The regular shopper thinks of PayPal as just a convenient and ubiquitous digital wallet, but business owners must consider its merits as a merchant services and payment solutions provider. We’ll touch on the consumer experience a little bit in this review, but mostly we want to help business owners evaluate PayPal’s credit card processing services.
Accepting PayPal is a no-brainer. Almost everyone has a PayPal account these days (in fact, PayPal claims 192 million active users in more than 200 markets), it’s incredibly easy to setup and use, and it can get you up and running in a very short amount of time (i.e, immediately).
PayPal is extremely transparent with its terms and pricing, and it doesn’t lock you into a contract with an early termination fee. The number of integrations offered is unreal, so you can be certain that PayPal will sync with your shopping cart, accounting application, or shipping software. PayPal even offers an mPOS app (PayPal Here) for mobile merchants (you can check out our full review of that here). The company also owns Braintree Payments, but the user experience is very different if you sign up with Braintree.
But the question remains: Should PayPal be your primary payment processing platform, or should you just use it peripherally to allow customers to pay with their PayPal accounts for their convenience?
PayPal is not without its downsides. The service is quick to hold sellers’ funds or even freeze and shut down accounts if the company suspects fraud. It seems to be trigger happy when it comes risk-related issues, which is par for the course with any sort of payment aggregator. We’ve read numerous reviews from frustrated sellers whose lifeblood (cash) has been tied up in PayPal’s risk department. A good way to avoid relying completely on PayPal is to get a traditional merchant account as well. You can offer PayPal as a secondary payment option, so just in case you do have to deal with the afore-mentioned issues, you won’t be completely cut off from your funds.
Another issue seems to be with PayPal’s phone support. Sometimes it’s great, sometimes it’s awful. That’s to be expected from such a large company, but it’s certainly not ideal. And while PayPal is consistent and transparent as far as payments go, it isn’t the cheapest option available (see “Fees and Rates”). If you’re looking to get low rates, then you should opt for a regular merchant account.
Finally, while PayPal does have a pay-as-you-go setup that works very well for most merchants, if you want a few advanced features (namely a virtual terminal, hosted payment page, or recurring billing), they are going to cost you additional monthly fees.
We’ve been saying that every merchant should accept PayPal, but not every merchant should rely on PayPal exclusively, for a long time. That’s still true. PayPal is ubiquitous and adding PayPal to your site can help you make more sales (or so PayPal claims on its site). At the same time, there is always an inherent risk of your account being frozen or shut down with an aggregator, and it’s something you just have to accept. You can reduce your risk by reading up on the terms of service and make sure your business falls within the prescribed guidelines.
But also consider that PayPal’s stability is on par with most other pay-as-you-go payment aggregators. That includes Square and Stripe, both of which have similar, but not identical, offerings.
PayPal is absolutely set up in a way that will grow with your business from day one until you make it to the big leagues — and PayPal’s roster of clients proves that. But at a certain point, you’re probably going to find it more beneficial to switch over to a merchant account so you can start benefiting from interchange-plus and more reliable customer service.
If you need more advanced options and you’re processing a larger volume, take a look at PayJunction or one of our other top-rated merchant accounts. If you only process sporadically, you are just starting out, or you have trouble opening a merchant account for another reason that ISN’T “high-risk business,” ask yourself whether PayPal has all the features you need. If the answer is yes, go for it.
We’re giving PayPal 4 stars for its ease of use, its clear pricing, and transparent advertising. If its customer service can solve the consistency issue and we see improvements in account stability, we’ll consider bumping up that rating — but not until then. Read the full review for all the nitty-gritty on PayPal’s merchant solutions, or head over to our comparison chart to see some of our favorite merchant account providers!
Products and Services:
Most people think of PayPal mostly as a P2P payment app or the default payment method for eBay. But PayPal offers a lot of different features and capabilities, and it’s expanding and diversifying a lot now that it’s a publicly traded company in its own right. I’m honestly excited to see what PayPal is going to do next because the company seems to genuinely get what merchants need, and it keeps up on changing trends.
The company breaks down its processing options into three categories:
PayPal Express Checkout
PayPal Payments Standard
PayPal Payments Pro
PayPal Express Checkout is a simple add-on for businesses that already accept credit cards and just want to let consumers pay with PayPal as an alternative. It’s very low investment and easy to implement. You’ll pay the same rates as the other PayPal options.
Standard is a basic payment processing plan for merchants who don’t already have a way to accept payments on their website. It’s just a percentage plus a flat fee per transaction, with no monthly subscription. Customers are routed to PayPal’s site to enter their payment information before finishing the transaction.
With the Pro version, you can handle the entire checkout process on your site, with no need to redirect to PayPal’s site. For some business owners, that hosted payment page could be a huge plus. There are other perks you get with the Pro plan as well.
You can go here to compare the payment solutions in more detail.
Additional services offered by PayPal are:
PayPal Here: This is PayPal’s mobile payments app. Check out our review here.
Payflow Payment Gateway: If you already have a merchant account but need a payment gateway, then you can use PayPal’s stand-alone Payflow Gateway. The gateway supports nearly every major processor and a whole host of other applications including shopping carts, accounting & billing software, shipping & labeling software, etc. It also charges just a flat fee per transaction, not a monthly subscription.
Virtual Terminal: If you need to process mail/phone orders, then you can do so through PayPal’s virtual terminal. It’s $30/month on its own, or included for free in the Pro plan (which is also $30/month).
Online Invoicing: Consultants and contractors can use PayPal’s invoicing features to invoice their clients for the same rate as regular web transactions.
Bill Me Later: This credit offering gives you the ability to offer no-interest financing to your customers.
Recurring Billing: If you offer a subscription-based service, you can set up monthly payments for your customers. You’ll have to add this feature to your Pro Plan for Virtual Terminal subscription for an additional fee.
Pre-auth: You can capture the funds on a customer’s card and charge them later. This is great for appointment-setting and other services that require reservations. 100% of the funds are guaranteed for only 3 days, but you can run a pre-auth up to 30 days in advance.
Digital Goods: If you’re in the business of selling digital goods or content, you can accept micropayments, subscription payments, and pay-as-you-go payments.
PayPal also offers a “One Touch” feature. Originally launched as a mobile feature so that smartphone users did not have to continually sign into PayPal to make purchases on their phones, it’s now available for websites as well. One Touch allows users to skip entering payment and shipping details, which means one less step for your customers. And having a convenient checkout process is a huge deal for businesses,since it can decrease shopping cart abandonment.
PayPal says that eligible merchants will have this feature automatically enabled and available to customers, so if you haven’t looked at the front end of your site in a while, you might want to take a peek.
PayPal also has its very own debit card for businesses. The card gives you fast access to cash from your PayPal account — no reason to wait for an ACH transfer. Instead, you can withdraw money from any ATM with a MasterCard, Maestro, or Cirrus acceptance mark. It also makes accounting simpler because you don’t have to use your personal accounts to make business purchases or constantly shuffle funds around.
We’ve already seen some really interesting choices in PayPal’s business decisions: In addition to acquiring Braintree back in 2013, PayPal bought Venmo,a peer-to-peer cash transfer app that PayPal is in the process of monetizing. It also acquired another company, a commerce-oriented startup called Modest, in August of 2015.
The acquisition of Modest is how PayPal is driving PayPal Commerce. The goal is “contextual commerce,” with a goal of providing truly turnkey service to merchants who want to be able to sell on any platform. Right now, the SDK allows you to create an entire mobile store within an app, and to embed “buy” buttons in email and blog posts. We noted that Commerce was new when we did our last review update in March 2016 — and I’m a bit sad to say it’s still in beta. This is a feature that I really want to see do well and be available to everyone.
Other additions include:
Contactless Payments: Back in February, word broke that PayPal would also be enabling NFC payments in its consumer-facing app. There still isn’t a lot of information about this — the most recent updates are from July, but if you log into your consumer PayPal app (not PayPal Here) and enable location services, you can search for local stores that accept PayPal. This should surprise absolutely no one, since Apple, Android, and Samsung all have their own apps to do this and I am sure there are others in the works.
Mass Payment: PayPal has also added a mass-payment feature. This is really awesome to see. It’s not the marketplace solutions that you’ll see from Braintree or Stripe, but it does mean that if you just want to be able to pay a lot of people with ease, you can do that. And, PayPal will give you a better rate — 2%, capped at $1 per transaction. That makes it more attractive, I am sure, and I’d bet PayPal is banking on being able to recruit new customers with this feature.
Fundraising: PayPal has also added more information to its website about using PayPal for fundraising — for personal reasons, for charities, for schools, and even for political campaigns. And, it has partnerships with fundraising platforms to give you more tools (for an added cost, of course). It’s also worth mentioning that Patreon, a subscription site where fans can choose to provide funding to their favorite artists, integrates with PayPal (and also with Stripe).
Needless to say, PayPal has something for everyone, and overall it makes a great “starter” one-stop payment option. It’s nice that PayPal keeps innovating. Some companies reach the top and just stop trying to keep up. Watching these new services roll out is great because they empower merchants, and because it shows that PayPal is paying attention to how the market is shifting toward integrated, one-stop solutions. It’s also making online payments more feasible for all kinds of businesses, not just traditional retail and restaurants.
Fees and Rates:
I’ve listed the most important fees below, but you can find a full list of PayPal’s fees here. All PayPal services come with no annual fee, no setup fee, and no cancellation fee. The company also offers volume and non-profit discounts.
PayPal is very straightforward about its fees, even if they are a bit higher than most traditional merchant accounts. And its pricing structure is absolutely competitive with other pay-as-you-go and payment aggregating services.
Remember there’s two options for accepting PayPal on your site that charge nothing beyond transaction fees. But If you opt for Pro, you’ll be paying a monthly subscription fee on top of standard fees.
Paypal Payments Standard: $0 per month
Paypal Payments Pro: $30 per month
The biggest advantage, as we noted before, is that the Pro account lets you keep customers on your page to finish the checkout process. You can even design your own checkout page. In addition, Pro subscribers get access to the Virtual Terminal to accept payments by phone, mail, and fax. Frankly, I’m a bit confused by the terminal is $30/monthly on its own and included in the $30/month Pro plan, but you might as well go for the Pro plan and get that hosted payment page, too.
Unfortunately, that doesn’t include an option for recurring billing. Subscription services are hugely popular — and if you want to offer them with PayPal, that will run you an extra $10 per month on top of your Virtual Terminal or Pro plan. Still, PayPal does give you a decent assortment of options for customization, though my impression is that Braintree (and yes, Stripe) are more robust.
Finally, it’s worth noting that PayPal offers its own gateway to process payments. It has a high degree of compatibility, so it works with most options. The basic version costs you just $0.10 per transaction — but for $25/month you can get a fully customizable setup.
Regardless of which plan you are on (Standard or Pro), your transactions fees will be as follows:
For all web transactions, you pay 2.9% + $0.30 per transaction.
For all swiped mobile and in-store transactions, you pay 2.7%.
For all keyed-in mobile and in-store transactions, you pay 3.5% + $0.15.
For virtual terminal transactions, you pay 3.1% + $0.30 per transaction.
For mass transactions, you pay 2% up to $1.
If you are a 501(c)(3), you pay 2.2% + $0.30 per transaction for web transactions.
For any chargebacks, there is a $20 fee.
Something else that PayPal offers for merchants who consistently deal with microtransactions (as in, your tickets are under $10 apiece) is an alternative payment rate: 5% + $0.05.
With consistently small transactions, you can wind up saving money on the per-transaction fees, which tend to be very problematic for small-ticket businesses.
Using PayPal’s own numbers, with a $2 average payment, you would pay $0.15 per transaction using the microtransaction plan, and $15 total on 100 payments. Compare that the $0.36 per transaction/$36 per 100 payments with the standard payment plan.
PayPal’s micropayments option might appear to complicate matters for some merchants, but it is a great way to cater to artists and musicians and others who want to sell digital products — especially low-cost digital products. So I actually really like it. I also like that PayPal offers nonprofit and mass-payment discounts, and volume discounts. Not many aggregators offer any of those options.
In PayPal’s case, I think it helps to be a very big fish in a medium-sized pond. It can afford to take risks and experiment with features and pricing that leaner operations can’t.
PCI Compliance Fees
Something we haven’t discussed is PCI compliance. With merchant accounts, it’s not uncommon to pay an annual PCI compliance fee. If you are using PayPal Payments Standard, you are already PCI compliant. PayPal hosts the payment page, so it handles all those concerns for you.
If you use PayPal Payments Pro, things are a little different. With the addition of the virtual terminal and other tools, you’re not automatically PCI compliant. However, PayPal says it offers tools to simplify PCI compliance, but unless you dig, you won’t find more information about it. I did dig into the information and found out that the key aspect of this is a (free) Transparent Redirect feature. Learn more about PayPal and PCI compliance here.
Contract Length and Cancellation Fee:
All of PayPal’s payment solutions are contract free and have no early termination fee. It really is that simple.
That’s great if PayPal is your starter option and you want to upgrade to a merchant account later. However, if the rates work for you (particularly as just a secondary option), PayPal will also scale with your business. It is rare that we find any service that will help you start out and stay with you as your business grows larger, and we like that quite a bit.
Sales and Advertising Transparency:
The best thing about PayPal is that its sales and advertising is very up-front. All of the rates are listed in plain sight, so there’s no hidden agenda. It has, over the years, gotten even better about disclosing pricing and fees (such as its chargeback fee, which used to be hidden in the fine print).
Most of its business comes directly through the website or via referrals. PayPal doesn’t have the traditional sales team “pounding the pavement” and luring in potential customers with too-good-to-be-true deals the way you’ll find with some merchant account providers (and yes, some are far more guilty of this than others). There’s no doubt that PayPal offers real value, particularly for new merchants without a sales history, and it doesn’t make any outrageous claims or promises about the nature of its services.
It bears mentioning that the Consumer Financial Protection Bureau filed a complaint against PayPal on May 19, 2015. In the complaint, it alleged that PayPal was responsible for a myriad of sketchy practices, such as false advertising, refusing to provide consumers with information, and even signing consumers up for credit accounts without their knowledge. PayPal settled up pretty quickly (as in, the very same day), agreeing to pay $15 million to consumers and another $10 million in fines to the CFPB.
This mostly affects PayPal customers, not merchants, and it appears to be an isolated incident. While I am frustrated by this as a PayPal user and a consumer, this doesn’t automatically lessen my opinion of PayPal’s merchant services. I’ll still tell you to be on your guard because every merchant should be paying close attention to their monthly finances and statements, regardless of who they process with.
Customer Service and Support:
PayPal has bunch of different customer service and support options, including:
Phone/Email (Mon-Fri 5 a.m.-8 p.m. PST, Sat/Sun 6 a.m.-6 p.m. PST): Judging from the online chatter (see “Negative Reviews and Complaints”), PayPal’s phone support is very inconsistent. Sometimes you’ll get a rep who knows what they’re doing, other times you won’t. My advice is to avoid calling them if at all possible. Answers to most common problems can be found with just a little bit of searching. Between the knowledgebase, community forum, and quick answers sections, you should be able to find a solution. That said, PayPal does offer some of the best support hours I’ve seen outside of 24-hour support.
PayPal is also very active on social media sites like Twitter and Facebook, as well as its blog. There’s even an AskPaypal Twitter account where they’ll field your service and support questions Monday through Friday, 9 a.m. to 5 p.m. Central Time. All of this is pretty much exactly what I expect from a company that caters to startups and small businesses in the 21st century, but it is nice to see.
One major benefit to using PayPal is the sheer volume of users. Any time you encounter an error or a problem, you can Google it and the odds are good you’ll find a solution from another merchant who has already dealt with the same issue.
Negative Reviews and Complaints:
PayPal is a gigantic company, and like all big companies, there are a very large number of complaints. Although we pride ourselves in doing our research, it would take months for us to read through all of those negative reviews… so we didn’t.
For reference, there are more than 3,200 complaints about PayPal on RipOff Report. Unfortunately, the vast majority of them are consumers angry at merchants who use PayPal, not merchants upset about poor service from PayPal. So it’s a highly misleading number.
At the time of writing this, PayPal’s BBB page has 5,987 complaints in the last 3 years (up from 5,226), with 2419 closed in the past 12 months (up from 1766). Again, you should expect many of these to come from disgruntled consumers who have had trouble with PayPal merchants, not necessarily merchants who are having troubles with the service.
I did read over some of the complaints, including those that are merchant-related. I was honestly impressed with PayPal’s quality of service. It’s real people writing the responses and explaining where the problem occurred. They’re genuinely trying to help where they can. If you go through the BBB, the odds are good you can probably get whatever help you need — it just might take a little while.
We’ve read enough merchant complaints to know that there is one major problem with Paypal:
Withheld funds, freezing of accounts, and termination of accounts: PayPal is quick to act when it comes to suspicion of fraud. The company has a history of dealing with major fraud issues, so naturally it scrutinizes accounts pretty closely. If you think that your business falls into the high-risk category, then you should know that it’s possible PayPal may withhold some of your funds or even freeze or shut your account down. It may be best to go with a high-risk processor like Durango Merchant Services or Payline Data instead. You can also learn how to avoid holds, freezes, and terminations here.
That said, this isn’t a problem unique to PayPal. Other aggregators, including Square and Stripe, have a similar reputation. It is the nature of the “come as you are” business model — it’s easy to get an account with minimal history, but there’s an inherently higher risk.
In addition to the withheld funds issue, here are some other common complaints:
High transactions fees: Compared to a traditional merchant account, PayPal’s transaction fees are higher. Visa’s wholesale rates for an eCommerce transaction are anywhere between 1.5% and 2.4% + $0.10 per transaction. At 2.9% plus $0.30 per transaction, PayPal’s rate is over that amount, even when you factor in a merchant service provider’s markup. While you can get volume discounts from PayPal, the promise of lower rates is a mark in favor of getting a merchant account when it becomes viable.
Inconsistent phone-based customer service: Most merchants will rarely have to call in to PayPal’s customer service line, but those that have done so complain that the quality of service can be inconsistent. Some reps are obviously more knowledgeable than others. The good thing is that PayPal has a whole slew of other service and support options (e.g., the knowledgebase, forum, email, etc.), so chances are you can find your answer without having to call in.
Limited seller protection: PayPal is probably more famous for its buyer protection. As a merchant, you do have some protections, though many merchants complain about the lack of effectiveness. Know what Seller Protection entails and in which circumstances it applies. It may not be much, but forewarned is forearmed, as the saying goes.
Positive Reviews and Testimonials:
Much like the negative reviews, there were entirely too many positive reviews for us to read through all of them, but here are the common positives that we encountered in the reviews we did read:
Easy setup: Most business owners rave about how easy it is to setup a PayPal account. If you’re exclusively offering PayPal Payments Standard, then you can get started almost instantly.
Widely accepted: PayPal has a very large user base, which makes it a trustworthy payment source for everyone. If you’re just getting your business off the ground, then starting with something like PayPal is a good choice. The name recognition and trust associated with PayPal (especially with its buyer protections) can be a serious asset in the early days of operation.
Almost-instant access to cash: Your PayPal transactions clear almost immediately, so you can spend the money in your account as soon as you have it — provided the place where you’re spending it accepts PayPal, of course. If you want your money anywhere, don’t overlook the PayPal Business debit card, which spends like a debit card, but deducts directly from your PayPal account.
Multiple products/services under one roof: PayPal offers you everything you need to process online or mobile payments (e.g., payment gateway, payment forms, virtual terminal, invoicing, micropayments, recurring billing, etc.). It really is a solution that will grow with you.
Transparent pricing: As mentioned earlier, what you see is what you get with PayPal. There are no setup fees, annual fees, cancellation fees, or downgrades for sellers.
Integrations and Add-Ons:
PayPal integrates with a huge number of applications from shopping carts to accounting software to shipping applications and email marketing software. There are just way too many to write out, but you can find the full list here.
Here’s a small selection of some favorites:
There’s an obvious benefit to having so many integration options. You won’t have to worry about whether your shopping cart is compatible or not, because it most likely is. The same goes for major accounting applications like QuickBooks. And there’s no shortage of well-known, robust POS solutions for retail stores and restaurants. PayPal has ALL the bases covered in this regard. It really does seem to be trying to make payment processing accessible to everyone.
PayPal is a great payment option to start with, and there’s no question you should keep it around as a backup form of payment if you sell online. Account setup is fast, it’s easy to use, and it’s widely accepted. If you’re a brand new business and you need to accept payments quickly, PayPal is the way to go. The mobile integration, PayPal Here, is seamless, which is useful for retailers and vendors who want to accept payments on the go, and there are plenty of POS options if you need something more advanced.
As your business grows, and you exceed $10K per month in revenue, it may be more worthwhile to pursue a traditional merchant account, because the processing costs will be lower. But you should make sure that the merchant account provides everything you need — or that if you have to pay for additional services that they don’t exceed the costs of using PayPal.
Don’t forget that company has a trigger-happy underwriting and risk department that has been known to hold money, freeze, and even terminate accounts. It’s important that you read over PayPal’s terms of service, understand its policies regarding buyer and seller protection, and do what you can to protect yourself and your business. You can learn how to reduce holds and freezes here.
But despite all of that, the credibility PayPal offers beginning and small-time merchants, its widespread recognition, and the sheer number of features available are serious advantages. For those reasons, along with its ease of use, transparent pricing, and overall versatility, our PayPal review keeps its 4-star rating. We’d love to see more reliability and improved customer service, which would easily bump PayPal up a half star or more.
We’re confident in recommending PayPal to you, but we acknowledge that like most other aggregator services, it’s probably not for everyone. If you need more advanced features and you’re processing a larger volume, take a look at PayJunction. For more great options, head over to our comparison chart to look at our favorite merchant account providers. If yours is a high-risk business, don’t forget to check out InstaBill and Durango Merchant Services, both of which cater to businesses that may not be eligible for payment processing through other sources.
Thanks for reading! If you have experiences with PayPal — good or bad — feel free to leave us a comment!