Much of the recent online discussion surrounding PayPal has focused not on Regretsy, PayPal’s latest in a long string of innocent victims, but on Etsy. Etsy may have helped inspire the name of Regretsy, but the main reason people made this connection is that Etsy shares the same business flaw of being effectively dependent on PayPal to clear financial transactions.
In business terms, this is an inexcusable lapse on Etsy’s part. From what I have read in the latest discussions, Etsy’s rules virtually require its buyers and sellers to make payments via PayPal, a payment processor owned by Etsy’s largest competitor, eBay. This puts eBay in a position of conflict of interest: it can, through its security decisions, effective bar buyers and sellers from Etsy, its competitor. It is an arrangement that puts Etsy and its customers in a particularly vulnerable position.
But it is not just a matter of a flawed and fragile business model. It is also an incongruity, a lapse of community integrity for Etsy. Etsy is a site where sellers can sell only items they have made themselves. This is part of the reason for Etsy’s success in a marketplace dominated until recently by eBay. Although eBay’s marketplace policies officially permit sellers to sell articles they have made themselves, eBay’s security policies make it clear that it frowns upon such activity. A person who sells handmade items on eBay does so at risk of being banned from the site. Hence, it makes much more sense to sell these items on Etsy.
Etsy, in this role, offers a way for shoppers to bypass the whole distribution network. They can buy articles directly from the people who make them. Cool. But then, the payments for these articles have to go through a huge corporation that is in bed with Wall Street, and this huge corporation takes a substantial cut, generally more than 2 percent, of every transaction. Not cool. Etsy is largely negating its cool factor by palling around with PayPal.
This is particularly awkward at the time of the Occupy movement, the Move Your Money campaign, and the buy-local meme. Millions of people are actively looking for ways to bypass the corporate control of commerce. They want to buy and sell things more directly, without the involvement of huge corporations acting as gatekeepers along the way. Etsy could be providing this. But it isn’t. Weird.
Etsy has not publicly commented, but with so many of its sellers worrying openly about PayPal, Etsy must realize that it has to do something.