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PayPal, Square, and the Law: Understanding Online Payment Services

You've probably already used a consumer payment service when you bought a product online. Or, you might have used an app to split the bill at a restaurant. Cash and card payments are still typical, but digital payment options are becoming more integrated into daily life.

Online payment services can be convenient and easy to use. Yet, as with any online purchase or money transfer, they can introduce risk. For example, a scammer might trick you into sending them money, or a hacker might access your account and rack up fraudulent charges.

Each provider has different policies and functionality. Your choice can affect your security and legal remedies if a purchase becomes problematic. Read below to learn about popular online payment service providers and your consumer rights.

E-Commerce Laws for Payment Processing

No federal laws or regulations specifically apply to online payment services. The Consumer Financial Protection Bureau proposed closer oversight of payment apps in 2023. This rule would hold online payment services to the same legal enforcement standards as banks. Fortunately, general consumer protection laws and finance regulations cover some aspects of e-commerce business.

The Electronic Fund Transfer Act (EFTA) is one such law that applies to online stores' point-of-sale (POS) checkout processes. It impacts your rights to resolve a digital transaction dispute. For example, the law limits how much money you might lose when a fraudster steals your payment information from a website.

Credit card processing services must meet Payment Card Industry (PCI) regulations. These companies set up precautions to protect your data when you make credit card payments.

The USA PATRIOT Act also restricts some payment services and financial institutions. This law's goal is to reduce suspicious activity and money laundering across the financial industry. Because of this Act, you may need to prove your identity when signing up for a payment service.

Although providers must take steps to lower user risk, protecting yourself is wise. For example, create unique usernames and strong passwords for your online shopping accounts. Check your transaction history and account balances often to detect problems like identity theft.

Popular Payment Services and Digital Wallets

You are likely to see many e-commerce platforms while browsing online. They often claim to offer more convenience and higher security for customers than direct card transactions. Mobile app payment options have even started appearing in brick-and-mortar POS systems as they have grown in popularity.

As a customer, you should understand how each online payment processing service you use will do the following:

  • Manage and protect your data, including hiding your information from online sellers
  • Charge convenience or processing fees
  • Withdraw funds from your linked bank account or charge your credit card
  • Resolve disputes with sellers, including whether you can cancel a purchase or stop recurring bills
  • Respond to suspected fraud
  • Accept payments from people who send you money
  • Offer technical support if you encounter problems

Below are summaries of how a few popular services facilitate online transactions. These companies frequently update their specific policies and practices. Visit their websites for the most current and accurate information.


PayPal is one of the most popular online payment service providers. Signing up for PayPal requires linking to either a credit card or a bank account. The provider will access that card or account as you transfer money with your PayPal account. You can send money or receive funds from other users. You can also pay for purchases on many retailer websites.

Like with other providers, PayPal payments keep users' information confidential. For example, a seller who receives money from a buyer will not see the buyer's credit card or bank account information.

Some of PayPal's security measures to protect customers include:

  • PayPal users must first sign up for an account by creating a username and password
  • PayPal accounts require verification with multi-factor authentication
  • PayPal encrypts data, meaning that a user's financial information is transformed into a code that requires a special key to read
  • PayPal offers both buyer and seller protections, including refunds for damaged items and unauthorized purchases made from a user's account

Even though PayPal is one of the largest payment systems, no provider is immune to consumer law issues and security breaches.


Square is another popular online payment processor. It advertises payment solutions for small businesses. Square offers point-of-sale and credit card reader devices for physical stores and restaurants. They enable accepting payments with credit cards and mobile devices.

Here are a few things to know about using Square as a customer:

  • Although the seller must have a merchant account, you won't need a Square account to pay through it, but creating an account can let you save your card information and order history
  • Square protects your information through data encryption
  • Square uses a layered security system and machine learning to analyze each transaction as it occurs to prevent fraud

Square primarily serves business accounts and doesn't advertise helping consumers with transaction disputes. You may consider chargebacks through your card issuer for a fraudulent charge or deceptive sales tactic.

Google Wallet and Google Pay

Google Wallet has marketed itself as a free digital wallet for Android devices. You can use it to buy products online and in stores that accept contactless payments. Google Pay is the payment service that manages transactions with your Google Wallet.

Google Wallet advertises it can hold digital versions of items that you'd carry in a physical wallet, such as:

  • Your credit cards, including American Express, Mastercard, Visa, and more
  • Prepaid and gift cards
  • Prepaid concert and event tickets
  • Loyalty cards for stores
  • Car keys
  • Copies of your ID cards

Buying goods with Google requires an account. The business owner must also have a Google account to accept your payment. You can also link your PayPal account to Google.

Like other popular payment services, Google encrypts your transaction data and requires multi-factor authentication. It also scans for fraud during transactions. If there's a problem, like an unauthorized charge, Google Wallet refunds you. Google claims it does not sell information about your purchases to third parties.

Apple Wallet and Apple Pay

Apple Wallet and Apple Pay are similar to Google's services, but each company has distinct features and policies. Apple's services are only available on late-model iOS smartphones.

You can use your iPhone to pay online or in-store if the seller accepts mobile payments through Apple. First, you must register and link a credit or debit card to your account.

Apple Pay's security protections include data encryption. You must also set up a password option like PIN, face ID, or fingerprint. This step can protect your financial information if you lose your phone, including in the case of theft.

Peer-to-Peer Payment Apps

Peer-to-peer (P2P) payment services let you send money to someone else without sharing sensitive bank account information. These apps are usually most suitable for paying someone you know in person. For example, you might pay back a friend for your share of travel costs on vacation.

Both parties link their financial information to their P2P accounts. The service moves money between accounts. Users can then withdraw funds from their account balances.

Popular P2P options include:

  • Venmo
  • Cash App
  • Zelle
  • PayPal
  • Apple Cash

P2P apps can be dangerous for typical online shopping because they sometimes enable scams. Some apps, like Venmo and PayPal, offer both P2P services and business payment processing.

Getting your money back can be challenging once you pay someone through a P2P app. Even if you paid the wrong person, your options can be limited. For example, Venmo's FAQ instructs users to contact its customer support team and request the other person to pay them back, which they might not agree to.

Buy Now, Pay Later Services

While shopping online, you might have seen a checkout message advertising that you can pay for your goods over time. The customer can pay portions of the purchase price in a few installments or by a deadline. This payment method is becoming more widely available for everyday household goods.

Unlike with a layaway plan, you don't have to wait to make all payments before getting the product. This option lets the seller treat your purchase like you already paid in full.

You'll owe a micro-debt to the payment provider. The provider may check your credit report before issuing the loan.

A few “buy now, pay later" (BNPL) service providers include:

  • Klarna
  • Affirm
  • Afterpay (by Square)
  • PayPal
  • Apple Pay Later

Providers might charge interest or transaction fees. Others advertise interest-free plans as long as you pay on time. Read the provider's terms to understand the monthly fees, hidden costs, and payment schedule.

Legal Concerns of Buy Now, Pay Later Plans

BNPL payment options are more complex than they may seem in advertisements. For example, the provider's policies may penalize you with high late fees for failing to make payments as scheduled. Short-term plans may have different terms than long-term financing plans with the same provider. Disputing fraudulent charges or returning products for refunds may be more difficult.

BNPL services are also somewhat of a legal gray area. Consumer protection laws don't regulate BNPL services as strictly as traditional credit and loans. The Truth in Lending Act (TILA) is an example of a law that applies to credit card companies but doesn't currently specify exact requirements for BNPL companies. This lack of transparent information increases the risk for customers making a BNPL purchase.

Legal Counsel for Online Payment Disputes

Sellers decide which payment methods to support. Customers ultimately decide whether to use those methods to buy products. Legal protections for customers are in place if a transaction involves fraud, data leaks, or shady business practices.

If you have an online payment service issue, contact a consumer protection attorney near you. A lawyer can explain what steps you can take next. You may even have reason to sue the payment provider or seller in some cases.

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