The Observer Cash column today carries a story about online payment services including PayPal and Nochex. There is an interesting relationship between credit card processors and PayPal which isn’t as straight forward as you might think. It may appear you are simply topping up your PayPal account with your credit card to purchase e-money but that is not the case.
Now admittedly it’s a complicated relationship between card processors and PayPal but in the UK cash advances from credit cards to top up a PayPal account are not allowed. Whilst in a legal sense a PayPal user may be issued electronic money the card processors consider the transactions to be goods and services. The card processors insist that if payment sent via PayPal were not for goods and services then they would be cash advances which are disallowed. This being the case card processors would (and do) consider chargeback’s for items purchased through PayPal. It’s also worth noting that paying with PayPal actually gives greater coverage as cards generally only cover you for faulty or damaged goods costing more than £100.00 whilst PayPal covers you on goods both above and below this level.
Furthermore for sellers accepting payment through PayPal once they reach a certain level of transactions PayPal’s card processor (HSBC) requires a direct relationship with the user in the form of a “Commercial Entity Agreement for Credit Card Processing Services“. This agreement effectively makes the person or entity using PayPal a “Merchant” with a legally binding contract for credit card processing with HSBC demonstrating that payments are definitely not simply topping e-money.
The Observer story covers a buyer who made a telephone purchase where apparently the website processed his payment through Nochex. The payment was processed by Nochex without the knowledge of the buyer (one has to wonder if this is an instance of the seller illegally opening an account on behalf of the buyer to process payment. I’ve heard of this nefarious act before and if anyone is thinking of doing so I only have one word of advice – DON’T!). The buyer subsequently cancelled the order as the website couldn’t supply the version he wanted but a charge appeared on his credit card statement in favour of Nochex. The problem for the buyer is how to get his money back and Nochex do not appear as helpful as PayPal in this situation.
The most interesting part of The Observer Cash article is where it states that Visa and Mastercard do not allow credit card chargebacks for purchases through PayPal whilst Barclaycard and HSBC will. It appears there is less a case of online payment services providing or not providing protection for buyers and more a case that not all credit cards are equal.
