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Paypal vs. Merchant Account [with pros and cons list]

by Apr 17, 2014General Merchant Account

Do you go with Paypal or a merchant account?


Both are a great choice, depending on your circumstances and personal preferences.

If you’re comparing the two and wondering which one is right for your business, it’s best to simply consider the variables that weigh in favor of one or the other in relation to YOUR business.

Unfortunately there’s not a clear cut “best choice” since every company is different so let’s do some exploring.

This article is going to steer clear of the specific pricing comparison for now and instead focus on other aspects of the two solutions. For a side by side analysis and complimentary article of the cost components for both Paypal and merchant account solutions read our article about Paypal vs. Merchant account – rates, fees, and costs.


Understanding the structure

First off, if you don’t understand the difference between a payment gateway and a merchant account you should learn the difference between the two.

It’s important to understand the framework so that you can accurately compare PayPal with a merchant account option.

In short, PayPal is a payment gateway and a merchant account provider which allows you to take payments from your customers online with an all in one solution.

By contrast, a merchant account requires the use of a 3rd party payment gateway in order to integrate your payment solution into your eCommerce website but is equally as easy to set up and use.


Two Paypal options

Paypal has two main products.

1- Their standard PayPal account that allows you to create payment buttons and send/receive money. This option gives you the ability to create and drop “Buy”, “Add to Cart”, “Donate” and other similar buttons into your website on various product pages, blog posts and sales pages.

This option gives your customers the ability to pay you with their own PayPal account OR they can click on the link to “Pay with a debit or credit card, or Bill Me Later.”


2- Their business services payment gateway and merchant account which is a LOT closer to an actual merchant account. This allows you to set up a merchant account with a provider of your choice and simply use PayPal as a gateway OR you can use their merchant account solution along with their professional services gateway solution.

The first option is a quick and easy solution where the 2nd option might take a little more planning and integration with a web development team.


Option number 1 may save you some money in setup costs and monthly fixed costs since there are none to speak of. You can open a standard PayPal account and use it for business to take payments from your customers.


Option number 2 will require setup costs and monthly fixed fees. The reason for this is that since you are given the ability to use your own merchant account, PayPal  simply becomes the gateway and falls into place with the hundreds of other providers out there vs. being the all in one solution that they prefer.

It’s kind of like buying a car from a dealership and having the ability to take it anywhere to be serviced vs. being required to bring it back to the dealership service center.

For the purpose of the pros and cons list later in this article I will be comparing option 1 when I refer to PayPal since that is the most commonly used PayPal account.


Merchant account options

A merchant account works the same way as I just described with the PayPal options above but there are some distinct differences.

Some merchant account providers have developed their own gateway solution so that they can be just like PayPal in option 1 described above. The merchant account provider sets up your account and then recommends their “in house” gateway so that they have control of everything and that’s a good thing.

Other merchant account providers will use a 3rd party gateway like or because they have a special reseller agreement and have special privileges for servicing the account.

Gateways like have button generators through their Simple Checkout option. To see a sample of what their button generator will look like installed in a simple checkout page within WordPress, click here to view (this is a sample page and the link opens in a new window).


Pros and cons

These are simple comparisons that I consistently discuss with my clients. I’m not making an argument whether one is better than the other because that’s a matter of opinion for your particular situation. So with that, these pros and cons are a “take it for what it’s worth” comparison. To discuss what’s right for your company get in touch with us for a customized solution.


Here we go:


PayPal accounts are sold ONLY through their website so there are no resellers for their all in one merchant account and gateway solution.

Pro: Fixed cost. You don’t have to guess whether you’re getting a better deal than the next guy. Their price is what it is.


Con: Everyone gets lumped into the same customer service protocol, like it or hate it. There are no dedicated representatives to help you with your specific needs.


There are thousands of merchant account resellers each with custom packages involving unique eCommerce solutions, gateway options and customer service protocol.


Pro: You can custom design your merchant account to fit the needs of your business website and shopping cart/eCommerce solution. You can customize to your heart’s content.


Con: Customization always requires time intensive programming and design work, which either takes time or money and often times both. This can prolong the process of launching a new product or eCommerce store.

PayPal is an external payment redirect, meaning that your customer leaves your website to make the purchase on PayPal’s site.

Pro: PayPal handles the security and encryption making the purchase secure for your customers.


Con: PayPal controls the look, design and feel of the payment page so it will likely NOT be congruent with the feel of your website. It is non-customizable.


Merchant accounts can be programmed to be integrated into your website shopping cart solution


Pro: Congruency of design allows your customers to buy right on your website while still obtaining a secure processing encryption making the purchase secure.


Con: Your options are to purchase an “off-the-shelf” shopping cart solution or to have a web development team build you a custom solution from scratch. Either option costs money, time and resources.


PayPal pricing is set by their corporate office


Pro: Everyone gets the same rate no matter what


Con: There is no negotiating the rate. You either pay it or you see a different solution outside of PayPal.


Merchant account pricing varies widely from one provider to the next


Pro: You have the ability to negotiate and get a favorable cost for merchant services


Con: Negotiations can take a long time and there are many variables involved with comparing one program to the next. It’s almost always an apples to oranges comparison so you’ll need to know what you’re looking for.


Ultimately your choice

Do you want the quick and easy solution or do you want to customize?

Do you want control over pricing and other integration options or are you okay with an off-the-shelf solution.

In the end, PayPal is a good solution for small to medium sized businesses doing somewhat low or infrequent volume. Once your business reaches a level of consistent volume you may find that opening a merchant account gives you greater flexibility and opens new doors for growth of your business.

Either way, it’s up to you keeping in mind your company brand to decide which option is best. We’re here to help you along the way so if you have questions don’t hesitate to reach out.

Brian Manning

Bancardsales founder and 15 year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.


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