EBay's PayPal rule in Australia draws fire

And, the company adds, it doesn't stand to profit directly from the PayPal rule. It claims its investments in new buyer protections could outweigh any gains from increased PayPal fees. For instance, under Australia's new plan, if a buyer doesn't get what he or she paid for via PayPal, eBay will refund the buyer up to 20,000 Australian dollars ($18,600).

To make the PayPal rule possible, eBay has applied for -and automatically gets -immunity from Australia's anti-monopoly Trade Practices Act. But the Australian Competition and Consumer Commission, which is investigating, could revoke that immunity if it finds the plan will harm the marketplace. A decision is expected soon.

Critics say eBay is just trying to fatten its bottom line. Growth in eBay's core auction listings has slowed in recent quarters, pushing eBay to expand other parts of its business, which includes PayPal, classifieds sites and online telecommunications service Skype. And eBay has already taken other steps viewed as protecting PayPal, such as banning Google Inc.'s rival Checkout service on alleged safety concerns months after it was launched in 2006.

Sellers in Australia are "absolutely furious" and resent that they are subjects of an experiment, said Phil Leahy, president of the 600-member Australia chapter of the Professional eBay Sellers Alliance.

Leahy sells DVDs, movies and CDs through eBay, a high-volume, low-margin business. He says using PayPal instead of bank transfers would cost him $4,700 per month, based on his January sales numbers of $332,000. "It's the difference between making money and not making money," he said.

Leahy estimates Australian buyers use PayPal about 50 percent of the time -eBay would not confirm the figure -versus an 85 percent rate in the United States. He said bank transfers are used in 30 percent of transactions. The rest are conducted with bank and personal checks, money orders, or cash on delivery, all of which are banned under eBay's new plan unless the payments are exchanged in person. That happens rarely.

Shaun O'Brien, a seller of home theater accessories, said many Australians trust their banking system more than online services like PayPal. He worries buyers will leave when they are deprived of a choice.

"Australians here have been heavily educated against putting credit card details online," O'Brien said. "There are plenty of customers out there that refuse to use PayPal."

The Australian experiment could lead to a less-stringent step: Perhaps eBay will require all sellers to at least offer PayPal as a payment choice. No matter how it turns out, however, eBay surely has more big plans for PayPal, which has grown steadily since the auction company bought the payment service in 2002. Last year it accounted for $1.9 billion in revenue, 25 percent of eBay's total.

In fact, eBay's top e-commerce executive, Rajiv Dutta, PayPal's former president, said last year he was convinced PayPal would someday be bigger than eBay's better-known auction and marketplace business.