Should You Open a PayPal Account as an SME? The Pros, Cons, and Alternatives

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Unless you are living on a desert island or without Internet, you have heard of PayPal. It has become, in fact, the most well-known online payment processor out there. And according to its own data, it now has 87 million+ accounts, housed in 190 markets, and supports 24 currencies. PayPal business account holders range from solopreneurs, to small businesses, to large enterprises, all of whom use it for billing and invoicing.

As well, PayPal is a very trusted and popular method for consumers to pay their purchases online. Even when they want to use a credit card, they can go through PayPal.

PayPal may or may not be the right solution for every SME out there. Before opening up an account, it would be a good thing to have a look at the pros and cons of a PayPal business account, as well as at what alternatives there are.

Quick Overview of PayPal Business Accounts

So what is a PayPal business account after all?

First and foremost, PayPal business accounts allow seamlessly accepting payments online. You can do that by either sending an invoice via email, embedding a payment button or form on your website or sharing a payment link.

Customers can pay you up either using their PayPal balance, a credit/debit card or by having their funds transferred from a connected bank account. But mind that there are PayPal business account fees involved in every case. And those are passed on to the merchant. The base fee for accepting credit cards in the U.S. – 2.9% + $0.30 per transaction. Advanced or Pro options cost an additional $5 or $30 per month respectively.

PayPal Business Account vs Personal One: Key Differences

Having a business account is recommended for merchants who operate under a company/business name. And it comes with certain perks that personal accounts do not include such as:

  • Grant full or partial access to your account to up to 200 employees.
  • Enjoy lower PayPal fees for larger volume of transactions
  • Having a separate customer service email alias for customer issues

Additionally, depending on the type of business account option you chose, you gain access to extra tools to manage some of your business operations:

  • Track receipts and disbursement
  • Generate profits and loss reports
  • Enable sales tracking for installment payments

You can also customize the checkout process and form on your website, and create a better onboarding process for new clients. Finally, you can set up virtual terminals for orders by phone, fax, or mail. PayPal also recently launched a mobile card reader payment function. Users will be able to retrieve detailed reports on histories of transactions, selecting among available graphs, charts, etc.

The Pros and Cons of PayPal Business Accounts

The most prominent pros of a PayPal business account are these:

  1. It’s very easy to set up. Register it at paypal.com/business, choose your country and language. Then complete all of your personal and business information, choose which type of account you want (this can always be changed), and indicate how you want to be paid. You can also attach your regular business banking account to this one. That’s it.
  2. You can add payment buttons to your website that will automatically direct purchasers to make payment to you. The company claims that using them at check out can increase conversions by 82%.
  3. Shoppers can make payments to you from anywhere so long as they have your account name.
  4. You can pull up all financial reports – monthly, quarterly, or annually with ease.
  5. You can request a PayPal debit card and use it just like any other bank card. And there is a 1% cashback from each purchase, and that will automatically be deposited into your account.
  6. Anyone with a bank card can check out via PayPal, so your customers can click your payment button and follow the simple process.
  7. If you have a business with recurring charges to customers (e.g. subscriptions), you can set up automatic withdrawals from their accounts through PayPal.

With all of these benefits, you may wonder what negatives there could possibly be. Here are some of the PayPal business account cons:

  1. Small transactions via customer credit card can be costly with that 2.9% + $0.30 based on the amount.
  2. If you want to transfer money from your PayPal account to your regular business bank account, you can wait up to three days. Faster transfers come with a fee. And if you have to verify your bank account, that can add another business day to the transfer.
  3. There are chargeback fees. How much does PayPal charge in this case? The original transaction fee, as well as an additional fee to reverse the transaction. These can be steep.
  4. You are somewhat limited in the invoice templates you can use as little customization is available. But you certainly have lots of external invoice template options that you can use. You can grab a template you like and add a link to your PayPal checkout page right within those invoices – problem solved.
  5. If an account is suspended, it can take months to regain access to your money, and it is very difficult to resolve a suspension.
  6. PayPal does have somewhat of a protection plan for products paid for through PayPal. But these do not apply to any digital products.
  7. It can be difficult to get in touch with customer service, and this does not bode well when an account holder has an urgent need for resolution of an issue.

Are There Any Good PayPal Alternatives?

Absolutely, and you should certainly take a look at these as well. Remember, you can always begin with one online payment service and switch to another if it is not meeting all of your needs. Here are six alternatives worth considering.

1. Stripe

The first obvious thing you’ll notice when benchmarking PayPal vs Stripe is that its fees are the same as PayPal – 2.9% + $0.30 fee. For American Express transactions, the rate is higher. They do have discounts for volume of sales of more than $80,000 per month, but that may be out of reach for many small and mid-sized businesses. And Stripe does not process credit card payments for offline transactions.

And here’s the thing about setting up Stripe payments via your website. You need a developer, but you can use Stripe’s API which is free. Still, you need a bit of expertise to set everything up. But Stripe allows to build a smoother, more custom checkout process to match your business needs. Plus, unlike PayPal, it allows embedding payment forms into other online products such as mobile apps or web apps.

2. Authorize.net

Authorize.net is probably a good choice for merchants who have concerns about potential fraud. The tool offers a dedicated fraud-prevention suite and a support team which responds quickly. For this service, however, comes higher fees. Chargebacks, for example are $25 a piece, and other fees are higher as well. There’s a $25 set monthly fee, a $49 setup fee, and it only processes of online companies. It will, however, accept PayPal payments, which is a plus.

3. Venmo

Venmo is owned by PayPal and it is a popular mobile payment service. Account holders can transfer funds back and forth using a mobile phone app. Both parties must live in the U.S., so it is certainly not an option for any business that accepts payments from consumers in other countries. You will find it a bit restrictive. For example, you cannot move money from your Venmo account to your PayPal account, which seems rather odd. And many purchasers have not heard of Venmo and may not trust it as they do more well-known payment venues like PayPal, Shopify, etc.

On the positive side, Venmo does not charge fees for depositing money into any linked bank account or card, does offer a merchant MasterCard, and there are no monthly or annual fees, unless you subscribe to some of its premium services.

4. Amazon Payments

Amazon is a trusted name worldwide, and that is a big plus if you choose to use Amazon Payments. Merchants can offer a streamlined method for their customers to check out, without having to create any new account and without leaving your website. The customer, of course, must have an Amazon account. The fees for domestic transactions mirror those of PayPal, but the fee for international transactions goes up to 3.9%. Chargeback fees are $20.

5. Shopify

As a payment processor, Shopify is easy to set up on your website. You can accept payments from all major bank cards from the easy checkout process. Your customers have not doubt heard of Shopify, so the trust factor is there. There is a suite of services for administration, fraud prevention, etc., and there is a monthly fee, ranging from $9 to $29 depending upon the services you opt for. And each of their plans provides a free trial, if you decide to try them out.

6. 2Checkout

While this is not a “household name” among a lot of small businesses, 2 Checkout is global, so that businesses can accept online and mobile payments from customers all over the planet. The big benefit is that it easily adapts to languages and currencies. It offers payment methods via virtually any bank (even Diners club) including PayPal and supports 15 languages and 87 currencies. Customized merchant subscription plans are also available for a fee. Standard fees are the same as others – 2.9% plus $.30 per transaction and discounts for volume sales for U.S. domestic transactions and variable for international ones. If you do a lot of international sales, it might be worth looking into.

These are by no means the only payment processors, and you would do well to check into all of your options before making a choice. As you can see, you will not find a huge variance in fees unless you use some of the more premium plans, and you can always switch among plans and/or processors as you grow. One factor that you should consider, however, is how well the processor is known by your audience. Consumers are distrustful, and you want to give them cause for concern by using a processor they have never heard of before.

Photo by Negative Space

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