Many businesses turn to PayPal when they can’t qualify for a low-risk merchant account. The appeal of doing so is clear. PayPal makes it as easy as possible for a company to accept customer payments without ever opening a merchant account. No credit checks, no applications, and no probing into revenues. Only add the “pay here with PayPal” button on the website checkout screen and let the customer complete the sale from there.
PayPal’s convenience factor is high, but so are their fees. In fact, they’re more expensive than a high-risk merchant account in most cases. The only way to lower the cost per swipe or online transaction is to have a high volume of sales. For many small businesses, the high volume threshold may be too high to reach on a regular basis. Instead of trying to find ways to deal with a PayPal merchant account, consider a high-risk merchant account instead. There are many benefits and few drawbacks to accepting credit cards directly without going through a third-party provider.
Image via Flickr by Sam Churchill
PayPal touts itself as being easy to use for businesses and customers alike. The convenience for the buyer is the ability to pay with a couple of clicks, which completes the transaction. Buyers set up payment procedures in advance so that they can dip directly into their accounts or an existing PayPal balance to pay for an item. In fact, there’s a good argument that PayPal increases impulse sales because of this ease of use.
On the business end, there’s no account approval, credit check, or application. The company only puts the PayPal code into the checkout page to generate a PayPal button. From there, customers can use their preferred payment method. The business receives the money, minus the fee, into its PayPal account for later retrieval. It’s easy, quick, and painless for both sides. But the convenience factor is not, and should not be, the driving reason to use PayPal.
PayPal can be expensive and unreliable. There are untold numbers of horror stories about PayPal freezing the accounts of its users, only to release the funds many months later, if ever. Many a business has lost thousands of dollars to PayPal because they didn’t clear out their account regularly. So why does PayPal do this?
PayPal has a trigger finger when it comes to locking down accounts. On the one hand, PayPal doesn’t want to be seen as a money laundering operation. On the other, the policy of locking down doubtful accounts hurts legitimate businesses. Many a company has used PayPal to clear thousands of dollars for purchases only to get locked out of their account for no clear reason and with no clear resolution.
PayPal also has a reputation for not cooperating with its clients when it locks down an account. The terms and conditions say the account may be locked for 180 days, but PayPal frequently goes beyond that time limit. In the meantime, PayPal earns interest on the money in the account while the merchant can’t get access to it. The sensible thing to do is to keep as little money in PayPal as possible, but sometimes PayPal acts faster than the business.
There is no good reason to use PayPal when a high-risk merchant account offers convenience, competitive fees, and supports businesses more than PayPal ever will. A business does need to apply, but there are fewer concerns about income, personal credit scores, or type of operation than with a standard merchant account. It’s true that the fees for a high-risk merchant account are higher than for a low-risk account, but PayPal tends to be one of the most expensive processors in the marketplace.
An online-only business may lose the conveniences that PayPal has to offer regarding payment options for customers. But a high-risk merchant account provider will provide support, won’t freeze an account, and won’t close an account without warning.
PayPal makes sense for businesses that sell an occasional product. But once a business starts to gain sales, it’s worthwhile to walk away from PayPal and open a high-risk merchant account for reliable service and responsible handling of your payment processing.