For a business to accept online payments, you need both a gateway and a processing account. The gateway takes or “captures” the consumer’s credit card information, applies encryption, and transmits it to an account for processing of the payment. There, an authorization occurs, the transaction is settled, and funds are transferred. The most common dilemma businesses face in adding a payment process to their site is whether they should use PayPal or actually get an Internet merchant account.
When the fee schedules of both PayPal and more conventional payment processors are compared, the deciding factor that emerges is monthly sales volume. If you sell less than $2000 a month, PayPal is a cost effective solution. More than that, and a merchant account is the better option. This is not, however, the only criteria to consider.
PayPal routinely exhibits a delay in depositing sales into a business’s bank account and often places holds on funds with no notification to the user. You cannot access the card holder’s information, and the PayPal shopping cart is fairly rudimentary. There are no mechanisms to address shipping costs on a sophisticated level and there is no calculation of taxes.
When these features are necessary, an internet merchant account can integrate more effectively with commercial shopping carts that offer better feature sets and functionality. This means you can tailor your business to your customer bases effectively and maximize your sales. There are obviously rules that apply to both shipping and tax calculations, and you need to access customer information to build databases for marketing and sales.
This same information is needed when issues of refunds come up or a chargeback investigation is needed. These types of disputes can become difficult and protracted with PayPal, and are often cited as the main source of customer dissatisfaction with the service. As a business grows, PayPal’s limitations become more obvious, while merchant account services easily
expand with the size of your enterprise.
PayPal works extremely well for low level transactions, like those that occur on EBay where it is the standard payment system. At monthly amounts below $2000, the fees are fair and the processing capability matches the sales volume. If, however, you have a growing business with a climbing monthly volume and a need to tailor the shipping experience and flexibly access customer data, a merchant account is the better option.