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Etsy introduces gift cards, pushes sellers toward Etsy-owned payment system

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Etsy has become an online commerce giant over the past seven years, generating more than $500 million in sales from January to July alone. However, it has shared a large chunk of that profit with PayPal, the system most Etsy sellers use to process payments.

Now Etsy is determined to convince sellers to use Direct Checkout, its new in-house payment system designed to compete with PayPal, and it’s offering perks to get them to comply.

In a Friday blog post, Product Marketing Manager Natalie Schwartz introduced Etsy Gift Cards, a long requested feature, exclusively available for shops that use Direct Checkout:

“Since Etsy is issuing and managing the gift cards, they rely on our direct checkout feature, and the security and legal protections we provide through our payments system. To offer a gift card that works across multiple shops, there must be a central checkout flow connecting shops to Etsy, and not to individual PayPal accounts.”

Never mind that eBay offers gift cards that work for multiple sellers through PayPal. (Of course, eBay owns PayPal, so there’s no reason to work around an established payment system.)

Schwartz also announced that shops that try out Direct Checkout in September will have all credit card processing fees waived.

Despite the perks, Etsy has had a difficult time convincing sellers to use the in-house service. Since it was introduced in June 2012, only about 100,000 of the 800,000 total active shops on Etsy have started using it. For some, it’s a matter of location—Direct Checkout is only available in the U.S. until at least 2013. For others, it’s resistance to a payment system some find inferior to PayPal. In forum discussions, sellers discussed Etsy’s motive behind gift cards.

“Well, there it is,” drumchick99 wrote. “There's the first way they're going to force sellers to use DC or lose out on perks. And with a system that is sub par.”

Some sellers believe Direct Checkout is subpar for a number of reasons. It puts money on hold until products are marked as shipped, and puts more of the payment system under Etsy’s control.

“Gift Cards and no fees for September sound like a good idea, but DC still won't work for me,” Luly wrote. “My items are made to order and take several weeks to make and ship out and I can't afford to have MY MONEY on hold until the item ships. I am more than happy to pay PayPal the processing fee and have instant access to MY MONEY.”

“Etsy can you guarantee that a hacker can't access your system and steal credit card information or money from my sales?” Marjorie wrote. “I don't want Etsy having control over my money at all. I want control of when I decide to transfer money from my PayPal account to my bank account.”

Etsy responded to sellers’ complaints about Direct Checkout in a Friday blog post, arguing that the system benefits sellers, not just Etsy itself:

“On average, buyers spend $2.50 more on items bought through direct checkout compared with other payment methods, and they spend $4.50 more per order when they can choose between direct checkout and PayPal.”

With results like those, it may be only a matter of time until Etsy sellers embrace the change.

Photo via Etsy