Is It Better to Use Paypal or a Credit Card for Online Purchases?

Handing over payment information online can sometimes be risky with concerns around cyber security and theft of private details or money. With more transactions being made online every year, the question often lingers: what’s the best way to pay?

The convenience of shopping online is appealing to many avid shoppers, whether it’s for clothes or a grocery order – nothing beats having everything delivered straight to your door. But do you always consider the security risks of entering your payment details on the web?

It was revealed earlier this year there has been a considerable increase in online credit card fraud, with purchases made using stolen cards rising to $417.6 million in 2016. PayPal, on the other hand, said they are “safer than most credit cards” thanks to powerful fraud and consumer protections in place; But being such a world-renowned online payment system also means it could be a big target for potential hackers and phishers.

Credit cards and PayPal are certainly some of the most popular options for payment when online shopping, but which is better? Here are some of the pros and cons of using either a credit card or your PayPal account to make online payments – we’ll let you decide which is right for you.

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Is it better to use a credit card for online purchases?

When deciding if you should use a credit card to make online purchases, it’s a good idea to consider some of the pros and cons of this payment method.

What are the pros?

  • Credit cards are generally a more secure alternative to using a debit card because you can easily lock or cancel your card if your details are stolen. The credit card is also often covered by a form of fraud protection, plus hackers only have access to your credit limit, not your entire life savings.
  • Credit card lenders actively look for suspicious fraudulent transactions on your card and you can easily query transactions you don’t recognise.
  • Microchipping, PIN numbers and CVV combined make your card pretty secure.
  • You can make the most of your credit card by using it to make online purchases. For instance, some cards offer no currency conversion fees, which would be handy for purchasing from international stores. If you’re using your card for purchases but struggle to pay it off on time, a low or no interest fee card could be a good idea. There are also rewards credit cards, which might be a good choice if you regularly pay off your amount owing on time as online shopping could help you earn more points.

If you are interested in getting a rewards credit card for making purchases online, you might want to consider one of the rewards credit cards rated by Canstar that allow you to redeem points for shopping vouchers. You can see a snapshot of them in the table below, sorted by Star Rating for rewards credit cards with a $3,000 per month spend.

Table only displays 10 products. Click here to see more. Be sure to read the full terms and conditions of each deal before signing up.

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What are the cons?

  • Probably the most significant con for using a credit card online is that there has been a considerable increase in online credit card fraud as online payment activity increases.
  • Having to re-enter your credit card details at various checkouts online can be a bit of a hassle. But while it might seem convenient when you are prompted by your internet browser to save the card details for next time, that might not a good idea considering stored information could make it easier for potential hackers to get to your money and private details.
  • Some credit cards may apply a currency conversion fee when making purchases from an international store. According to Canstar’s recent analysis of 5-Star Rated travel credit cards, the average currency conversion fee sits at 2.80%. But there is good news – there are credit cards out there that offer $0 currency conversion fees.

Is it better to use PayPal for online purchases?

PayPal is pretty convenient and easy to navigate, but if you’re worried about the security of using this online payment system, it’s a good idea to consider some of the following pros and cons.

What are the pros?

  • You can easily buy things from more than 110,000 Australian stores and many more worldwide using your PayPal account.
  • PayPal is convenient – all your payment information is stored on your account so you don’t have to enter card details every time you pay.
  • Your financial details and transactions are encrypted and monitored to help prevent fraud and identity theft. If you are concerned something might have gone wrong on your account, simply report it to PayPal and it will handle any unauthorised transactions.
  • PayPal says there are regular updates to its systems to help block external threats.
  • If your eligible PayPal purchase doesn’t arrive or is significantly different to the seller’s description, you have Buyer Protection. According to PayPal, it can reimburse you for the full price plus shipping costs, up to $20,000 per item.
  • If you link a rewards credit card to your PayPal account you can still redeem points with most cards on PayPal purchases. Using a credit card in PayPal is generally a good idea anyway because you gain an extra layer of protection with your credit card’s fraud protection.

What are the cons?

  • PayPal is a large, worldwide payments system and as such is liable to many threats from online hackers. In 2014 the payments company’s vulnerabilities were put under the spotlight when researchers in the United States were able to hack into PayPal. To stay secure, PayPal recommends watching out for hoax websites, phishing emails and scammers.
  • If an international store does not accept Australian dollars, Paypal converts the currency for you, charging the current wholesale exchange rate and a percentage above that. This can be a charge up to 4% above the exchange rate.
  • If you have all your login details saved and pre-filled on your computer or mobile device, it could make it easier for someone to log in and take advantage of the bank and card details stored on your account.

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Tips for staying safe online

Whether you are using a credit card or your PayPal account to make online purchases, you still need to be aware of how to keep your private information secure on the web. Check out some of the following tips for staying safe online:

  • Only buy from reputable websites and online retailers. Look out for the padlock symbol and “https” at the start of the web address (“s” stands for secure).
  • Double check all details of your purchase before confirming the payment.
  • Make sure to always log out of sites you’ve made a purchase with because simply closing the browser is not enough to protect your information.
  • Keep an eye on your bank and credit card statements regularly to check for any suspicious transactions.
  • Make sure your antivirus software is up to date on your computer.
  • Watch out for phishing emails. Generic greetings like “Dear user”, odd-looking logos, strange statements, bad spelling and requests for private or financial details should all be considered red flags. PayPal in particular has a big focus on warning their customers about the dangers of phishing emails and have an email inbox set up specifically for concerns about fake PayPal emails.
  • Watch out for scams – if anything seems too good to be true, it probably is.
  • Report potential fraud, unauthorised account activities or fake emails to your financial institution or PayPal.
  • Always use strong passwords. Most people are pretty lazy with their passwords – in 2016 the most popular password was “123456”. The second most popular was not much more creative: “123456789”. The more generic your password is, the easier it is for hackers to gain access to your accounts.
  • Switching your phone? Make sure to completely delete all your mobile banking apps, PayPal app and data before trading in your old phone.

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If you decide to use a credit card for your online purchases, check out these 10 credit card tips for safe online shopping.

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