Online Payment Services Guide

1. What's an Online Payment Service?

Click to buy online and you'll be asked how you want to pay-with credit or debit card, or an online payment service (OPS). An OPS, like PayPal, for example, functions like a money butler who handles your transaction when you don't fully trust the sellers or its ability to protect your financial data. Paying with an OPS also is ideal if you don't want your sensitive data sitting on retailers' servers all over the web.

To use an OPS, you simply:

• Set up a free account. You do this by providing the OPS with a charge or debit card-or by linking to your bank account. Some OPS firms also let you pay by offering a line of credit. But those credit lines can lead to a ton of debt, stick you with a high interest rate, and mess up your all-important credit score-the ranking lenders use to calculate your interest rate.

• Click to pay. When you're ready to make an online purchase, you click on your OPS listed at the e-retailer. The OPS then confirms the charge and completes the transaction for you without ever sharing your financial data. The payment is deducted from your OPS account.

The largest and best-known OPS is PayPal (which is owned by eBay)-but the field has expanded steadily and now includes Checkout by Amazon, Google Checkout, BillMeLater, eBillMe and PaybyWeb among others.

Most OPS firms do not charge consumers to open an account. They make money by charging retailers a fee or by pooling client assets in an account and earning interest prior to completing payment.

2. Should You Use an Online Payment Service?

If you shop frequently online, an OPS is a wise way to pay, especially if you buy from unfamiliar sellers or worry about the risk of identity fraud.

Not only does an OPS shield your financial data, it saves you time. You avoid the hassle of typing in all the financial stuff sites typically request at checkout.

Finally, an OPS is handy if you need to send cash to a friend stuck anywhere in the world-with or without a wallet-or you need that friend to return the favor.

Two warnings:

• Don't confuse an OPS with a credit card. An OPS isn't on the hook if there's a problem with the online seller or merchandise. You don't get the same protection against bad retailers and stolen data that credit cards provide under the law. That's because technically, your card transactions are with the OPS-not the retailers you've selected.

• Beware of credit lines. Opening an OPS line of credit can sack your credit score. That's because it's treated as a new open loan by the credit-reporting bureaus and institutions that rank your credit risk, which in turn determines your interest rate. Read more about credit scores in our credit monitoring guide. In addition, an OPS may charge you a higher-than-average interest rate on loaned payments. You may be better off getting a credit card or personal loan.

3. Choosing the Best Service

Most OPS accounts are free to consumers. Given their expanding market share and the steady introduction of new ones, here are steps to ensure you get the best deal:

• If you already use an OPS, compare its terms with other OPS offerings on the market. In particular, confirm policies when merchandise isn't delivered or arrives damaged. Also confirm refund policies.

• Check with your bank. Your Mastercard or Visa may provide a similar service that allows you to retain all of the legal protection extended to credit cards. Programs include Verified by Visa and Mastercard SecureCode.

• See where it's accepted. Not all OPS services are offered at every retailer. Some accept only PayPal, for example. Check with your favorite sites to see what OPS service they accept before signing up.

• Verify the site's security. Look for a black lock icon on the status bar at the bottom of the page. If the lock is closed, the page uses encryption. Double-click on the lock to show the security certificate for the site. In addition, some sites such as PayPal now offer a security key that features a constantly changing code you type in when accessing your account.

• Confirm that the OPS rocks. Before signing up, see if the OPS is offered at sites where you do most of your shopping. For example, eBay owns PayPal and currently accepts only that OPS.

• Check how cash changes hands. If you plan to send or receive cash, confirm the fees, process and timing.

• Avoid being stung. Crooks with too much time on their hands create sites that look like OPS sites. Then they e-mail unsuspecting victims telling them there's a problem with their account and include a link. The problem is the linked site is a fake, designed to get you to divulge your user name and password. Self-defense: Never click on links in e-mails that claim to be from an OPS. Also avoid replying to the email or providing any information.

4. Grilling Guide: Questions to Ask Before Choosing a Service

What to ask or confirm to be sure you're choosing the best online payment service:

Is the OPS at my favorite sites?
See what OPS services are offered at your top shopping sites.

Is there a fee?
Most large OPS providers do not charge consumers a fee for setting up an account.

What's covered?
If merchandise never arrives…or you want to abandon a purchase due to delays…or goods arrive damaged-what will the OPS do for you? Carefully review the FAQs at the OPS' site.

How much to send cash?
If you will need to send cash, what's the fee, how fast will cash arrive and how does the recipient receive hard cash if that person's cards were lost or stolen?

What is the interest rate?
If you plan to make purchases with an OPS credit line, confirm what your interest rate will be-and see if it's more or less than the rate on your credit card.

Is the site safe?
Confirm the site's security certificate by clicking on the closed black lock in the status bar at the bottom of the screen. The lock should be closed when you're at pages where your data appears.