Hack 11 Choose How to Fund Payments

figs/beginner.gif figs/hack11.gif

Select your preferred payment funding source each time you make a payment, a necessary step if you want to pay with a credit card or alternate bank account.

While a primary reason so many people use PayPal (PayPal reports over 45 million users as of March 31, 2004) is to send and receive credit card payments, there are several other ways to make a payment without using a credit card at all.

Each time you make a payment [Hack #10], PayPal displays the Source of Funds (as shown in Figure 2-1) that will be used to make the payment on the Check Payment Details page and gives you an opportunity to switch sources if you so desire. Always review how you're making your payment and switch payment sources if necessary.

Figure 2-1. Choosing a source of funds

Click More Funding Options to display the Funding Options page, as shown in Figure 2-2. Each time you make a payment, you can select a funding source among several choices.

Figure 2-2. Selecting funding options

PayPal offers several different ways to fund your payment:

PayPal Balance

If you have funds sitting in your PayPal account, they are always used first when making a payment. Only if the amount of your payment exceeds your balance will you be able to choose the source for the remaining funds. The exception is the eCheck option, which can be used whether or not you have funds in your PayPal account. See the next section of this hack for a workaround.

Instant Transfer

The funds necessary to make the payment will be drawn from your bank account. Although PayPal does not actually get the funds from your bank for several days (thus, the transfer is not technically instant), the payment recipient will have immediate access to the funds you have sent.

Because of this, PayPal requires that you set up a backup funding source to be used in the event that the bank transfer fails (i.e., the transfer bounces). Your credit card is normally used as the backup funding source; if you don't have a credit card on file with your PayPal account, you might have to send an eCheck instead.

Credit Card

An immediate charge to your credit card or debit card will be made. In the U.S., PayPal supports Visa, MasterCard, American Express, and Discover. In the UK, Switch and Solo are also supported.

One reason people like to pay with a credit card is the added protection afforded by credit card issuers. Fortunately, if you use PayPal to pay for an eBay auction (and some other terms are met), you might be eligible for the Buyer Protection Policy [Hack #16], regardless of the funding source you choose for the payment.


An eCheck is a noninstant bank transfer, in which your payment will remain pending until PayPal receives the funds from your bank. When the bank transfer clears, PayPal switches the payment status to Completed and deposits the money in the recipient's account. This usually takes two to four business days. eChecks are useful for large payments (greater than $1,000), since they can be used when other payment options aren't available (if, for example, you have maxed out your credit card).

The maximum fee assessed to an eCheck recipient is $5.00. This means that eChecks are a good way to lower your seller fees [Hack #23], at least for any payment of US$162.07 or more. Although you, as the buyer, will not directly benefit from this price advantage, you might be able to negotiate a discount on the purchase, since the seller will be saving quite a bit on PayPal transaction fees. For example, on a $1,000 purchase, the seller could stand to save $17.90 to $24.30 in transaction fees.

2.3.1 Overriding the Funding Source Hierarchy

As mentioned in the previous section, if you have a balance in your PayPal account, it will be used to fund all your payments. Only if the amount of a payment exceeds your balance will you be able to fund your payment with a credit card or checking account transfer. (An eCheck can be sent regardless of your PayPal balance, however.)

To work around this limitation, bring your account balance down to zero before making your payment. Here's how to do it:

  1. Make a payment to an email address that you control but that isn't registered with PayPal. Set the amount of the payment equal to the balance in your PayPal account.

    As described in [Hack #10], the status of the payment will be pending, because it was sent to an email address that is not registered with PayPal.

  2. Make the payment you were originally intending, and fund it with a credit card or Instant Transfer.

  3. Once you've completed the payment, go to your payment history and cancel the pending payment you made to yourself. The funds will then be moved back into your PayPal account.

This is a quick and effective way to use a credit card or Instant Transfer, without having to withdraw any funds in your account [Hack #20] .

2.3.2 eBay-only Payment Methods

eBay buyers have the benefit of three additional PayPal payment methods not available elsewhere:

eBay Anything Points

eBay Anything Points is a loyalty program, similar to airline frequent flyer miles, introduced by eBay in 2003. You can earn points from:

  • Companies who have partnered with eBay to offer points for joining their service (for example, Hilton, American Airlines, and Earthlink)

  • Individual eBay sellers who offer points to the winning bidders of their auctions

  • Every purchase made with the eBay Credit Card

Once you've saved up enough Anything Points, you can use them with PayPal to make purchases for eBay auctions. When you go through the eBay checkout process, before you get to the PayPal payment screen, you have the option of using eBay Anything Points to pay the entire amount or just a portion of it. For more information, visit http://anythingpoints.ebay.com.

eBay Gift Certificates

If someone emails you an eBay Gift Certificate, it shows up in your PayPal account, just like an ordinary payment. You can apply it to any auction you win, provided that you go through the eBay checkout process. For more information, visit https://certificates.ebay.com.

PayPal Buyer Credit

PayPal Buyer Credit is basically a personal loan extended to you by PayPal (actually, by PayPal's lending partner, GE Credit), that can be paid down over time. As with most forms of credit, not everyone gets approved, and if you don't pay your bill on time, you will pay penalties. PayPal Buyer Credit can be used only on eBay listings in which the seller explicitly offers the Buyer Credit option.

2.3.3 Buying from Outside the USA

The funding sources available to non-U.S. users is more limited. For most countries, credit/debit cards and PayPal balances are the only methods available. Visa, MasterCard, American Express, and Discover can generally be used in any country, and UK users also have the option of Switch and Solo.

While the Instant Transfer and eCheck payment methods are not available outside the U.S., it is possible for German and Dutch users to load up their PayPal accounts from a bank account. You must prepare ahead of time, however, because this takes several days. PayPal provides all the bank account information needed to use the standard interbank transferring systems of Germany and the Netherlands.

PayPal expects to be able to offer an Instant Transfer-like payment method in Germany sometime in 2004.