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

The convenience of shopping online is appealing to many avid shoppers, whether it’s for clothes or a grocery order – it can be super convenient having everything delivered straight to your door at the click of a mouse. And research from Australia Post shows we are relying on online shopping more than ever during the COVID-19 pandemic, particularly for retail items where online sales were up 55.6% in November, compared to the same time last year.

But as you rush to fill up the virtual shopping basket, do you always consider the security risks of entering your payment details on the web?

Figures released by Australian Payments Network showed that in the year to 30 June 2020, “spending on Australian cards [both debit and credit cards] grew by 0.5% to $803.4 billion”, while “card-not-present fraud – mainly affecting online transactions – dropped by 14% to $392.4 million”. On the other hand, PayPal states that it is “safer than most credit cards”, but acknowledges that “hackers are getting smarter”.

Credit/debit 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/debit card or your PayPal account to make online payments – we’ll let you decide which is right for you.

→ Related: 10 steps to help protect your finances

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

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

What are the pros?

• If your details are stolen online you can easily lock or cancel your credit or debit card through your online banking portal or by calling your bank directly.
• Most credit cards come with a fraud protection guarantee, which means users will be reimbursed for any fraudulent transactions that occur on their card.
• Credit and debit card providers 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 credit or debit card more secure.
• Some debit and credit cards offer no currency conversion fees, which would be handy for purchasing from international stores. If you’re using your credit card for purchases but struggle to pay it off on time, a low or no interest fee card could also 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.
• Some credit cards come with insurance which could cover certain items purchased on that card.

What are the cons?

• Probably the most significant con for using a credit or debit card online is that there has been an increase in online credit and debit card fraud as online payment activity increases.
• Having to re-enter your credit or debit 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 be a good idea considering stored information could make it easier for potential hackers to get to your money and private details.
• Some credit and debit cards may apply a currency conversion fee when making purchases from an international store.

Compare Credit Cards

If you’re currently comparing credit cards, the comparison table below displays some of the low interest credit cards currently available on Canstar’s database for Australians looking to spend around $2,000 per month. Please note that this table features links direct to the provider’s website, and is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards.

Is it better to use PayPal for online purchases?

PayPal can be 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?

• 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, you can 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 may be worth considering because you gain an extra layer of protection with your credit card’s fraud protection.

→ Related: Visa vs Mastercard: What’s the Difference?

What are the cons?

• PayPal is a large, worldwide payments system and as such is liable to many threats from online hackers. This year, there have been media reports that the financial company’s authentication process had vulnerabilities that hackers were using to take money from people’s accounts. While PayPal denied that some of the reports were accurate, the company recommends that customers watch 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 into your device and take advantage of the bank and card details stored on your account.

→ Related: Buy now pay later in Australia: A guide to Afterpay, Zip, Klarna & more

Tips for staying safe online

Whether you are using a credit/debit 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 may not effectively 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. The more generic your password is, the easier it is for hackers to gain access to your accounts.
• Switching your phone, tablet or other device? Make sure to completely delete all your banking apps, PayPal app and data before trading it in.

Compare Credit Cards

Cover image source: ymgerman (Shutterstock)

This article has been updated.

It was reviewed by Senior Finance Journalist Shay Waraker before it was updated, as part of our fact-checking process.