Strategies: Small businesses sell online with PayPal

— -- Do you want to sell over the Internet — and actually get paid? Do you sell on the Web now but want to increase the pool of potential buyers? Then you'll want to know about PayPal, the online payment system celebrating its 10th anniversary this year.

Years ago, when we first wanted to sell from our company's website, we realized we'd have to accept credit cards — that was the only way to get instant payment so we could ship our books and customers could download our software. But opening up a credit card merchant account wasn't easy — it still isn't. We had to send in tax returns and financial statements. It took a long time.

You don't have to go through that hassle. If you want to start accepting credit cards or receiving payments online, you could be up and running with PayPal in about the time it takes you to read this column. Even if you accept credit cards, you may also want to accept PayPal payments because PayPal makes it possible for people without credit cards to make purchases online.

In fact, PayPal has been a huge part of the reason for the growth of Internet commerce, enabling total strangers to exchange money securely.

"The founders thought people wanted to beam money from Palm Pilot to Palm Pilot," said Scott Thompson, PayPal's president.

There wasn't a crying need for that, but in 1998, with online commerce exploding, there was a desperate need for people to be able to safely exchange funds over the Web.

"EBay comes along, and buyers and sellers never meet each other. ... Someone would send a check in the mail, then someone would send the product," Thompson said.

Clearly, that system left a lot of room for fraud and other problems. Some checks never arrived; some goods never were shipped. And a lot of buyers didn't want to give their personal checks — with bank routing numbers — to total strangers.

PayPal filled an important function in the market, especially for the huge eBay market, and it thrived, eventually being purchased by eBay itself in 2002 for $1.5 billion.

I'm a big believer in small companies' accepting credit cards. Many consumers prefer to purchase goods with credit cards — greater security and frequent-flier miles. But there's also a bigger market out there. According to PayPal, PayPal payments represent about 9% of e-commerce sales globally and 12% in the U.S. That's a lot of transactions. And many foreign customers don't have credit cards.

"There are 60 million active PayPal members," Thompson said.

One reason so many people like to use PayPal while shopping online:

"They never share their financial information with the merchant," Thompson said. "The most compelling testimonial we received is from Southwest Airlines. We allowed them to make incremental sales. They didn't believe (it would affect their sales so substantially)."

For a small business, there are many advantages to accepting PayPal:

•It's easy:You don't have to go through a lot of steps to qualify to receive credit card or PayPal payments

•Buyers like it:They don't have to give their personal credit card information to unknown sellers

•It's affordable:In PayPal's standard account, you pay 1.9% to 2.9% plus 30 cents for each transaction. That compares favorably to credit card processing fees, and there are no monthly fees or minimums.

•It's fast:You can set it up quickly, start accepting payments immediately and get money in your bank account faster than accepting checks.

•It's safe:In most cases, PayPal accepts virtually all risk from fraudulent buyers. And, as a buyer, you're fully protected under a policy that PayPal just announced.

Of course, with such a powerful tool as PayPal, there are competitors. Google and Amazon have checkout services that websites can use to provide secure online acceptance of credit cards. But neither allows non-credit card users to have accounts, and PayPal is by far the dominant player.

I know first-hand that there are buyers in cyberspace who'll deal only with PayPal. I sell a few of my San Francisco Giants season tickets online, and some buyers insist on paying via PayPal even if I'll take their credit card or check. So for even the smallest companies or transactions, PayPal is worth checking out. You can learn more about it at www.PayPal.com.

Rhonda Abrams is president of The Planning Shop, publisher of books for entrepreneurs. Their newest is Finding an Angel Investor In A Day. Register for Rhonda's free business planning newsletter at www.PlanningShop.com. For an index of her columns, click here. Copyright Rhonda Abrams 2008.