Workaround for PayPal's preference for direct bank transfers

April 24, 2013

I had a very frustrating experience the other day while using PayPal to purchase an item from Woot; I wanted to put the transaction on a credit card to count towards a minimum spending bonus I'm working on. More and more, it seems that PayPal is intentionally designing their systems to pretty much trick you into paying for transactions using a direct bank transfer by obscuring how you can change the payment method. I understand why they do this, to minimize revenue lost to credit card processing fees, but it's very much not focused on the users of their product. A brief search for ways to stop this shows other people that are very frustrated with PayPal's strategy here as well, so I thought I'd share an idea I had for minimizing the impact to you as the PayPal user.

You more or less have to have some bank account that's directly linked to your PayPal account and set as the default, and then you can choose a backup source of funding if that bank account doesn't have enough funds for your purchase. I have existing accounts with ING/Capital One 360 and they make it pretty easy to open multiple accounts so that you can do things like have targeted savings accounts that don't have fees. So, I opened a new savings account and transferred just $1 into it. I confirmed with the bank that overdrawing on a savings account wouldn't cause a fee from them:

So, my thought is that if I accidentally didn't change the payment method when paying for a purchase with PayPal, it will always go over to the backup funding source since the linked bank account only has a $1 in it.

DISCLAIMER: I HAVE NOT ACTUALLY TESTED THIS YET, YOUR MILEAGE MAY VARY! (aka I can't guarantee that this actually works, but I'll update this post if I ever end up testing it and can confirm its effectiveness one way or the other.)