Mass Payments Beyond PayPal
PayPal Payouts (formerly PayPal Mass Pay) provides a low-entry barrier option to make large amounts of payments to a partner network because of its large footprint and reach. However, fast-growing companies soon reach a point where their mass payments volume and operational complexity require them to look for solutions beyond the e-wallet service.
Here are 9 signs that your network may be outgrowing the mass payment capabilities of PayPal or other e-wallets
1. Scalability Issues
As you grow and scale your payments operation, your end-to-end processes need to be as streamlined as possible. That way, you’re not hiring more AP headcount to meet the needs of an expanding and more global network base. Having one system that encompasses not only PayPal, but all the other payment methods, while also automating supplier onboarding, tax and regulatory compliance, global payments execution, partner payment status communications, financial controls, and payment reconciliation can eliminate 80% of your payments workload so that you don’t need to keep hiring back-office employees to keep up with growth.
2. Payment Method Choice
PayPal is a valuable payment method that companies should definitely make available to their suppliers and partners. However, it’s not always the preferred payment method by all suppliers in all cases. Some suppliers will want to receive payment by bank wire transfer for large payment amounts and many US companies still take checks. Increasingly, for companies in both the US and overseas, ACH (sometimes known as Global ACH, Echeck or local bank transfer outside of the US) is becoming the preference. In unbanked and 3rd world countries, payees sometimes even prefer prepaid debit cards. Enabling all these payment methods through different systems and portals is extremely time-consuming and inefficient so companies often turn to mass payment automation solutions.
3. Recovering from Payment Errors
Let’s say you pay a partner via PayPal Payouts (Mass Pay), but the email address is wrong. In that case, there will be a payment error that needs to be researched to find the funds. Even worse, it could go to the wrong party who owns that incorrect address. What happens to that money? Almost certainly, PayPal will initiate an investigation – even for a simple typo. That may involve holding funds back from both parties for many weeks while they resolve the situation.
4. Transactions Greater than $10,000
PayPal maintains a $10,000 limit on transactions. If you have sophisticated partners who provide higher-end goods or services, this limit can be a burden. For example, a publisher who’s paid $30 CPMs and generates 350,000 impressions will easily go over the limit. Or let’s say you’re a creative marketplace and you have a project where the freelancer is paid $12,000 for producing a video. Paying via PayPal Payouts would mean you’d have to split the transactions. Attracting elite partners to your supplier network, ones that stay with you because you provide worthwhile revenue, is hard enough. Not being able to pay them frictionlessly positions your network as “second rate.”
5. Geographic Banking Considerations
As established as PayPal Payouts is in the United States and other countries, there are some hoops the system requires you jump through. For example, paying someone in Israel from the US requires that the partner’s bank account be Israeli. That means funds are converted to Israeli New Shekels (for a fee, of course). That’s not terrible, but say that person is actually a US resident, but when he originally created his PayPal account, he was in Israel. According to PayPal, funds still need to be converted and if he wants his funds in USD, he’ll have to convert it back (for more fees, of course). If the country you’re sending to has a poor banking system, say Morocco, PayPal may not even accept that payee if they try to link PayPal to their bank. In that case, they essentially have to link their PayPal account to a credit card. These are some of the thousands of nuanced rules that can frustrate the payer and payee alike. It goes without saying that PayPal is not a popular payment method in many countries and, in those cases, you need to provide alternative options.
6. Risky Business and Fraud
As a network operating with partners from everywhere, chances are you don’t have a way to validate every potential partner that signs up. Paying en masse before you’ve verified everyone’s identity is risky. Unfortunately, PayPal doesn’t offer safeguards in that respect. At best, you can identify if the account exists. Other than reporting a fraudster, it’s never clear if you’ll be able to retrieve your funds. If mass payments are being made manually, there’s also the risk of human error on the payer side. One extra digit uploaded to PayPal can cost you ten times.
7. Meeting FATCA Tax Compliance
The IRS has been hiring 3,000 agents to enforce the new FATCA tax provisions and companies who fail to comply will need to pay up to a 30% tax per payee payment. PayPal is just a payment method. It’s not meant to help with FATCA tax compliance. But a tax audit is a critical financial risk for your business. It must be addressed as you modernize your payments workflow.
8. Having to Use the PayPal API
Many networks looking to automate will no doubt attempt to write their own code to engage with PayPal’s mass payment features. While the PayPal API is robust, it’s not the answer to many of the issues we’ve brought up. It simply makes PayPal payments themselves more streamlined. Other payment methods often don’t have any way to connect to them for every case. So your network has to either choose to integrate PayPal and only offer PayPal (limiting the partner base) or take on additional payment method workflows for special cases. Even if you integrate PayPal via their API, someone on the team now has to have the technical knowledge to maintain it.
9. Reconciling Complex Payment Data
Let’s assume you’ve bit the bullet and started offering up other payment methods in hopes of retaining elite partners. You may be sending wires or even paper checks in addition to the mass payments made via PayPal. The end of the quarter comes and your CFO or board need to understand payments and accounts. Data needs to be reconciled to the general ledger. Or worst case: you suddenly face an audit situation. You will likely export all the PayPal data you have, then cleanse it into some kind of report then augment and normalize data from other sources (bank statements, etc.) to try and true up the accounts and payments. It will take you days and can strain your workload, stress, and reputation.