't take my word for it. Visit some of the Paypal fan sites, like PayPalsucks.com.
(Note: There are also “warning” sites aimed at merchants, e.g. About Paypal.org and Paypalwarning.com, but it's hard to tell if these are for real or just astroturf for a would-be competitor.)
