PayPal vs. Merchant Account

When launching an eCommerce site, choosing the right payment processing service can make or break your business. Hidden fees, availability of funds, and access to offshore accounts are all important when comparing services. PayPal is one of the largest payment processors in the world, due to its easy set up and maintenance. What many business owners tend to overlook is how PayPal’s fees stack up against a much more flexible merchant account.

Let’s break down the numbers to truly understand the breakdown of the market. First, let’s understand the size differences between PayPal and the rest of the merchant processing account.

PayPal’s total revenue in 2010 was $3.4 Billion dollars, generated from their 106 million active PayPal accounts, on a total of 341,497 websites during that period. Breaking it down into a more tolerable number, that accounts to $3,650 in revenue per second. That’s generating some major cash flow!

Now that we recognize the enormity of the PayPal giant, let’s compare to the way they charge fees to the industry average of fees charged by other merchant processing companies.

PayPal’s Drawbacks

  1. They can only process 25 currencies.
  2. Limited number of industry verticals (190 total markets).
  3. Only 6 shopping cart solutions.
  4. Online transaction fee: 2.2% – 2.9% + $0.30 per transaction.
  5. Credit card purchase fee: 3.5% + $0.15 per transaction.
  6. Monthly Fee: $0 – $30 (depending on how nice your agent was)
  7. Funds are not directly deposited into your business account, but rather, deposited into a PayPal account.
  8. PayPal is not a bank, therefore isn’t required to follow federal banking regulations.
  9. Funds are not always made immediately available.

You may or may not have just had your mind blown. The things you learn on the internet! Now, let’s have a look at what a merchant account looks like through another provider:

  1. Average monthly fee: $9.00
  2. Average transaction fee: 1.8% + $0.12 per transaction.
  3. Flexibility and merchant control.
  4. Ability to create coupon codes.
  5. Can create and manager customer accounts.
  6. Ability to create mailing lists.
  7. Funds are deposited directly into the merchant’s account.
  8. Easier access to offshore accounts.
  9. Better reporting features.

On average, merchants overpay monthly fees by a minimum of 18%-35% when processing with PayPal. Why is this? Mainly due to lacking knowledge in the specific industry and PayPal’s brand image. Everyone sees PayPal as a safe and easy way to accept payments. However new merchants rarely see the limitations associated with PayPal due to the hazy information you get from the credit card processing industry. Hopefully this sheds a bit of light on your business model, and you can make the adjustments needed to improve your bottom line.