1.2 What are the methods of payment?
You can generally pay for an auction the same way you would pay for anything at a local business – cash, check, credit cards depending on the preferences of the business (in this case the seller). For many years before the broad-based establishment of online payment systems, money orders were the most popular form of payment on eBay because they are easier to get than a certified bank check -- they are also usually cheaper -- and they represent “guaranteed” money, which a personal or business check does not. There is a bias among sellers for fast and guaranteed payment. There is a bias among buyers for payment that can be traced back or investigated in the event of a problem with delivery. The evolution of online payment services like PayPal (which eBay now owns) answered both parties needs and is rapidly becoming the most popular method for auctions of typical values – say a few dollars up to a few thousand dollars. Beyond that it will be COD, cashier’s/bank checks or escrow services. |
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Online payment services started as a “virtual” cash transaction system using “fake” digital money about 15 years ago. This quickly evolved into using real money, which was generally tied to a credit card transaction not very different than what you do for mail order. Stores and catalog retailers generally have “merchant accounts” with credit card processors. The online payment services enable anyone to “take” credit cards, for fees like most small business merchant account rates, around 1 to 4%. Online payment services have gotten more diverse as technology has evolved – you can now link multiple bank accounts as well as multiple credit cards to, for example, a PayPal account. Today, the online payment services function like banks, which some of them also actually are.
When you sell something on eBay, and you receive payment via PayPal, the buyer may have paid by cash or credit card, and the net amount, minus fees, is deposited into your PayPal account. From there you can pay for something yourself directly, withdraw the money on an ATM or credit card, transfer the money into another account, or have a check sent each month.
Most online payment services are very much like PayPal, with a fee structure aimed at the recipient of the money, but there are exceptions. BidPay, which is owned by Western Union, is a form of virtual money order and is also popular on eBay. Unlike PayPal and most other services which charge the receiver of the payment, BidPay, like its parent, charges the sender of the money.
Escrow accounts protect auction participants from potential fraud. The way they work is the same as in, for example, a real estate or legal transaction, which is where most people would have dealt with escrow before. Money held in “escrow” by a third party had been received from the payer but is not released to the payee until something happens, usually, receipt of the goods in promised condition. Upon confirmation of the merchandise receipt the money is credited (forwarded) to the account of the seller. In such transactions the buyer, who benefits more in theory, generally pays the fee.
Next: Getting rich with auctions
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