eBay is considering going “PayPal only” and is starting the policy in Australia in June. How do you suppose eBay users will react to this? I suspect not well. Not well at all.

When eBay bought PayPal a couple of years ago, buyers and sellers recognized that eBay was going to be getting greater profits off many of the sales on eBay via the extra fees from PayPal transactions. But buyers and sellers still had a choice to accept other forms of payment. If the “PayPal only” rule is implemented across the board, it’s likely to anger a lot of loyal eBay users.

eBay says this move is an effort to help cut down on fraud. In theory, the use of PayPal instead of other payment forms is supposed to do a better job of stopping fraud. I don’t believe it.

And if you talk to consumers who’ve been defrauded with the help of PayPal, they won’t believe this anti-fraud excuse either. I’ve seen enough horror stories of honest consumers ripped off but not helped by PayPal, which has always touted it’s anti-fraud help.

There’s already backlash in Australia. Users are ticked because PayPal is more expensive to use than other forms of payment. In the U.S., PayPal takes 2.9% of the selling price plus 30 cents for any eBay sale under $3,000. Those fees add up fast, especially if you are selling low-priced, high-volume items. It’s even worse in Australia, where PayPal takes 4.4% plus 30 cents.

I don’t buy eBay’s anti-fraud claims. The New York Times article on this issue reports:

EBay’s financial reports indicate that PayPal, while hardly fraud-proof, is getting better at cracking down. Its loss rate is 0.24 percent, down from 0.33 percent a year ago. That means that for every $100 transacted with the service, PayPal has to eat 24 cents because of fraud.

Read that carefully, though. eBay and PayPal may be doing a better job of protecting themselves from fraud losses, but that doesn’t mean they’re protecting consumers any better. All those numbers show is that the company took fewer hits. Who knows how many fraud hits the buyers or sellers took that PayPal wouldn’t stand behind?

Quite simply, it’s clear that eBay just wants to knock out all competition for processing payments on auctions. They want all the fees, all the time.

I expect a fairly severe backlash against eBay if they implement this. eBay has become extremely popular, but I think there are a lot of big time sellers who won’t stand for this.