PayPal exists to make money, not to help you. That’s why the unregulated money broker likes to ensure that when you pay with a linked account, you pay via the ATM debit card setting, because it’s cheaper for PayPal. Of course, that “savings” is sometimes deducted from you in the form of a transaction fee by your bank, but PayPal doesn’t care. If you want to change that payment method the next time you use PayPal, be prepared to jump through a lot of hoops.

Paul at Ecto-Web was frustrated by a recent debit charge fee triggered by a PayPal transaction, so he tried to change his default payment settings on the site. Not only would this prevent future ATM charges, he figured, but it would give him the chance to accrue reward points on his credit card and let him take advantage of the card’s buyer protection coverage.

He quickly discovered that PayPal doesn’t even provide a way to change your default payment to credit card. What’s worse, the company takes great pains to hide any customization option from you during the payment process.

Instead, you’ll have to manually change the payment settings each time you use PayPal. You can check out all the screen caps on Paul’s blog, but essentially you’ll have to click the link to change your payment method once you’ve hit the “Review your payment” screen, then change the funding source to credit/debit card and hit continue, then click a newly visible “Funding Sources” text link to change the network that PayPal uses.

If that sounds like a PITA, you can at least take comfort that by doing this, PayPal will take a hit because they’ll have to pay a fee to process the credit card payment. (Update: as readers have pointed out below, PayPal will actually pass the fee over to the seller. But at least you’ll have chargeback protection since you’ve used your credit card.)

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Update: Andrew writes:

It is possible to configure PayPal to use your credit card by default, contrary to the Consumerist article you posted. You do this by deleting all other forms of payment from your account. You will have to manually enter your bank account information to withdraw money from your PayPal account later on, but it’s a minor inconvenience since most people don’t frequently withdraw money from their PayPal accounts.

There’s also something else your readers should be aware of with regard to foreign transactions. If the payment currency and the currency type of your card or account are different, PayPal automatically enables their currency “conversion” service, which charges you a huge margin over what the bank normally charges for foreign transactions. For example, I bought something off Amazon.co.uk. With PayPal’s exchange, they were going to charge my card $178. I opted instead to charge my card in Euros. Visa charged me $161 and my bank added a $0.15 foreign transaction fee.

Update 2: I conflated the accusation that PayPal is essentially an “unregulated bank” with the fact that in reality it operates as a money broker, and used the incorrect phrase “unregulated money broker.” Sara Gorman at PayPal has emailed me to point out that in fact the company does operate under money broker regulations:

I read your story about PayPal and wanted to point out an incorrect statement. You say PayPal is an “unregulated money broker.” That is not true. While we’re not regulated as a bank in the U.S. (we don’t hold deposits or issue credit), PayPal is regulated on a state-by-state basis as a money transmitter service. You can find a list of our licenses here: https://www.paypal-media.com/state_licenses.cfm.

“Getting PayPal To Charge Your Visa/Mastercard Debit Card As A Credit Card” [Ecto-Web]

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