What is a PayPal echeque?

Jan asked today, on TameBay “What is an echeque?” and I guess it’s time to explain. According to Paypal an echeque is “an electronic funds transfer that withdraws money directly from your bank account. It’s just like writing a cheque, only it is done electronically.

Basically it’s a way for users to fund payments if they don’t have a valid credit card on file with PayPal. The downside is that it’s not an instant payment. When you send money with an eCheque from a UK bank account, the transaction is held as pending for seven to nine working days, until the electronic funds transfer clears your bank.

Now the good news is that once an echeque has cleared it will never be subject to a chargeback in the way that a credit card can be. For the seller it’s a much safer form of payment albeit a slower one. Of course if the payment turns out to be fraudulent or the buyer opens a dispute with PayPal the payment may still be reversed. However with a credit card it’s much easier for a buyer to simply dispute the payment and have the funds reversed outside of the PayPal processes.

Sadly PayPal have never managed to get echeques working reliably. Sure the funds arrive but the email messages are often incorrect. As Jan found out often emails have suggested echeques will clear in four working days, but that’s only in the US. Although UK emails have frequently stated four days it still takes seven to nine working days for the payment to clear. This is simply a bug that PayPal are working to correct.

Why do buyers pay with echeques so often? The answer is because they often don’t realise they’re about to. If their credit or bank card has expired the payment will default to an echeque. Also if a buyer doesn’t wish to use their PayPal balance (if they have one) the only option is to send an echeque. To avoid this and use a credit card the entire PayPal balance has to be withdrawn from your account before you can make a credit card funded payment.

The biggest problem with echeques is having waited seven to nine working days for them to clear, sometimes they don’t. It still takes seven to nine working days to find out that they payment has failed, and then the buyer has to repay.

The beauty of buying on eBay is the speed at which transactions can be processed and that’s why PayPal fits the eBay marketplace so well. By delaying payments and then if they fail having to start the payment process all over the transaction can easily take three or four weeks to complete. That’s a terrible buyer experience and even worse often the seller isn’t informed that a payment has failed. PayPal don’t appear to send emails or indicate in recent account activity that the payment has not cleared so it may be some time before the seller and buyer realise they need to initiate another payment.

PayPal echeques are easily their worst product. PayPal is a fantastic payment processor with relatively low fees, it’s easy to open an account and almost everyone is eligible to send and receive payments through them. Echeque payments just don’t live up to PayPal’s reputation and for all of the reasons above I believe 2008 should be the year echeques are discontinued.