eBay’s Identity Crisis: PayPal and Paperless Payments as an Example

Posted on October 1, 2009. Filed under: eBay, Paypal | Tags: , , , , , |

Today on eBay, all sellers are required to offer electronic payment choices to buyers so that transactions on eBay are “safe and convenient”.  It hasn’t always been that way on eBay.  The change which prohibited sellers from offering to accept checks and money orders was implemented last year.  I can understand what eBay was trying to accomplish with the change and I can appreciate how eBay is trying to create a more “trustful” marketplace but eBay’s change to paperless payment only was done without a holistic approach to the problem.  In other words, they forced a square peg into a round hole.

In a very simplistic view, there are two types of 3P selling channels.

1. Marketplaces (ex: Amazon & Buy.com)

In a marketplace, there is a one step purchasing process for the buyer.  The buyer purchases and pays for their item in one step.  A shopping cart greatly facilitates this one step process but a shopping chart system can be used in a two-step process as well so it is not the shopping cart that defines the purchasing process.  Rather, it is the fact that the item is not “purchased” until it is paid for.

And the payment from the buyer is made directly to the marketplace owner.  Thus, the direct buying relationship is between the buyer and the marketplace owner with any 3P vendor serving more as a dropshipper fulfilling the order rather than having a direct relationship with the shopper.  The marketplace owner then subtracts their fees and remits the balance to the 3P vendor.  There is never any “payment relationship” between the online shopper and the 3P vendor. 

Because there is a direct payment relationship between the online shopper and the marketplace owner, the marketplace owner has distinct advantages over a “venue” sales channel.  For example, anyone can purchase items with cash on Amazon.

 

amazoncasha

 

Consumers who want to use cash for Amazon purchases can either obtain a “code” at places like Western Union or Coinstar:

 

amazoncash2a

 

or buyers who feel more comfortable with having a physical gift card can purchase an Amazon gift card from places like CVS pharmacy and supermarkets:

 

amazoncash3a

 

There are online shoppers who will not shop online if they have to provide their personal credit card number and/or their bank account information.  They don’t feel secure giving out that information over the internet.  And some shoppers don’t have a credit card or bank account.  And some online buyers have unique reasons for wanting to pay with cash, check, or money order. 

One of my favorite long-time customers allocates a certain amount of money each month to spend on his “hobby” and has all his items shipped to a P. O. Box instead of his residence.  He tells me that he has been married more than 30 years and that the secret to a happy marriage is compromise.  His wife agreed never to nag him about his hobby as long as he kept his purchases within reason (thus, the monthly allocation) and as long as it didn’t overtake their household (which is why he stores and plays with his items in his basement).  His wife never sees purchases go through their checking account or appear on their credit card statements and she never really even has to acknowledge how much he is buying because it is not shipped directly to their house.  This customer of mine spends a great deal of money every month but he has always sent money orders for his purchases.  And he bought from me off eBay because, according to him, he is “not internet savvy” and he learned how to buy from eBay and so that is where he stayed.  However, with the paperless payments policy in place on eBay this buyer has now made a change because it has become too difficult for him to buy on eBay.  He now purchases Amazon gift cards from CVS pharmacy with cash and buys from my Amazon webstore which means less fees for me than when he bought from me on eBay.  I spent half an hour on the phone with him and helped him walk through his first Amazon purchase.  And he tells me that he loves buying on Amazon for many reasons but one of which is that he can take his jar full of change to Coinstar and turn it into money to spend on Amazon so that his monthly budget for his hobby has now increased slightly.

 

2. Venues (like eBay and Bonanzle)

When buyers shop on Bonanzle, they realize they are buying from an ecommerce merchant on Bonanzle.  There is no confusion as the buyer does not think they are buying from Bonanzle, the company.  The shopper’s transactional relationship is directly with the merchant.  The buyer purchases an item and submits payment to the merchant and then the merchant receives a bill from the venue owner for selling fees which the merchant then pays.   On Bonanzle, an ecommerce seller can accept money orders. 

eBay is a venue and, as they have been making sure to say plenty of times recently: eBay is not a retailer.  However, eBay really seems to be having an identity crisis.  They are only a venue because buyers have a direct payment relationship with the merchant but eBay is trying to insert themselves into the transactional flow as if they were a marketplace owner (ie a retailer).  eBay is restricting the payment methods a seller can offer and eBay is including their logo on every invoice that is sent to the buyer.  Never mind the impact eBay’s actions are having on the seller, what eBay is doing is creating confusion and frustration for the buyer. 

I had a new eBay buyer email me in a panic recently.  They were having trouble figuring out how to get PayPal to work and they were worried that they would be in trouble with eBay.  I corresponded and told them that I would be patient and await their payment but I was curious why they were so worried to which they responded telling me that eBay had told them in an email they had 3 days to pay or they would receive negative feedback and a dispute would be filed against them.  I asked the buyer to forward me that email and what I received was an invoice to the buyer from another seller which had payment instructions at the bottom that were quite harsh.  The buyer didn’t realize that these were that seller’s terms but rather they believed eBay was giving them these instructions since the eBay logo was prominent on the invoice.

And any ecommerce shopper who wants to purchase from eBay must do so using a credit card or bank account.  While it is true that buyers can purchase an eBay gift card, the recipient cannot use the gift card unless they have both an eBay account AND a PayPal account.  So, again it goes back to anyone who doesn’t want to give their banking or credit card information or doesn’t have a credit card or bank account cannot buy from eBay merchants.

ebaygiftcard3a

 

I think the problem is that eBay created a unique venue that had great potential but they failed to manage their venue.  Instead, they just sat back and let the money roll in easily in the beginning.  And when the money stopped flowing in as quickly as it had been, eBay just raised fees to take more money from each seller.  eBay’s answer was not to work hard and tend to their venue but rather to ignore the problems and just ask more of the sellers who stuck it out and remained behind.

And now eBay has been forced into taking action but I, and many others, have stated numerous times that I think eBay is not on the right course.  eBay is trying to take strategies that work well on a marketplace and transplant them into their venue operations.    The payments policy is just one such example.  While eBay may have some good ideas and do recognize some important things they need to change, their implementation is definitely flawed.  eBay is identifying some, but certainly not all, of their problems and that is the first step.  But the solutions and implementation are so far off the mark.

It’s true that there are many multi-channel sellers like myself who are finding ways to sell on eBay and still thrive.  For us, eBay is our liquidation channel not our bread-and-butter venue.  And we can, and do, help our customers to buy from us wherever they feel most comfortable and however they want to pay us.  Sometimes that is eBay and sometimes it is not.  

It is interesting to me that as eBay has lapsed further and further into an identity crisis, I have become much more clear about my own overall business strategies on the internet.  I now have a better synergy between each venue and each marketplace as well as my own website so that overall, I now have a much stronger business.

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3 Responses to “eBay’s Identity Crisis: PayPal and Paperless Payments as an Example”

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An excellent posting and my sentiments exactly. This is why I stopped selling after ten years on eBay. I felt they were micromanaging my business in unacceptable ways.
Unfortunately for me, I sell antiques and collectibles it has been hard finding new venues with any traffic but I’m working on it. Seeauctions and Bonanzle are two up and coming sites for those of us who can’t use Amazon.

Another excellent article, thanks Brews. The last paragraph sums it all up for a lot of us I think. While I’m very grateful to eBay for teaching me how to sell, I’m even more grateful that their endless policies and changes pushed me out of the eBay corner into the World Wide Web.

Yes, excellent post, brews. It came to me that eBay’s belatedly announced 1/3 off sale on auction listings is part of their identity crisis: they literally don’t know how to price their auctions or what do with them. They must have one internal faction that is arguing: make listings free and charge only on the back end. But another faction argues: no keep charging, but make the front end fees less, and so on. They are giving each faction a bit of the action to try to collect data. Of course, each temporary ‘sale’ skews their data set. Maybe next month they will try two weeks of front end fees only? who knows.


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