If you do business online and are researching methods for taking payment for your products and services, you would certainly have found PayPal during your search. PayPal is currently the biggest and most popular method of processing online payments and their API can very easily be integrated within your website. While PayPal has become the de-facto payment method on the web, here are it’s pros and cons for the more curious business owner.
Chances are that you already have a PayPal account. Especially if you do any shopping on sites such as eBay. PayPal is one of the most convenient ways to take payments on your website. Despite its popularity however, there are some downsides to its convenience. Here are the good and bad points to consider.
Pros Of Payment Processing With PayPal
1. Everyone uses it. It is very secure.
Your customers already have PayPal accounts. There are more than 100 million active PayPal accounts in the United States alone so it is obvious that PayPal payments are here to stay.
The most important asset of PayPal is probably its brand and name recognition. Although people are still reluctant to pay online, they trust PayPal the most if they must do so. Since PayPal is a third-party service, the customer’s credit card and bank account number never get into the stores’ databases. PayPal takes security very seriously and takes care of it as well as possible.
2. Easy to set up. Easy to use. Elegant.
Most people have personal PayPal accounts. You need a business PayPal account to accept payments by credit card with PayPal. However, setting up a business account is very easy. It is many times more convenient to setup and manage payments with PayPal than it is to do the same with conventional merchant accounts (which was what you had to do before PayPal). Merchant accounts involve credit checks and even applying for a line of credit. This can be as difficult as borrowing money to buy a house. PayPal eliminates all of that for the small business entrepreneur.
PayPal is also very elegant. Payments are easy to execute. Designers can easily customize the “add to cart” and “view cart” buttons. Developers will find that PayPal API (like the one for Instant Payment Notification or IPN) is well documented and has an active community of developer users.
3. No maintenance fees. No contract. Very transparent.
PayPal is free for both you and your buyers. With a PayPal business account, if you don’t sell anything, you don’t pay anything. Conventional merchant accounts require monthly fees that may be as much as $100/month. Many online payment processing services (besides PayPal) also charge monthly or yearly fees to retain your account. This makes PayPal so much more convenient for businesses (startups especially). What you see is what you get with PayPal. There are no long term contracts. You can easily cancel your account at any time without fees.
When you do sell something, PayPal charges $0.30 per transaction, plus 2.9 percent. Depending on your monthly volume, that percent can go as low as 2.2 percent.
4. Multiple payments options.
Your customer may not have a credit card or may not even have a PayPal account. PayPal covers you in all cases because it allows for multiple payment options (including check even!). You’ll be able to accept payments by credit card or PayPal account or check. And PayPal is constantly improving the options.
5. Integrate with anything.
Due to its popularity, PayPal can be integrated with almost anything – membership sites, email service providers, shopping cart systems, etc. – So it will very likely work with other things you’re already using to run the online aspects of your business.
6. PayPal does not put a limit on how much you can sell.
Since PayPal puts no limit on purchases, you get a lot of flexibility for sales and growth. Usually, merchant accounts put a monthly limit or average sale limit and your account could be shut down if you exceed this limit. Such merchant models are very unfriendly to sale spikes. With PayPal, you can just keep selling!
7. Many services under one roof.
PayPal offers all you need to manage online payments – payment gateway, recurring payments, payment forms, virtual terminal, invoicing, micro payments, etc.
8. Multiple country/currency support.
PayPal offers support in so many countries and currencies. As of this writing, PayPal gives you the option to use 24 currencies to handles international payments. Most competitor services cannot support as much.
9. Awesome accounting tool.
Although PayPal is not a bank, it does have many of the accounting features a bank offers. With a single click, you can see every payment, withdrawal, inbound transaction, etc. You can even download a spreadsheet file with details for periods more than one year. Printing transaction details from PayPal is also very easy.
Cons Of Payment Processing With PayPal
Not everyone agrees that using PayPal is a great idea. Like all big companies, there are also many complaints about using PayPal payment processing.
1. High transaction fees.
PayPal’s transaction fees are quite higher than those of most traditional merchant accounts. For example, for an eCommerce transaction, Visa’s wholesale rates are between 1.80% to 2.40% + $.10 per transaction. PayPal’s rate of 2.9% $.30 per transaction is well over that amount.
2. Phone-based customer service is inconsistent.
Some people complain that the quality of PayPal’s phone-based customer service service is inconsistent. Some customer service representatives know a lot more than others. On the flip side, PayPal has many other service and support options (like email, forum, knowledge base, etc.), so you may not always need to call in.
3. Frozen accounts.
One of the major concerns people have about using PayPal is that they don’t have rights to their money while it is in their PayPal account. PayPal has the right to and may often freeze and take over the money in your seller account (without first contacting you) if a buyer raises a dispute or suspicious activity is detected. While this could be a good thing (buyer/seller protection), not everyone is comfortable with exposing their money to such possibility. Also, once PayPal makes a decision about a dispute raised by a buyer, the seller cannot appeal the decision. There’s no chance of a third party jury.
If you think your business falls into a high-risk category, then be aware that it’s possible PayPal may withhold some of your funds or even freeze or shut down your account. And the account could remain frozen for months.
While I do not know anyone whose PayPal account got frozen, there are many of such stories online so it makes sense to stay aware.
4. Limited seller protection.
Seller protection policies with PayPal do not cover digital goods. So customers can keep the digital product for free even after receiving a refund based on a PayPal investigation.
5. Customers may have to temporarily leave your site.
One drawback of online payment processing sites is that customers often have to leave your site to complete a transaction (for this reason, some have come to view businesses who use PayPal as less professional or less established). While many buyers are familiar with this model, some people might be confused and abandon the purchase. These days, however, with PayPal Advanced and PayPal Payments Pro, you can customize the user experience to allow people to remain on your website when checking out. You will need to pay additional fees for this option.
6. Phishing. Fraud. Scams.
Due to its massive size, PayPal is a constant target of phishing, fraud, and scams. Even people without PayPal accounts often get mails saying their account has been suspended. Some phishing sites have been designed to look like PayPal and attract the unsuspecting PayPal user to provide crooks with their account information. The potential for fraud is high and the system is vulnerable to high charge backs and bad transactions.
7. Other cons.
Some other cons of using PayPal include:
- Not all countries can receive payments from PayPal. As of this writing Indian and Nigerian PayPal accounts can only be used for sending payments.
- Email addresses associated with certain domains may be banned by PayPal so customers cannot send payments.
- There are a number of people who refuse to use PayPal, which may result in lost business.
- It can take four business days for withdrawn funds to clear in your bank account.
In my opinion, the pros of using PayPal far outweigh the cons. And I have only had customer service issues on a few occasions. The decision for or against using PayPal as your online payment processor is a big decision and can seriously impact your business. As in every business decision, you need to use good judgement. Hopefully this review of the pros and cons will assist you in making that decision.