Merchant Account vs. Paypal

[budimir]

I'm getting pressure to obtain a merchant account for my business. My website is not up yet. I thought it would be just fine to use Paypal. As a consumer I have purchased online and used my Visa to make a payment via Paypal. So, why are people trying to convince me to open a merchant account that is going to cost me more money. As an initial business, I'm trying to spend the least amount that I can since I don't have a big financial resource. Seems like people don't see Paypal as being able to pay using their credit card. Can someone shep a little light on this for me?

Thanks,

 

[Deleted member 61074]

Its just a case of perception, some people will maintain that having a merchant acct and PSP creates an impression of being a kosher business.

anyone can trade online using paypal.

Personally I feel the tide is turning and sites that only take paypal aren't quite so disadvantaged. However you will lose sales by only offering PP.

 

[Rienne]

I know someone who has recently has their whole Paypal account frozen whilst a chargeback is being investigated. Hasn't ever happened to us, but something to watch for. Also PP is a lot more expensive until you hit high volumes:

Purchase payments received (monthly)
Fee per transaction
£0.00 GBP - £1,500.00 GBP
3.4% + £0.20 GBP
£1,500.01 GBP - £6,000.00 GBP
2.9% + £0.20 GBP
£6,000.01 GBP - £15,000.00 GBP
2.4% + £0.20 GBP
£15,000.01 GBP - £55,000.00 GBP
1.9% + £0.20 GBP
above £55,000.00 GBP*
1.4% + £0.20 GBP

 

[shopintegrator]

Hi,

I've bought online from many large organisations who have Pay Pal as one of their payment choices, Monarch Airlines, EBuyer, Maplin Electronics etc and chose to pay through Pay Pal as it speeds up my purchase and I feel comfortable with the Pay Pal brand and level of security. So many people have a Pay Pal account as they buy and sell on eBay and Pay Pal is owned by eBay.

I personally would keep to your plan which is perfect for a startup who may not sell a lot for a while and therefore the monthly charge for a merchant account could easily outway the higher transaction fees from Pay Pal but the gain of no monthly fee. Review that decision about having an additonal payment provider when your revenues make it worth while.

 

[h20ho]

If you only sell a small money amount of orders a month, then as stated by Rienne, the costs of having a merchant account might not be warranted.

As shopintegrator stated it's a perception thing as well kind of like when you see a business on a free webhosting package or using gmail, yahoo, msn for their business email.

There are third party online creditcard processors you can get as well.

 

[Christiane]

It's been discussed before. Paypal is MORE expensive than a merchant account with, say, Sagepay. I use Streamline and Sagepay.
I take more payments by cards than by Paypal and my fees are higher with Paypal.

 

[Hedgie]

There are alternatives to Paypal such as Paypoint and Google Checkout.

 

[berrywoods]

ive gone with paypoint for my webshop, they have been quite helpfull, although with paypal you can intergrate and off you go, paypoint want invoices from me to prove i have the stock, which is a good thing... i guess... just puts me a few weeks behind

 

[JamieM]

Have a read of this recent thread:

http://www.ukbusinessforums.co.uk/forums/showthread.php?t=136883

 

[Cloughie]

If you are serious about doing ecommerce properly you need to have a proper merchant account and take credit cards.

I appreciate that paypal can take cards but it looks odd to the customer if you have this as your only option and I can gaurantee you that you WILL loses sales because of it. Even myself being pretty experienced would probably not order from a site that was paypal only.

At the end of the day if you are concerned about the costs of a mechant account and their fees you may not have the right business.

 

[hargreaves56]

Paypal prices are so high. But everyone has to use them if they sell on ebay and it is probably a good idea to offer it on checkout along side google (now the same cost as paypal), but design it in such a way that the checkout encourages the user to use card payment checkout!

I have used many merchant providers over the years. Not had good experiences with secpay, and since they were brought out by paypoint, my experiences have got worse.

Personally, I would recommend sagepay.

 

[CourierCompare]

I would reccommend having a merchant facility alongside Paypal. You would need to also take the srvices of a credit card proccessor such as Protx.

 

[Josh B]

Start with Paypal but get a merchant account and PSP as soon as you can! Then keep paypal if it works for your business, but drop it if it's costing you money or waiting time!!

 

[freshpurple]

We started out using just Paypal and one issue has been, while you can pay using a credit card without opening a Paypal account, the option is not exactly obvious once the customer is redirected to the Paypal webpage...

So you will definitely risk losing sales where the customer can't/can't be bothered to work out how to do it and doesn't have a Paypal account, even before looking at the effect it would have on your reputation. That said, we have had a good number of sales through our website so it has proved successful as a starter and we are now looking at getting a Merchant account + Sagepay.

 

[robokoder]

I think the PayPal stigma is probably wearing off nowadays, since they actually to advertise a bit to consumers directly. So really it's a question of whether the fees are too high. For a new start-up, I imagine that you'll be better off with higher % costs and lower fixed costs, but as you scale up it will eventually become worthwhile to invest in a merchant system, so long as it is properly secure and seems 100% trustworthy (this will cost quite a bit).

 

[iwgraphics]

I agree with the other posts above, offer paypal alongside a merchant account.

Paypal is a law unto itself, and have been known to freeze accounts instantly if Mrs Smith happens to complain that her £2.50 paperclips havent been delivered or something silly like that.

Their service and accessibility by telephone to resolve issues has improved recently, but the tactics they and their sister company Ebay use to try to force people onto their service and terms doesnt impress.

 

[silvermusic]

We started out using just Paypal and one issue has been, while you can pay using a credit card without opening a Paypal account, the option is not exactly obvious once the customer is redirected to the Paypal webpage....

A few words of text under the PayPal logo on your site can work wonders, works for me.

 

[amdowney]

Paypal for starting out, then Sage Pay and a Merchant account when you process enough to save and cover the setup costs: idealsites.co.uk/blog/accepting-payments-online.html

 

[Tomasd]

Not sure how Paypal works out more expensive than a Merchant Account. We did the maths, got a load of different quotes and looked at different combinations, and when Merchant Account fees, Payment Gateway fees and Shopping Cart Fees were all added up, Paypal worked out a lot cheaper. We have grown massively in 5 years just using Paypal.

 

[Josh B]

Using a merchant account and PSP you can save a few percent, the merchant fee's are usually a couple hundred a year and the PSP fee's depend on volume of transaction.

From reading around Paypal usually has more abandon carts and more charge backs, so surely its cheaper to use a merchant account and PSP.

 

[snakeeyes121]

Having just come across this thread, I cant believe nobody has mentioned the paypal pro service, costs £20 a month and you take card payments on your website just like you would with any other merchant account / processor combo, the buyer has no clue that you are processing payments via paypal.

You get a virtual terminal for processing phone / mail order payments, you can also use the express checkout for those customers that have a paypal account and want to pay that way.

For me having every payment from every sales avenue going through the one system is well worth the extra 1% paypal charge.

Plus I can have any money in to my bank account within a few days, what people have failed to mention is that when your new to card payments a lot of the banks want to hold on to the money for as long as possible, I was quoted atleast 7 days, then they wanted me to retain a certain amount in my account to cover chargebacks etc.

I also use kashflow as my accounting package and this pulls all the orders and payments from paypal, I more than save the extra fees I pay to paypal by spending less time on the admin side.

 

[iwgraphics]

There are many businesses that have been completed ****ed up by Paypal, so proceed with caution.

They are known to freeze your account without warning instantly, and fail to respond for days or several weeks sometimes while they do so. It only takes one customer with a small complaint or some other computer-generated trigger, or someone 3 transactions down the chain using a dodgy credit card, and Paypal will suspend your account even if you have done nothing wrong.

A fraudulent customer can false claim they didnt get delivery, and even if you provide all the proofs of despatch, signed delivery etc they will decide in the buyers favour.

You can email them, call them all day long for weeks, it wont make any difference. Paypal conveniently register themselves outside the UK, at a PO box number in Ireland and an address in Luxembourg, so its not easy to sue them.

I have heard first hand of dozens of horror stories of small businesses going bust because of Paypal's antics. They block your account then ask for all sorts of documents - your supplier invoices, your passport, names/addressses of all your suppliers, your audited accounts, they do a credit check on you and your company, your bank statements and then when you provide them, they dont respond for weeks, and then ask for more irrelevant documents while they keep your account on block.

I would always advise a proper merchant account rather than Paypal. At least a proper UK bank will write to you and give you 14/28 days to reply or resolve any issue, rather than just suddenly freezing your account and funds!

The whole Paypal/Ebay (owned by same people) monopoly is disgraceful, how they force you to use Paypal on ebay many times, how they take percentage commission at both ends, how they charge commission even when the funds are already in the Paypal system. I can see Paypal come crashing down sooner or later as the rate of dissatisfaction grows and the number of anti-paypal sites increases.

 

[snakeeyes121]

I take it you don't like paypal then?

I personally haven't had a problem with them in the 3 years Ive used them, I fail to see how freezing an account can have such a detrimental effect on a business causing it to close down.

People I know who use it, myself included transfer all payments out at the end of the working day, so at the worst only one days takings will be frozen should paypal wish to do that, then we would have another processor deployed within an hour.

It sounds like those who have major troubles are those who have no backup plan, which you should have regardless of which processor you use.

 

[iwgraphics]

I take it you don't like paypal then?

I personally haven't had a problem with them in the 3 years Ive used them, I fail to see how freezing an account can have such a detrimental effect on a business causing it to close down.

People I know who use it, myself included transfer all payments out at the end of the working day, so at the worst only one days takings will be frozen should paypal wish to do that, then we would have another processor deployed within an hour.

It sounds like those who have major troubles are those who have no backup plan, which you should have regardless of which processor you use.

Well, it appears that even "withdrawing too often" is a trigger for them blocking your Paypal account.

A lot of small web businesses do rely entirely on Paypal, so if a few £k (i've heard of ppl with even £20k+) is blocked by them, it can strave cashflow.

By the way, the people I heard from had also used Paypal happily for years before waking up one morning to find their account block and a list of a dozen hoops they had to jump through to get it unblocked.

But yes I agree with you, everyone who uses Paypal should have a backup plan in place. I havent used but Moneybookers, PPPay and Nochex to name 3 as alternatives that allow for relatively quick setup, as full blown Merchant Accounts do take several weeks.

 

[iwgraphics]

Another ploy Paypal use is to force you to "Confirm" your bank account. They send 2 small deposits and then ask you to key in the amounts a few days later. They pretend this is for security and to allow you to fund your account by withdrawing from your bank account.

This is a complete trick and con by them to setup a Direct Debit to your bank account through the back door. Its really nothing to do with "confirming" your account, and it would be more honest of them to say so.

So even if you are withdrawing funds daily, Paypal can utilise its Direct Debit mandate to try to take it back.

Do a bit of research and you'll see how Paypal have really messed up businesses for people - and I;m not talking about someone selling the odd used item on Ebay, i'm talking about proper trading businesses.

 

[Tomasd]

In 5 years we've never encountered any of the problems reported above. We withdraw once a week into our company bank account so we never let very large amounts build-up in Paypal anyway. We've looked at all the alternatives and when you add Merchants Account fees, gateway fees, and shopping cart fees together, paypal is the most cost-effective. Moneybookers, PPPay and Nochex - not had good reports of any of them. The problem is that Paypal is the single largest payment system on the internet, so there will be a proportionally larger number of problems reported. None of the alternatives we looked at were any better when it came to similar problems.

The only problem we have with Paypal is with the shopping cart. Very stupidly, it doesn't let you set differential shipping rates for domestic and overseas orders. Unfortunately none of the alternative shopping carts integrates easily or well and most involve the use of a nasty formula web template, and complicated and unnecessary back-end stuff.