PayPal vs credit cards – which is safer?

Card fraud remains high as fraudsters exploit the popularity of online shopping, but which is the safer payment method – credit cards or PayPal?

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Emily Herring

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Since the pandemic, making purchases online has continued to be a go-to way to shop for many. Although it’s convenient for some, it does come with some risks. According to UK Finance’s Annual Fraud Report 2021, 40% of financial fraud losses were by payment card, which included online smishing and phishing fraud. So, which is the safest payment method to use online – PayPal or credit cards?

PayPal vs credit card security features

Both credit cards and PayPal have some security features in place to help protect you from potential fraud. Here’s a quick guide to the different types of protection you’ll get. We’ve focused on the key options most cards offer, but make sure you read the specific security features of your credit card before making an online purchase.

Security featurePayPalCredit cards
Fraud monitoringYes.Yes.
24/7 customer serviceNo. PayPal’s customer service hours are 8am to 10pm Monday to Friday, and 8am to 9pm on Saturday and Sunday.Yes. American Express, Mastercard and Visa credit cards all offer 24/7 emergency hotlines for lost or stolen cards as well as for suspected fraud.
2-factor authenticationYes. You can choose to have a 1-time PIN sent to your mobile phone by turning on PayPal Security Key in your account’s security settings.Yes. If you have a card that offers Mastercard SecureCode, Verified by Visa and American Express SafeKey and shop with participating brands, you’ll be prompted to authorise the transaction with a PIN or other security step.
Reimbursement or chargebackYes. If an item doesn’t get delivered or if it arrives and is significantly different from the seller’s description, PayPal offers reimbursement for the cost of the item and shipping.Yes. If your purchases are not delivered or are not as they were described, you may be able to reverse the transaction by requesting a chargeback.
Encryption technologyYes. PayPal offers encryption for all the financial details you have stored in your account.No. While credit cards offer encryption for purchases you make in-store, most of them rely on the encryption used by online stores when you make payments over the internet.

Which option is more secure?

Although both credit cards and PayPal offer a number of security features and benefits when you’re shopping online, they still come with potential costs and pitfalls. For example, PayPal offers slightly better encryption, which on some websites could help you protect your money.

Online shopping with a credit card

Most online stores or services will give you the option to pay by card, and like in-store shopping, card acceptance will depend on whether you’re using an American Express, Mastercard or Visa credit card.

With this method, you usually need to provide the following details:

  • Your name, usually as it appears on the card
  • The card number
  • The expiration date
  • The Card Verification Value, known as the CVV or CVC depending on your network

Pros

  • 24/7 fraud monitoring. Most credit cards have security systems that detect and flag suspicious activity as it happens. Depending on the card, you will also have the ability to lock or freeze your card if you suspect it’s been used for fraud. This is often a feature that comes with banking apps.
  • Section 75 protection. Thanks to Section 75 of the Consumer Credit Act, 1974, you can request a chargeback through your credit card company if your purchase is faulty, not as described or does not arrive, and the merchant refuses to refund the money or has gone bust.
  • Fee-free options. Some cards offer 0% foreign transaction fees when you make purchases with a business based overseas, potentially saving you 1–3% per online purchase.
  • Rewards. If you have a rewards or cashback credit card, you’ll be able to earn points or money back on eligible purchases made on the credit card.

Cons

  • Online fraud risks. Online credit card fraud has been steadily increasing as more people use cards to make purchases on the web.
  • Entering card details. When you make an online purchase with your credit card, you usually have to type in your card details. As well as being annoying, there is also a potential risk of credit card fraud if the website can’t be trusted or if the internet connection isn’t secure.
  • Potential interest charges. If you carry a balance from your online shopping, you’ll be charged interest at the card’s purchase rate.
  • Unexpected fees. If you’re using a card that charges foreign transaction fees, it may not always be clear when this fee will be charged. For example, if an online store is based overseas, this fee may apply even if the purchase is shown in GBP.

Online shopping with PayPal

Unlike a credit card, PayPal lets you store your chosen payment details in a secure account. If a store accepts PayPal, you can then sign into your account without having to type in your card details.

Pros

  • Payment encryption. Every payment made through PayPal is encrypted so your details are kept safe. This reduces the risk of personal or payment information being stored in places where you don’t want it.
  • Fast payments. You’ll be prompted to log in to your account and select your preferred payment option instead of manually filling out your card details.
  • Credit card rewards. If you add a rewards credit card to your PayPal account, you’ll still be able to earn points or cashback on eligible purchases, even when a merchant doesn’t accept your network but accepts PayPal instead. However, you will waive your Section 75 protection on that purchase.

Cons

  • Currency conversion costs. If you shop with retailers that don’t accept foreign currencies, PayPal will use its own conversion rates for the transaction. This often comes with additional fees. PayPal will show you the conversion rate at the time of the transaction.
  • Confusing payment details. A transaction that’s processed by PayPal could show its billing details instead of the details of the company you made your purchase with. If you’re not aware of this, you could mistake the payment for fraud when checking your credit card or bank account transaction history.
  • Acceptance. Not all online stores accept PayPal, so using it will often depend on the business you’re shopping with.
  • Section 75. Unfortunately, depending on the type of online purchase you make, you might not be protected by Section 75 of the Consumer Credit Act, 1974.

Section 75 protection

One of the main benefits of using a credit card over a debit card or PayPal is that any purchases costing between £100 and £30,000 will be protected by Section 75 of the Consumer Credit Act, 1974 – even if you only paid for some of it on a credit card.

So, if a purchase is faulty, broken or never arrived, your credit card provider will be jointly liable with the retailer and you could claim your money back as long as there is a direct link between you, the card issuer and the company you bought the product from.

Unfortunately, if you choose to make a purchase with PayPal, you will be waiving some of your rights to Section 75 as you are adding an additional link to the purchase chain. But it’s not that black and white, and if something does go sideways, you will need to know what options you have.

PayPal transactions protected by Section 75

  • If PayPal is used as a payment processor and you were NOT signed in to your account
  • Purchases made using PayPal Credit

PayPal transactions NOT protected by Section 75

  • Purchases made using your PayPal balance
  • If PayPal is used as a payment processor and you WERE signed in to your account

Bottom line: is it better to use a credit card or PayPal?

If you often shop online, choosing to pay with your credit card or PayPal won’t make much difference security-wise. If you decide to use PayPal, make sure you watch out for your Section 75 protection rights, but if you’re ever in doubt, log out. However, if you are going down the credit card route, make sure the retailer accepts that payment issuer and you are using a trusted network or device.

If you were going to buy an expensive item (£100+), would you use PayPal, a credit/debit card or something else?

Response% of responses
PayPal18.20%
Other12.45%
Debit card38.82%
Credit card30.54%
Source: Finder survey by Censuswide of 2,000 UK shoppers

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