Yahoo PayDirect review: Yahoo PayDirect

Yahoo has made several major changes to its online payment service, PayDirect, since we last reviewed it. Among them, PayDirect enlisted HSBC Bank to handle the grunt work of transferring money and introduced fees for every transaction. These fees alone--30 cents plus 2.5 percent of the amount of the payment--make PayDirect less enticing than PayPal, which offers a few free services. Worse, PayDirect still makes you wait a week for a snail-mail letter that grants you permission to activate your account, and the service offers no help with payment disputes. Unless you send a lot of money by e-mail--PayDirect's limit is a generous $1,000 per month--PayPal is by far the better pick. Yahoo has made several major changes to its online payment service, PayDirect, since we last reviewed it. Among them, PayDirect enlisted HSBC Bank to handle the grunt work of transferring money and introduced fees for every transaction. These fees alone--30 cents plus 2.5 percent of the amount of the payment--make PayDirect less enticing than PayPal, which offers a few free services. Worse, PayDirect still makes you wait a week for a snail-mail letter that grants you permission to activate your account, and the service offers no help with payment disputes. Unless you send a lot of money by e-mail--PayDirect's limit is a generous $1,000 per month--PayPal is by far the better pick.

Hand over your SSN
PayDirect makes you jump through some serious hoops to sign up. Unlike PayPal, PayDirect verifies your mailing address, so you'll have to wait a week or more for an activation code to arrive via snail mail. Until then, you can send or receive up to only $200, and you'll have to wait even if you use a credit card to fund your payments. Here's another gripe: PayDirect requires you to hand over your Social Security number. According to Yahoo, the company does this to "assist the federal authorities in preventing money-laundering." PayPal, on the other hand, doesn't require your SSN.

Like every service associated with Yahoo (Yahoo Mail, for example), PayDirect relies on an all-text interface--much plainer than PayPal's. Nonetheless, PayDirect is clear and easy to operate, with links to Send Money and Request Money forms at the top, and your account balance and recent transactions clearly displayed.

Unlike PayPal, PayDirect doesn't sport many extras. Although money in your PayDirect account is FDIC insured, there's no option to transfer funds to an interest-bearing account, as you can with PayPal. Plus, Yahoo's service doesn't offer its own debit card, so you can forget about instant access to your funds.

Generous limits will cost ya
PayDirect's fund-transferring process is identical to PayPal's, except that it works only within the United States. When you send money, PayDirect debits your credit card (MasterCard, Visa, Discover, or American Express) or your checking or savings account. Next, it sends e-mail to the recipient notifying him or her of the transaction. Need to transfer tons of money? PayDirect's sending and receiving limits are much more generous than those of PayPal. PayDirect lets you send as much as $1,000 per month and receive $10,000 each six months. But you'll pay for the high limit. Unlike PayPal, PayDirect charges for every transaction no matter how you fund it; each payment costs 30 cents, plus 2.5 percent of the amount. High-volume sellers who have received more than $2,000 in PayDirect payments in three consecutive months qualify for the Preferred rate, which is 30 cents plus 2.2 percent of the amount. The sender decides whether he or the recipient will pay the fee, but there's no free ride.

Only one way to get to your dough
Like all payment services, PayDirect sends recipients e-mail with a link that lets them claim their funds, and receivers need to sign up with the service, too. When a recipient gets the money, it's immediately dropped into the PayDirect account. However, if your rich buddy wants to spend the money in the real world, he or she must transfer it to a checking or savings account, a process that takes approximately seven business days. PayDirect no longer lets you transfer money to a credit card account, as it did last year. Unlike PayPal, there's no paper check option.

In our tests, PayDirect took longer than PayPal to handle some transactions. Moving money from our checking account into PayDirect took seven days, compared to PayPal's three. Withdrawals from PayDirect to our checking account, however, were faster: our money landed in our checking account the next business day. Sender-to-recipient e-mail transfers went just as quickly as PayPal's. We received notification in our e-mail in-box within a few minutes.

Good help is hard to find
PayDirect's support and protection safeguards aren't up to PayPal's standards. Although the PayDirect Help site offers tons of FAQs and Q&A-style information, it doesn't list a telephone support number or an e-mail address. We were finally able to dig up the e-mail form for submitting feedback, but Yahoo clearly states on its site that "Yahoo and the bank cannot help you resolve disputes with persons you send money to through Yahoo PayDirect." Want to talk to someone on the phone? We finally found a phone number under Terms of Service: 408/349-3335, a toll call. After five minutes on hold, we were thankful that the rep was able to answer our question in a flash.

PayDirect costs too much
PayDirect suffers from a host of problems: persistent fees, a slow start-up, untimely transfer of funds out of bank accounts, and U.S.-only access, to name a few. For now, PayPal is still the better option.