Recently, in one of the Facebook groups I participate in, the question areose again. Should one use PayPal or a merchant account in one's business? I used to run marketing teleseminars weekly for a merchant account vendor and this question came up on almost every call.
PayPal: Let's Review
You're probably all quite familiar with PayPal. It's a third party processor. You, the merchant, never see your customers' credit card information. PayPal collects it and puts the money into your PayPal account. From there you can spend the money by paying for things with PayPal, using the PayPal debit card to spend the money, or transferring it to your bank account, which takes about 2-3 days.
You do not need a shopping cart to use PayPal – you can create buttons right in PayPal to use on your site or in emails. There are many carts that will integrate with PayPal, however, should you want to use one.
Typically, the merchant is charged 2.9% of the transaction to use PayPal. There are better rates available for merchants with higher monthly sales.
What About a Merchant Account?
A merchant account allows you to take credit cards directly. You will have a relationship with a vendor, such as DirectPay, PowerPay, Stripe, or even your own bank. Behind them will be a gateway, such as Authorize.net or Verisign that allows transactions online. It's the account information for your gateway that you will set up in your shopping cart in order to accept payments.
While you can manually enter transactions with a gateway, for most online sales, you will want a shopping cart to work with a merchant account.
Merchant account fees are often pretty complicated. There will be per transaction fees. They will be something like 2.6% plus 30 cents per transaction. No-swipe fees – when you do not swipe the card, such as in online purchases, are higher. You will almost always have a monthly minimum for the fees. If it's $ 25 for example, if your transaction fees for a month add up to $ 25 or more, you're good. If they do not, you will be charged the difference between what they add up to and $ 25. You will also have a monthly statement fee – usually around $ 10 – and a monthly gateway fee – also usually around $ 10.
Whew! Pretty confusing, huh? And it looks like all those fees must make it cost more than PayPal, right? Not necessarily. I'll get into that in just a bit.
The money from a transaction will automatically be deposited into your bank account in 2 days.
What Do Customers Think?
Does using PayPal affect how customers view your business? Will they avoid buying from you if you only accept PayPal?
When I started my business more than a decade ago, PayPal was seen as the more amateur choice for smaller vendors who could not afford a merchant account. Online business was just getting going and a merchant account allowed the online vendor to look more like an offline 'real' business.
It's different now. There are very reputable and big businesses who use PayPal. I do not feel the image of a business is harmed by using PayPal today.
So How Do You Decide?
It really comes down to two things. The first is financial. Even though merchant accounts have all those costs, there is a monthly sales point where PayPal's higher transaction fees will be more than a merchant account's lower transaction fees plus all the other fees. Do the calculation for a particular vendor and see how it fits with your projected sales.
The second factor is customer service. I've never had a problem with PayPal, but others have. I also know some online marketers whose merchant account suddenly stopped functioning in the middle of a big launch. If you have a merchant account, you will most likely require support at some point and I prefer phone support for potentially complicated issues around online transactions. So if you're contemplating getting this type of account, do some research, ask your collections, and pick one that has a good reputation for customer service.
What do I use? I used to have a merchant account, and now I use PayPal. I've never had a serious problem with either, and never had a customer who found it questionable that I use PayPal.
So remember, this is just your next decision, not your last one. You can always change your mind!