PayPal vs. credit card payments

Wondering what the difference is between using PayPal or a credit card to shop online? Here's a look at the security and other features each one offers.

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You can make fast, secure payments with both PayPal and a credit card – and many retailers let you use either one. So how do you decide between them? The short answer is: choose the one you prefer.

But if you don't have a preference or aren't sure whether PayPal or a credit card is better for you, let's take a look at the security features of each – plus pros and cons to using a card or PayPal.

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 featurePayPalCredit cards
Fraud monitoringYes.Yes.
24/7 customer serviceNo. 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 authenticationYes. 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 chargebackYes. 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 technologyYes, 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 limitsNo.Yes. Some cards allow you to set a customised limit for different types of transactions, such as those made online.
Return shipping costsYes, 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.

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. Most credit card fraud in Australia happens online, with data from the Australian Payments Network showing card-not-present (CNP) fraud made up 87.7% of all card fraud in the 12 months to 30 June 2020. While there are ways to avoid card fraud when you're shopping online, it's still a risk.
  • 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.

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

Name Product Purchase rate Balance transfer rate Annual fee
Qantas American Express Premium Card
20.74% p.a.
$249
Enjoy 30,000 bonus Qantas Points, 2 complimentary Qantas Club lounge invitations per year and the protection of complimentary insurance covers.
Citi Rewards Card - Balance Transfer Offer
21.49% p.a.
0% p.a. for 30 months
$49 annual fee for the first year ($149 p.a. thereafter)
Save with a 0% p.a. on balance transfers for 30 months (with no balance transfer fee). Plus, a $49 first-year annual fee. Ends 30 June 2021.
ANZ Low Rate
12.49% p.a.
0% p.a. for 30 months
$0 annual fee for the first year ($58 p.a. thereafter)
Save with 0% p.a. on balance transfers for 30 months (with no BT fee) and $0 first-year annual fee. Plus a 12.49% p.a. purchase interest rate.
NAB Qantas Rewards Signature Card
19.99% p.a.
0% p.a. for 6 months with 2% balance transfer fee
$295 annual fee for the first year ($395 p.a. thereafter)
Earn up to 110,000 bonus Qantas Points (90,000 when you spend $3,000 in the first 60 days and 20k after 12 months).
Westpac Low Rate Card
13.74% p.a.
0% p.a. for 28 months with 1% balance transfer fee
$0 annual fee for the first year ($59 p.a. thereafter)
Save with a $0 annual fee for the first year, plus, a 0% interest rate on balance transfers for 28 months.
Kogan Money Black Card - Exclusive Offer
20.99% p.a.
0% p.a. for 24 months
$0
Finder Exclusive
Save with a $0 annual fee and a 0% introductory rate on balance transfers. Plus, earn $50 Kogan.com Credit and uncapped rewards points.
ANZ Platinum Credit Card
0% p.a. for 17 months, reverts to 20.24% p.a.
20.24% p.a.
$0 annual fee for the first year ($87 p.a. thereafter)
Receive a 0% purchase rate offer for 17 months and a $0 first-year annual fee. Plus, complimentary overseas travel and medical insurance.
American Express Platinum Edge Credit Card
20.74% p.a.
$195
Get $200 travel credit per year to spend on eligible flights, accommodation, car hire and more. Plus, earn up to 3 points per $1 on eligible spending.

American Express Velocity Escape Card
20.74% p.a.
$0
Earn 0.75 Velocity Points on your everyday purchases, uncapped, and pay $0 annual fee for the life of the card with this no-frills frequent flyer card.
Citi Clear Card
14.99% p.a.
0% p.a. for 15 months
$49 annual fee for the first year ($99 p.a. thereafter)
Get $250 cashback when you spend $3,000 within the first 90 days. Plus, a 0% balance transfer offer and first-year annual fee discount.
Qantas American Express Ultimate Card
20.74% p.a.
$450
Receive 55,000 bonus Qantas Points when you spend $3,000 in the first 3 months.
BankSA Vertigo
13.99% p.a.
0% p.a. for 28 months
$55
Enjoy a 0% p.a. for 28 months on balance transfers (with no balance transfer fee), a low purchase rate and annual fee.
NAB Low Fee Card
19.74% p.a.
0% p.a. for 6 months with 2% balance transfer fee
$30
Receive complimentary insurance covers and 0% p.a. for 6 months on balance transfers.
Bank of Melbourne Amplify Platinum - Qantas
19.74% p.a.
0% p.a. for 15 months with 1% balance transfer fee
$99
Get 60,000 bonus Qantas Points when you spend $3,000 within the first 90 days.
Bank of Melbourne Vertigo Classic
13.99% p.a.
0% p.a. for 28 months
$55
Save with a 0% interest on balance transfers for 28 months, with no balance transfer fee.
St.George Amplify Platinum
19.74% p.a.
0% p.a. for 15 months with 1% balance transfer fee
$99
Receive 80,000 bonus Amplify Points (worth $350 in eGift cards) when you spend $3,000 in the first 90 days. Plus, a 0% balance transfer offer.
St.George Amplify Platinum - Qantas
19.74% p.a.
0% p.a. for 15 months with 1% balance transfer fee
$99
Earn 60,000 bonus Qantas Points, plus enjoy 0% p.a. on balance transfers for 15 months with a 1% BT fee.
BankSA Amplify Platinum - Qantas
19.74% p.a.
0% p.a. for 15 months with 1% balance transfer fee
$99
Receive 60,000 bonus Qantas Points when you spend $3,000 within the first 90 days from card approval.
Coles Low Rate Mastercard
12.99% p.a.
0% p.a. for 15 months
$58
Enjoy a 0% interest on balance transfers for 15 months, with no BT fee. Plus, earn Flybuys points as you spend. Ends 30 June 2021.
BankSA Vertigo Platinum - Cashback Offer
12.99% p.a.
6.99% p.a. for 12 months
$99
Enjoy a $300 cashback when you spend at least $900 in the first 90 days. Plus, a low ongoing purchase interest rate. Ends 30 June 2021.
St.George Vertigo Platinum - Cashback Offer
12.99% p.a.
6.99% p.a. for 12 months
$99
Get $300 cashback when you spend at least $900 in the first 90 days. Plus, platinum perks and a low purchase rate. Ends 30 June 2021.
Citi Premier Card
21.49% p.a.
0% p.a. for 6 months
$150 annual fee for the first year ($300 p.a. thereafter)
Enjoy 130,000 bonus points (worth $450 in eGift cards) when you spend $4,000 within the first 90 days. Plus, a first-year annual fee discount.
Citi Premier Qantas Card
21.49% p.a.
0% p.a. for 6 months
$175 annual fee for the first year ($350 p.a. thereafter)
Get 75,000 bonus Qantas Points when you meet the spend requirement, a first-year annual fee discount and complimentary travel perks.
Coles No Annual Fee Mastercard - Exclusive Offer
0% p.a. for 12 months, reverts to 19.99% p.a.
0% p.a. for 12 months
$0
Finder Exclusive, ends 30 June 2021
Earn 10,000 bonus Flybuys points and save on interest charges with 0% p.a. on balance transfers and purchases for 12 months.
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