PayPal Vs. A Traditional Merchant Account

PayPal Vs. A Traditional Merchant Account

When beginning or expanding your business’s online sales, one of the most important decisions to make is how you will accept payments from your customers. There are different options available to the eCom merchant for payment processing. In particular, PayPal has grown beyond its roots as an eBay payment platform and become very popular among small online businesses. When considering payment processing options for your business, it’s necessary to understand how PayPal stacks up against traditional merchant accounts.

Payments accepted through a merchant account for online transactions are similar to face-to-face transactions. You have an account with a bank or other financial institution, and the payment processing company accepts your customers’ card information through your website’s payment gateway, securely processes it, and deposits the transaction funds directly into your bank account. These funds are available for your use typically within 2 business days. Some kinds of businesses, including travel services & future fulfillment, are deemed to carry higher levels of risk and may have more difficulty in opening a merchant account (although if your company is considered higher risk, Durango specializes in these types of accounts, click here to read more about high risk merchant accounts).

With PayPal, things work differently. When a customer makes a purchase on your website via PayPal, they are redirected to PayPal’s payment gateway (away from your website) to enter their financial information, where you are not in control of the customer’s checkout experience. In the past, the customer had to have a PayPal account of their own, but now they can use their credit or debit card as well. The payment is processed through PayPal’s own merchant account, and enters their system. The transaction funds appear in your company’s PayPal account, but transferring that money to your bank account can take up to a week.

PayPal is a tempting option for many start-up companies and small businesses because they do not charge monthly fees and is free to set up. Instead, PayPal charges a fee for each transaction they process. Companies with a lower transaction volume might save money by using PayPal as their primary payment avenue, but a greater transaction volume means that PayPal’s higher transaction fees can cost your company more.

Most merchant accounts come with a secure payment gateway to use on your website. You can customize the security levels that determine what kinds of transactions are flagged or declined through your payment gateway, and you can be confident in the security that protects your customers’ data because it never leaves your own website except through the payment processor’s secure gateway. Payment card processing companies are held to strict industry standards about privacy, and will never share any of your customers’ data.

PayPal is a private company, and has different policies about customer privacy. They openly state that they will share customer information with third-party market research companies and their parent company, eBay. Security with PayPal also operates differently: when a customer makes a purchase through PayPal, they are redirected to the PayPal website to enter their financial information, which can be a significant source of abandoned shopping carts in an ecommerce environment since the consumer has to go through more steps to check out. A streamlined and efficient checkout process is crucial for garnering online shoppers in today’s fast paced world. Additionally PayPal sets the security settings, potentially refusing international transactions or those with AVS/CCV mismatches. PayPal also reserves the right to shut down your account, locking away your money, if they suspect fraud; resolving this issue can be lengthy and difficult, and your funds are inaccessible for the duration.

Accepting PayPal transactions is convenient for many customers, especially habitual online shoppers. However, traditional merchant accounts carry greater customer confidence, as they are backed by decades of experience and regulation. They also will have more customization in the security offered, as well as controlling the checkout process so that your customer is not diverted away from your website. Having a merchant account confers an appearance of professionalism that a business relying solely on PayPal might lack.

Finally, at least in comparison to Durango Merchant Services, PayPal does not offer a dedicated account manager. If you encounter any trouble with PayPal, you will not have one person that you can rely upon to both call and email for immediate assistance. PayPal is a very useful and convenient payment option, but for most businesses, it should not be the only option. For more information on the various types of accounts we are able to provide, please submit a brief pre-application here.


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