It’s not all about the rates and fees, but it’s a piece of the puzzle.

Actually it’s more about overall cost since we’re talking turkey here, but we’ll leave that for another time.

Previously I’ve talked about Paypal vs. merchant account solutions and discussed the non-price variables.

Today I’m here to tackle some of the dollars and cents cost related variables as well as a couple other considerations when comparing Paypal and merchant account providers.

Paypal pricing and fees

Let’s dive right in, shall we?

Paypal fees are posted on their website.

Here’s a screenshot of Paypal’s published rates for their professional services merchant account. Keep in mind that there are two types of merchant accounts with Paypal: the free one and the professional services one.

Image Credit Given To Paypal.com

So as you can see the fees are starting at 2.90% plus a $.30 transaction fee. There are also volume discounts as shown below.

Image Credit Given to Paypal.com

Merchant account pricing and fees

Well, this is where it gets tough to compare because I have to give you averages.

Merchant account pricing is NOT one size fits all, so most merchant account providers will quote rates based on a number of variables:

• type of business (high risk vs. low risk products/services)
• methods of accepting cards (retail vs. online purchases)
• credit card volume accepted at the business
• additional services offered (on top of the merchant account such as ecommerce, shopping carts, marketing services)

With that said, most merchant account providers will have a cost that is lower than Paypal fees.

Assuming that we are looking at internet merchant account pricing since we’re comparing these fees to Paypal, here’s the range for most merchant account provider fees:

The most important thing to remember is to get the whole story when asking for a merchant account quote.  Often times merchant account providers will just quote the teaser rate or the introductory rate and you won’t be aware of the entire cost.

Risk of PayPal

Sometimes Paypal decides to hold funds.

There are numerous article sites and blogs that tell horror stories of how Paypal froze accounts and it took months to reactivate without any indication or communication on why it happened or the process of reinstatement.

I’m not anti-Paypal so I sort of hate to talk about this part, but I’ve seen it happen to too many businesses not to mention it.

Obviously this doesn’t happen to everyone and reasons for freezing an account depend on a number of factors and is ultimately at the discretion of Paypal.

Some factors that MAY play into the likelihood of a frozen Paypal account are:

• The type of product or service being sold (is it a high risk related product)
• Frequency of transactions (lots of transactions with chargeback presence puts your account at greater risk)
• Volume of purchases accepted over short periods of time (they don’t like large influxes of volume that is often a result of product launches or ecommerce grand openings)
• Size of average ticket (really large single transactions, perhaps over $1,000 each are considered to be high risk)

Take all of these factors into consideration but don’t read them as fact. I don’t work for Paypal and don’t have inside intel to their underwriting and risk policies. I merely share these aspects with you because of the problems that exist in the Paypal marketplace.

Playing devil’s advocate

To be fair, merchant account providers freeze funds all the time too. In fact, it happens far more than the public knows about and it is due to the same risk factors that I shared above in the bullet point list.

Merchant accounts, like Paypal are dealing with risk of loss through customer charge backs and when the risk becomes too high the providers have the right to freeze funds.

The benefit to using a merchant account over Paypal when it comes to frozen funds is that if you are set up with a provider that you can actually talk to and communicate with, you are not left in the dark as to why a freeze was placed on your account.

Someone is there to explain things to you and give you an idea of when the money will be released to your bank account and that’s a nice security measure to have in place.

The wrap

The two main areas of concern are cost and functionality. In other words, what do you get for what you’re paying for.

If you would like someone to communicate with and to help explain the integration processes then a merchant account and ecommerce solution provider will be your best choice.

Paypal serves its purpose and has its spot in the marketplace so it might not be a bad idea to accept both options. Since the Paypal option is a specific type of account it doesn’t hurt to have it on your website as a payment option, but certainly not as your ONLY payment option.

A merchant account through a true service provider is a more graduated and custom solution, so if you’re ready for the next step schedule a custom valuation.