SAN JOSE, CA — A new eBay rule set to take effect first in Australia has drawn criticism from users of the online auction site and antitrust scrutiny from the Australian government.Effective in June, all eBay.com.au customers will be required to use eBay-owned PayPal to process financial transactions, according to the rule change. eBay said the requirement will allow the companies to share information about every transaction, thus decreasing fraud and restoring trust in the marketplace, which has suffered reputation problems in recent months. A change earlier this month in the company’s feedback policy, the backbone of trust between buyers and sellers since the online auction’s inception more than 10 years ago, caused outcry from sellers and gave the venerable auction giant a very public black eye.
Critics of the PayPal-only plan say PayPal is more expensive than other payment options. Especially in Australia, many eBay users rely on bank transfers to pay for their purchases. Australian bank transfers cost consumers 20 cents each, while PayPal fees typically run 30 cents plus up to 4.4 percent of the item’s purchase price.
As might be expected, Australian banks are among the loudest voices against the plan.
“Competition will be restricted, innovation and development will be constrained, new entry will be discouraged and PayPal will be able to increase fees and charges to eBay users,” the Australian Bankers Association noted in documents it filed Thursday with regulators.
In addition, the group disputes the PayPal-only move will cut the incidence of fraud. Although PayPal serves as a buffer between buyers and sellers, protecting the identity of both, the company doesn’t verify the identity of either side in a transaction. Banks do, the bankers group said.
eBay said PayPal’s fraud-loss percentage is down over the past year from 0.33-percent to 0.24-percent — which is slightly lower than the credit- and debit-card ratios seen by the top 20 online retailers, according to Gartner Inc. eBay’s records indicate users who opt for payment processing through sources other than PayPal dispute the transactions four times as often. In addition, eBay guarantees a refund up to 20,000 Australian dollars when buyers don’t receive merchandise purchased via PayPal.
Other observers have suggested the PayPal-only rule may a bid by eBay to pump up the bottom line across all operating units. Growth in eBay’s auction business has slowed in recent quarters, while PayPal revenues have grown steadily since eBay bought the payment processor in 2002. In 2007, PayPal accounted for more than $1.9 billion in revenue, or 25-percent of eBay’s total.
The new rule is not the first time eBay has stepped on the neck of PayPal rivals. The auction company banned the use of Google Checkout, allegedly based on security concerns, only months after Google’s service was launched in 2006.
eBay has not confirmed whether similar rules are in the works for its other worldwide marketplaces, including U.S., which is the largest. However, observers say eBay frequently tests new ideas in smaller markets before instituting them worldwide.
It is unclear how the PayPal-only rule will affect buyers and sellers in eBay’s “mature-rated” sections, which require age verification before entry. PayPal currently bars all transactions with even a remote connection to the adult industry.
A decision about the antitrust allegations is expected soon from the Australian Competition and Consumer Commission.
