PayPal has it’s place, but today I’m going to give you 5 reasons (plus 1 bonus) to stop using PayPal.
PayPal is a great way to pay a subcontractor or to pay a friend.
It’s even a viable option if you’re brand new to selling online.
For those things, it’s an acceptable solution to use.
However, if you’re an established business that has been around for a while there are better options out there.
For the purposes of this article and video tutorial, let’s assume that you have been in business for a while and you fit all of the qualifications to use a real merchant account.
PayPal is a payment aggregator if you were not aware and there are several limitations that come along with a PayPal account if you didn’t know.
Educate yourself about the differences between payment aggregators and merchant accounts by reading this blog post (with video) on PayPal, Stripe and Square vs merchant account providers.
Today, let’s dive into those limitations and discuss the list of reasons why you should stop using PayPal.
#5. It’s not a “real” merchant account – it’s a payment aggregator
There’s a amateur stigma that comes with using PayPal.
Some people still associate it with eBay purchases, while others just think it’s for sending money to your family and friends, as I mentioned before.
Others have a subconscious bias against PayPal because perhaps they had a bad experience with them before.
Either way, if it doesn’t promote a professional image to your company, do you really want to use it?
The bottom line is, you could lose customers as a result, and that’s an underlying theme with these items on the list.
Additionally, you run the risk of people thinking they need to have a PayPal account in order to pay you.
Your customers might wonder:
Do I need a PayPal account in order to pay you?
When you have the PayPal buttons on your checkout pages to sell your products and services you don’t want to risk losing the sale because someone is not sure if they can pay you.
#4. No direct bank account deposit – money is held
One of the most common questions that I get when setting up merchant accounts and payment systems for business owners is:
When will I get my money. How long will it take to “hit” my bank account?
The answer is typically: the next day.
With PayPal, however, it can take 3-5 days on average.
Some PayPal accounts will pay out faster than that, but that’s not a guarantee.
It’s also important to note, that money is paid to your PayPal account and not directly to your bank account.
So there is a double transfer that needs to take place in order for you to actually collect your money.
This is where and how PayPal can freeze funds because that money is being held in a transfer account before it’s paid to you.
Again, it’s not a good place to be in.
#3. No direct website integration during checkout process – page redirect is required
PayPal limits what you can do with your website checkout process.
The buttons that you place on your website often take your customer to a redirect page (i.e. away form your website) in order to make the payment.
When this happens, it can cause confusion to the customer and once again, some people may leave the checkout process because they aren’t sure if they’re making the correct purchase.
#2. High Fees (costs more than a merchant account)
PayPal will take their fees, no matter what.
Often times it’s higher than what you can get approved for with a merchant account.
The fees are typically about 2.9% (or higher) and that has been the standard with PayPal since it’s inception.
Merchant account rates and fees are a very hot topic and we have other articles and videos on those topics so be sure to check them out for more details and comparisons.
For now, just now that for most companies, PayPal holds a higher cost than a merchant account.
#1. Risk of Frozen Funds
The biggest risk of using PayPal is the risk of frozen funds.
Just do a simple Google search for “PayPal frozen funds” and you’ll find countless articles and stories screaming their horror stories about how their account got frozen for no apparent reason.
Here’s just one of many comments on our associated YouTube video for this post: regarding frozen PayPal accounts.
Worse than just having your money held, PayPal reserves the right to simply shut your account down if you violate their terms of service.
Having some or all of your business capital tied up or held, is enough to cause businesses to close.
You need money to run your business and you don’t want to jeopardize your cash flow.
Bonus Reason (#6): Pay fees charged even when returns happen
A new refund policy was rolled out on April 8th, 2019 by PayPal.
The policy states that if you grant a refund to a customer, the 2.9% fee will remain as charged to you, the business.
That means you’re losing money even when you voluntarily grant a customer a refund.
By contrast, when you refund a purchase with a merchant account, the discount rate (i.e. percentage rate) is returned to you and only the transaction fee is charged, which is significantly less than the percentage in most transactions.
The best alternative to PayPal
My number #1 merchant account recommendation is listed below:
Qualification for the merchant account are (including but not limited to):
- process >$3,000 per month in credit card volume
- open year round (not-seasonal)
- business located in the United States
There is an underwriting process and If you meet all of these requirements listed above, click to schedule a time to talk with me.
Even if you don’t meet the requirements, you’re welcome to visit our team page and get in touch with us to discuss options for your business.