I have been selling software online for the last 3 years, if any of you are about to start this there are few things you should know about PayPal, regnow and other payment processors.

Refunds and chargebacks (a real pain).

You have absolutely no rights when it comes to refunds being asked by the buyer. Lets say someone buys a software from you, the software was downloaded form your site after the payment was completed; the client can contact PayPal or your other payment processor and ask for his money back and claiming someone stole his credit card info or his paypal password, paypal will give him his money back without any investigation or without ever asking for your opinion; that is their policy. I get through this very often with both PayPal and RegNow.

With RegNow it gets even worse, I do not know if this still applies but RegNow used to charge you (the seller) 30$ when someone asked for a refund so if you sold a software cheaper than 30$ your balance becomes a negative number.

The payment processors never loses money, it is always you (the seller) that gets burned if they need to process a refund to a buyer. If indeed the buyer used stolen cards or payment was fraudulent in any other way then is the payment processor’s fault who should have verified the buyer details correctly, but instead they just take money from you and use it to pay for the refund and any other fees that might apply, so they never lose money.

PayPal has a “seller protection policy”, when seller can sell with no risk and pay pal would cover all funds in case of a refund or fraudulent order but that is not available for selling downloadable software online.

The above issues happen with all processors I used so far. As you have no better solutions you have to stick with paypal, after all it is the biggest, most popular and most trusted payment method and buyers prefer to use this service.

From my experience with paypal around 5% of the orders are fraudulent and pay pal takes the money back after I delivered the software to buyer. With RegNow about 10% of the orders change into refunds, chargebacks, etc, again I lose the money after I delivered the software, regnow commissions are also higher BTW.

Commissions and other fees.

In addition to regnow comissions being much higher than paypal RegNow charges you for everything they can (sign-up fee, sales commissions, withdraw fees, affiliate system fees). RegNow also allows buyers to order a backup for download link so that they provide the download link again to buyers in future, they charge buyer around 7.00$ for this and you (the software owner) get about 1.4$. If you do not agree with their “extended download” service then you are forced to switch back to their 20% sales commission. If you DO agree with the above “extended download” service then they say their commission for sales is only 6% but after all other hidden fees apply they actually take 12%.

PayPal is free to sign-up and commissions are very low (1.9% to 2.9% + $0.30 USD).

PayPal blocking accounts.

Be very careful with your paypal account, they like freezing accounts especially when you have money in it. PayPal blocks your account when you log-in from more computers. The paypal money market generates about 5.4% profit for now so if they block your money in your account this is a profit for them. When you need to unlock your account most of the times you need to fax many of your identity documents, utility bills, etc.

This funny image should allow you to get an idea about the many reasons paypal could block your account (click to enlarge)

This entry was posted on Saturday, December 2nd, 2006 at 3:36 pm and is filed under Technology, Web Development. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.