For 10 years, Etsy has been the face of the handmade craft movement, but it has experienced growing pains lately. Source: Etsy

By focusing on the customer experience, does Etsy (NASDAQ:ETSY) risk alienating its sellers, possibly even pushing them to rival platforms like Amazon's new Handmade site?

Recently, the artisan website updated the payment options available to buyers to include at every checkout an option to use payment processor, PayPal. Previously, sellers had the option of using their personal PayPal accounts or Etsy's Direct Checkout service, which gave buyers a number of options, including credit, debit, and gift cards; Google Wallet and Apple Pay; and for certain international customers, iDeal and Sofort.

The benefit of Direct Checkout to sellers was that it allowed them to accept credit card payments without having to use an online payment service or set up a merchant credit card account.

Many sellers, though, liked using their personal PayPal accounts, because when a transaction was completed, the money was immediately available to be transferred to their own bank accounts, and those transactions typically were completed within a day. The new update changes things a bit, and some Etsy sellers are unhappy.

You can have it in any color so long as it's black
When Etsy updated the payment options and added PayPal to the mix, it wasn't the seller's personal account that was added but rather Etsy's integrated PayPal account that customers will see. What that means is that when a sale is made by a merchant, the money doesn't go directly to the seller but instead to their account with Etsy, which delays when the seller can access the funds. There is then a further delay in having a transfer posted to a bank account.

Now if a merchant had already signed up for Direct Checkout yet also offered their personal PayPal account as an option, there's no change -- they can keep both. But for new merchants on Etsy or existing ones who want to expand their operations with a new storefront, there is no option: They must accept the Direct Checkout option with integrated PayPal.

Moreover, if you don't specifically opt out of the new format, Etsy will opt you in beginning Oct. 27. And if you don't contact them before the end of the year saying you want out of the system, you're out of luck. International sellers, however, will still be able to use either payment method.

Tear in the fabric
The move, while obviously an attempt to make the Etsy experience a seamless one for buyers, allowing them to see uniform payment options across the platform that they're familiar with, risks further alienating its merchant base and could send them into the arms of the competition, like Amazon's Etsy-killer platform, Handmade, that is prepping for launch by taking on select new merchants.

It's being called an Etsy killer, but Handmade at Amazon is an expensive alternative for merchants. Source:

The main attraction to switching platforms may be access to Amazon's nearly 280 million customers, its Prime membership program, and its extensive fulfillment network, but there are some significant hurdles to get over.

Although Amazon is said to be offering early merchants a discount on the 15% commissions it typically charges third-party sellers -- taking only 12% commissions instead -- there is reportedly a flat $40-per-month fee in the works. Etsy, in comparison, only swipes 3.5% plus a flat $0.20-per-listing fee, making Handmade substantially more expensive.

But dissatisfaction with the arts and crafts site has been growing. Seller forums are filled with disgruntled merchants who grouse about the service's policies and the difficulty in getting problems resolved.

Don't call me, I'll call you
Indeed, one of the complaints about the new switch in payment options is the speed with which sellers are able to resolve issues with PayPal and the lack of a similar way to connect directly with Etsy. Should a problem arise, merchants fear they may get lost in the cracks.

Earlier this year, the industry site for e-commerce and merchants eCommerce Bytes detailed problems sellers had with PayPal payments not showing up in their accounts (another one of the reasons the PayPal option isn't universally loved). While the sellers were able to contact PayPal about the problem, which apparently said the issue resided with Etsy, they were unable to get in touch with the crafts site. Only sellers who had posted on Etsy forums complaining they had an issue had their problems resolved -- it wasn't known whether those experiencing payment problems, but not posting their experience, got the same satisfaction.

Since going public in May, Etsy stock has lost more than half of its value. It reported second quarter revenue of $61.4 million in August, up 44% year-over-year and ahead of analyst expectations, but losses more than doubled to $6.4 million, or $0.07 per share, wider than Wall Street anticipated.

Etsy is said to be the fifth most visited marketplace site behind Amazon, eBay, Best Buy, and Wal-Mart. Over the first six months of 2015, it had 1.5 million active sellers and 21.7 million active buyers who drove more than $1 billion in gross merchandise sales. It's safe to say a good portion of them are satisfied with the level of service and business they derive from Etsy, which has become synonymous with the craft goods movement.

The decision to make the experience better for consumers is a good one, even if it risks angering some of its sellers. Happier consumers will ultimately translate into more sales for merchants, and that would be good news for investors, too.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.