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PayPal vs. credit cards: Which is safer?

Weigh up the security features and protection you get when using PayPal or a credit card to shop online.

Whether you’re looking for a new outfit or doing your weekly grocery shop, the convenience of online shopping has made it a popular alternative to heading to the store. But online fraud, along with concerns that purchases won’t show up, have made many people think twice about how to pay for online shopping.

Both PayPal and credit cards offer features and services that help protect you from these issues, including fraud-monitoring systems and ways to get your money back if a purchase isn’t delivered as promised. So is one better than the other? The short answer is that using either of these options will give you a similar level of security.

Since there are some differences between using PayPal or a credit card, choosing between them comes down to your own preferences. So, let’s take a look at how each option works so you can decide which one is better for you.

Snapshot: PayPal vs. credit card security features

Here’s a quick guide to the different types of protection you’ll get when you use PayPal or a credit card. As features can vary depending on the credit card you’re using, we’ve focused on the key options most Australian cards offer.

Security feature PayPal Credit cards
Fraud monitoring Yes. Yes.
24/7 customer service No. PayPal’s customer service hours are 8am to 8pm (AEST) Monday to Friday and 8am to 7pm Saturday and Sunday. Yes. American Express, Mastercard and Visa credit cards all offer 24/7 emergency hotlines for lost or stolen cards as well as for suspected fraud.
Two-factor authentication Yes. You can choose to have a one-time PIN sent to your mobile phone by turning on PayPal Security Key in your account’s security settings. Yes. If you have a card that offers Mastercard SecureCode, Verified by Visa and American Express SafeKey and shop with participating brands, you’ll be prompted to authorise the transaction with a PIN or other security step.
Reimbursement or chargeback Yes. If an item doesn’t get delivered or if it arrives and is significantly different to the seller’s description, PayPal offers reimbursement for the cost of the item and shipping, up to $20,000. Yes. If your purchases are not delivered or are not as they were described, you may be able to reverse the transaction by requesting a chargeback.
Encryption technology Yes, PayPal offers encryption for all the financial details you have stored in your account. No. While credit cards offer encryption for purchases you make in-store, most of them rely on the encryption used by online stores when you make payments over the Internet.
Pre-set transaction limits No. Yes. Some cards allow you to set a customised limit for different types of transactions, such as those made online.
Return shipping costs Yes, PayPal offers to refund you the cost of return shipping for eligible purchases, reimbursing you up to $45 per return, 8 times per year. No. This is not a standard feature on credit cards

While this table gives you an overview of the key security features offered by PayPal and credit cards, there’s a lot more to each of these payment options. So below, we go into more details and weigh up the pros and cons of using a credit card or PayPal to shop online.

woman's hand with red nails holding a white credit card on top of a laptop

Using a credit card for online shopping

Just about any online store you visit will give you the option of paying by card. With this method, you’ll need to provide the following details:

  • Your name (usually as it appears on the card)
  • The card number

This last feature, the CVV, helps protect your account from fraud when you use the card for online purchases – or for other card-not-present transactions, such as those made over the phone.

Similar to in-store purchases, card acceptance may vary depending on whether you’re using an American Express, Mastercard or Visa credit card. Depending on the card and your provider, you could also get an added layer of security through text alert systems or services like Verified by Visa, which adds another form of authorisation to payments before they are approved.

Pros and cons of shopping online with a credit card

Pros

  • 24/7 fraud monitoring. Most Australian credit cards have security systems that detect and flag suspicious activity as it happens. Depending on the card, you will also have the ability to lock, block or cancel your card if you suspect it’s been used for fraud.
  • Zero-liability policies. Also known as a fraud protection guarantee, this feature covers the cost of any fraudulent transactions made on your account so that you’re not left out of pocket if your card is compromised.
  • Protect your actual money. If your purchases don’t show up or are different from the item descriptions, your credit card provider will be able to help you get your money back (either through the merchant or a chargeback). Plus, if your account is compromised, fraudsters will have access to a line of credit, rather than your wages or savings.
  • Fee-free options. Some cards offer 0% foreign transaction fees when you make purchases with a business based overseas, potentially saving you 2-3% per online purchase.
  • Rewards. If you have a reward or frequent flyer credit card, you’ll be able to earn points per $1 spent for your purchases. In some cases, you may even get a higher earn rate for purchases made with stores based overseas.

Cons

  • Online fraud risks. Online credit card fraud has been steadily increasing as more people use cards to make purchases via the web. In fact, a 2018 report from the Australian Payments Network found that almost 85% of card fraud now occurs online, with costs increasing 13.9% between 2015 and 2016.
  • Entering card details. You may have to type your card’s details each time you make a purchase. As well as being annoying, this could increase the risk of fraud if your Internet connection isn’t secure or if you’re in a public place. While many web browsers and apps now let you save your payment details, these options could bring a different set of risks with them.
  • Potential interest charges. If you carry a balance from your online shopping, you’ll be charged interest at the card’s purchase rate.
  • Unexpected fees. If you're using a card that does charge foreign transaction fees, it may not always be clear when this fee will be charged. For example, if an online store is based overseas, this fee may apply even if the purchase is shown in Australian dollars.

Tips for using your credit card to safely shop online

Using PayPal for online shopping

Unlike a credit card, PayPal lets you store your chosen payment details in a secure account. You can then make payments through PayPal when you shop with a store that accepts it.

When you choose this option at the online checkout, you’ll need to log in to PayPal and choose the account you want to make a payment from. PayPal will then process the transaction through an encrypted network.

This set-up means you can store your credit card, debit card or even your bank account details in a PayPal account, and then choose which of these options you use when paying through PayPal. As a result, you don’t have to enter your payment details every time you make a purchase.

Pros and cons of shopping online with PayPal

Pros

  • Payment encryption. Every payment made through PayPal is encrypted by the service so that your details are kept safe. This reduces the risk of personal or payment information being stored in places where you don’t want it.
  • Fast payments. You don’t need to enter your card or account details when you make a payment through PayPal. Instead, you’ll just be prompted to log in to your account and select your preferred payment option. You can also set up PayPal One Touch, which allows you to make payments without needing to enter your PayPal login details when you’re using an authorised device.
  • Refund options. If you need to return a purchase made through PayPal, you could get reimbursed for the cost of return shipping, up to $45 per transaction (capped at 8 refunds per year). PayPal also offers reimbursement for items that are not delivered or are very different to the seller’s description.
  • Credit card rewards. If you add a rewards credit card to your PayPal account, you’ll be able to earn points per $1 spent on eligible purchases.

Cons

  • Fraud target. PayPal is a well-known online company and has previously been targeted by hackers. While it does regular security updates, there is still some risk involved in storing your card or account details anywhere online.
  • Currency conversion costs. If you shop with retailers that don’t accept foreign currencies, PayPal will use its own conversion rates for the transaction. For transactions in US or Canadian dollars, your payment will be converted at a rate 3.5% above the exchange rate, while for any other transactions, the rate will be 4% above the exchange rate. This is significantly higher than rates applied by most cards.
  • Confusing payment details. A transaction that’s processed by PayPal could show its billing details, instead of the details of the company you made your purchase with. If you’re not aware of this, you could mistake the payment for fraud when checking your credit card or bank account transaction history. It could also mean you have to log in to PayPal to make sure these transactions are ones you’ve actually made.
  • Acceptance. Not all online stores accept PayPal, so using it will often depend on the business you’re shopping with.

Which option is more secure?

Both credit cards and PayPal offer a number of security features and benefits when you’re shopping online – as well as potential costs and pitfalls. So, if you’re shopping with an online store that accepts credit cards and PayPal payments, choosing between them really comes down to which of the above features and services you prefer.

Compare credit cards with fraud protection guarantees

Rates last updated December 14th, 2018
Name Product Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee Product Description
NAB Low Fee Platinum Card - Exclusive Offer
19.74% p.a.
0% p.a. for 25 months
$90 p.a.
finder Exclusive: Take advantage of 0% p.a. interest for 25 months on balance transfers with no balance transfer fee. Ends 16 December 2018
More info
Virgin Australia Velocity Flyer Card - Exclusive Offer
0% p.a. for 14 months (reverts to 20.74% p.a.)
0% p.a. for 6 months
$64 p.a. annual fee for the first year ($129 p.a. thereafter)
finder Exclusive: Save on credit card costs with half the annual fee for the first year and a 0% p.a. interest rate on purchases for 14 months.
Qantas Premier Everyday
0% p.a. for 9 months (reverts to 19.99% p.a.)
0% p.a. for 9 months
$49 p.a.
Take advantage of 20,000 bonus Qantas Points, a 0% p.a. purchase and balance transfer offers. Plus, complimentary overseas travel insurance.
ANZ Low Rate
12.49% p.a.
0% p.a. for 15 months
$58 p.a.
Save with a 0% p.a. introductory rate on balance transfers for 15 months with no BT fee. Plus a low 12.49% p.a. interest rate on purchases.
St.George Vertigo Platinum - Online Offer
12.74% p.a.
0% p.a. for 24 months
$99 p.a.
Save with 0% p.a. interest for up to 24 months on balance transfers with no BT fee. Plus, platinum perks. Ends 17 December 2018.
ANZ First Visa Credit Card
19.74% p.a.
0% p.a. for 18 months with 2% balance transfer fee
$30 p.a.
Get up to 18 months interest-free on balance transfers and save with a low $30 annual fee. Plus, up to 44 days interest-free on purchases.
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
20.74% p.a.
0% p.a. for 18 months
$64 p.a. annual fee for the first year ($129 p.a. thereafter)
Save with a $64 first year annual fee and 0% p.a. balance transfer offer. Plus, receive a $129 Virgin Australia Gift Voucher each year.
Westpac Low Rate Card
13.49% p.a.
0% p.a. for 24 months with 1% balance transfer fee
$0 p.a. annual fee for the first year ($59 p.a. thereafter)
Offers a 0% for 24 month balance transfer option, first year annual fee waiver and a competitive purchase rate.
American Express Westpac Altitude Platinum Bundle
20.24% p.a.
$49 p.a. annual fee for the first year ($199 p.a. thereafter)
$49 first year annual fee & up to 75,000 bonus Altitude Pts when you meet T&C with Visa (issued by Westpac) & Amex (issued & serviced by Amex).
Virgin Money Low Rate Credit Card
11.99% p.a.
0% p.a. for 14 months
$49 p.a.
Offers a $49 annual fee, 10% cashback on purchases made in the first 3 months (capped at $100) and 0% p.a. for 14 months on balance transfers.
Virgin Australia Velocity Flyer Card - Bonus Points Offer
20.74% p.a.
0% p.a. for 18 months
$64 p.a. annual fee for the first year ($129 p.a. thereafter)
Earn up to 60,000 bonus points in the first 3 months and save with a $64 first year annual fee. Plus, a long-term balance transfer offer.
Bank of Melbourne Amplify Signature - Qantas
19.49% p.a.
$179 p.a. annual fee for the first year ($279 p.a. thereafter)
Offers 80,000 bonus Qantas Points when you spend $4,000 in 90 days, 2 Qantas lounge passes per year plus a reduced first year annual fee.
St.George Amplify Signature - Qantas
19.49% p.a.
$179 p.a. annual fee for the first year ($279 p.a. thereafter)
Enjoy 80,000 bonus Qantas Points when you spend $4,000 within 90 days and 2 complimentary Qantas Club lounge invitations per year.
Bank of Melbourne Amplify Platinum - Qantas
19.49% p.a.
$99 p.a.
Receive 50,000 bonus Qantas or Amplify Points when you spend $2,000 within 90 days and earn up to 0.5 Qantas points per $1 spent.
Westpac Altitude Black - Qantas
20.24% p.a.
$300 p.a.
Earn 80,000 bonus Qantas Points when you meet the spend requirement. Plus, 2 yearly Qantas Club lounge invitations.
St.George Amplify Platinum - Qantas
19.49% p.a.
$99 p.a.
Earn 50,000 bonus Qantas Points when you spend $2,000 within 90 days and earn 0.5 Qantas points per $1 spent.
Bendigo Bank Low Rate Platinum Mastercard
11.99% p.a.
$89 p.a.
Offers premium features such as mobile phone and tablet insurance and purchase protections, plus, up to 55 days interest-free on purchases.
BankSA Amplify Platinum - Qantas
19.49% p.a.
$99 p.a.
Receive 50,000 bonus Qantas or Amplify Points when you spend $2,000 within 90 days and earn up to 0.5 Qantas points per $1 spent.
BankSA Amplify Signature - Qantas
19.49% p.a.
$179 p.a. annual fee for the first year ($279 p.a. thereafter)
Receive 80,000 bonus Qantas Points when you spend $4,000 within 90 days. Plus, a discounted first year annual fee and lounge passes.
Citi Platinum Credit Card - Exclusive Offer
0% p.a. for 13 months (reverts to 20.99% p.a.)
0% p.a. for 13 months
$49 p.a. annual fee for the first year ($149 p.a. thereafter)
finder Exclusive:
Save with 0% interest on purchases and balance transfers for 13 months (with no BT fee). Plus, a discounted $49 annual fee for the first year.
More info

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Amy Bradney-George

Amy is a senior writer at finder.com.au with more than 10 years experience covering credit cards, personal finance and various lifestyle topics. When she’s not sharing her knowledge on money matters, Amy spends her time as an actress.

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Citi Clear Platinum Credit Card

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ANZ Low Rate

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