When PayPal is Good For You
What is PayPal?
PayPal is a payment platform typically associated with person-to-person transfers and online payments.
But PayPal also offers a full range of credit card processing services for businesses, including solutions for mobile and storefront payment processing.
Is PayPal the right payment processor for you? That depends on the services your business needs, the types of payments you want to receive, and the fees you can afford.
What follows is an overview of PayPal’s pricing, products, and services.
PayPal’s Pricing, Products & Services
We field questions about PayPal from our clients all the time, and it isn’t hard to see why. PayPal specializes in bringing its payment platform to the masses, and PayPal’s little payment buttons seem to be almost everywhere on the internet where goods and services are sold.
PayPal is also fairly easy to use, charges flat rates for credit card processing, and offers several hardware options if your goal is to accept in store or mobile credit card payments.
But that doesn’t mean Paypal is the right payment processor for every business. In the section that follow, we’ll work through PayPal’s main features and assess their potential advantages and disadvantages along the way.
Like most payment aggregators (including PayPal’s main competitor Square), PayPal has a fairly low barrier to entry, which means it’s easy to get started with PayPal, and pretty much everyone who signs up will qualify. You won’t have to deal with a lengthy application, as you would with a traditional merchant account provider, and Paypal won’t nose around much in your personal or business history.
All you really to do is download the free PayPal here app to your smart phone or tablet, set up your business profile, and select (and pay for!) your credit card reader. Once you receive your hardware in the mail in a few days, you’re ready to start accepting credit card payments.
Account Instability & Funding Holds
Any time someone gives you a super-easy option in the business world, however, there will be potential downsides that go along with it—and things are no different with PayPal.
Credit card processing is a high-risk industry. The potential for fraud, identity theft, and chargebacks resulting in refunds for dissatisfied customers is always there. The traditional way to mitigate these risks is to take a deep dive into every applicant’s personal history, credit history, business history, monthly sales, and so on.
But instead of rigorously vetting its clients up front and denying their services to high-risk merchants, PayPal lets you get started and then evaluates your business as you go. Sudden spikes in sales, or any other account activity PayPal’s algorithm identifies as “suspicious,” might result in account holds and frozen funds.
Is this a reason to reject Paypal? Not necessarily.
Millions of consumers and thousands of businesses utilize PayPal’s services every day without complaint, and PayPal’s impressive success suggests, at the least, that its customers are largely satisfied. It’s just that the potential for account instability and funding holds comes with the territory when you use a payment aggregator to process credit card payments for your business.
But, if you’d rather avoid that possibility altogether (and if your business qualifies), you might consider processing credit card payments through a traditional merchant account provider instead.
PayPal’s Credit Card Processing Fees
Paypal’s basic software is free, so the company makes money mainly through software upgrades (such as its self-hosted checkout option for websites), selling its hardware (such as its mobile credit card readers), and credit card processing fees applied to each transaction.
We’ll begin our coverage of PayPal’s pricing with its credit card processing fees and pricing model.
PayPal’s Flat-Rate Pricing Model
There are various types of credit card pricing models out there—including interchange-plus pricing and tiered pricing—but PayPal generally uses a flat-rate pricing model for its business credit card processing services.
This means that you’ll pay the same rates for most transactions regardless of the type of card used, your business type, or the actual interchange rates that the credit networks apply to the specific transaction.
You’ll find PayPal’s typical payment processing rates listed in the table below. Note that the percentages listed apply to the transaction total and the additional dollar amount is a fixed fee applied to each transaction.
In Store/Mobile Payments (U.S.)
Keyed-In Payments (U.S.)
3.5% + $0.15
Online Payments (U.S.)
2.9% + $0.30
501(c)(3) Organizations (U.S.)
2.2% + $0.30
PayPal charges a 4.4% transaction fee, plus a fixed fee based on currency, for international sales, and there are other more sophisticated payment options available for additional fees (such as Paypal’s virtual terminal, which comes with a $30 a month subscription fee).
- Pros of PayPal’s Flat-Rate Pricing
Flat rate pricing has the virtue of being easy to understand and easy to plan for—a virtue particularly well-suited to small business credit card processing. Paypal’s rates stay the same for all card brands and card types (including debit cards, credit cards, rewards cards, and so on), so it’s easy to predict your overall costs based on your average monthly sales.
- Cons of PayPal’s Flat-Rate Pricing
The trouble, though, is that interchange fees set by the various credit card networks aren’t actually the same for all card brands, card types, and business types, so PayPal’s flat rate pricing means that PayPal is charging you the same rate regardless of their wholesale costs for each transaction.
This can be a good thing if your customer pays with a high-end rewards card (which come with higher interchange fees), but it’s less desirable if your customers are paying with cards that carry much lower interchange rates (such as debit cards and prepaid debit cards).
In fact, Paypal’s rates are typically higher than the rates offered by many traditional merchant account providers. But that’s not necessarily a bad thing.
If you’re running a fairly small operation with a low monthly sales volume, the higher price you’ll pay in transaction fees with PayPal are more than made up for by avoiding high start-up costs, monthly fees, monthly minimums, and long-term contracts.
Does PayPal have chargeback fees?
Yes. PayPal charges a $20 fee for every chargeback your business receives. A chargeback is a payment dispute initiated by your customer’s card issuing bank (usually at the customer’s request).
To learn about handling payment disputes, visit our comprehensive guide on Credit Card Chargebacks.
Are there alternatives to flat-rate pricing?
There are, but those options aren’t available through PayPal. Apart from flat-rate pricing, the most common credit card pricing models are tiered pricing and interchange-plus pricing.
Of these two alternatives, interchange-plus pricing is the most transparent, and it tends to result in lower credit card processing costs overall if your business is relatively large (with a high monthly sales volume) and processes a lot of debit and credit card payments.
PayPal offers a wide range of software and hardware options. In fact, there’s a dizzying amount of options available, so we’ll only cover the most relevant details below:
- PayPal Payments Standard
This is PayPal’s basic software for online businesses. It’s free to use, and it allows online businesses to add payment buttons to their websites, process debit and credit payments (along with PayPal payments), and accept cash transfers in a host of international currencies.
The service will direct your customers to PayPal’s hosted payment gateway (so away from your website) to complete the transaction.
- PayPal Payments Pro
This option costs $30 a month and allows you to integrate PayPal processing directly into your website (and hence keep customers on your website throughout the checkout process). This has several advantages, such as the ability to create a consistent experience for your customers (as some people will bounce when they realize they’ve been sent to another website to pay).
Fortunately, PayPal’s rates for each transaction stay the same when you upgrade to PayPal Payments Pro.
- PayPal Here
This is PayPal’s basic solution for both in-store and mobile payment processing. The PayPal Here app is free to use, works with your smart phone or tablet, and allows you to process payments, create invoices, and manage your inventory (among numerous other options).
But only the app is free. To use the PayPal Here, you’ll need to buy one of PayPal’s mobile credit card readers (see the options listed in the section titled “PayPal’s Hardware” below).
If your business operates entirely online, you won’t need any hardware to accept credit card payments through PayPal. But if you’re using PayPal Here or integrating PayPal with a POS system, you have the following hardware options to choose from:
- Mobile Card Reader
This is a simple magstripe reader that connects to your tablet or smarphone. It used to be free, but it now costs $15. Note that PayPal’s Mobile Card Reader doesn’t accept EMV chip card payments (but, of course, you can swipe the card too).
- Chip and Swipe Reader
This option allows you to accept payments from magstripe cards and EMV chip cards, and it currently costs $24.99.
- Chip and Tap Reader
This option allows you to accept magstripe cards, chip cards, Samsung Pay, and contactless payments. It currently sells for $59.99.
- Chip Card Reader
With this option, you can also accept magstripe cards, chip cards, Samsung Pay, and contactless payments, and it currently sells for $99. One reason it costs more than the similar Chip and Tap Reader is that the Chip Card Reader can be integrated with systems provided by one of PayPal’s various POS partners.
There are also all sorts of additional accessories (point-of-sale stands, receipt printers, cash drawers, and so on) available through PayPal, which you can research by perusing Paypal’s website.
Does PayPal Charge Hidden Fees?
No. PayPal is pretty straightforward about its prices, and you can find pretty much every detail price-related detail you’ll need to know at their website.
Of course, that doesn’t mean every aspect of PayPal’s pricing is obvious to someone who’s new to dealing with the credit card payment industry. We recommend closely reviewing PayPal’s fee schedule before you take the plunge and sign up for their services.
How Fast Does Paypal Transfer Payments?
The funds from card payments made through PayPal are usually deposited in your business’s bank account on the next business day (it can take a little longer for transfers made on weekends and holidays). PayPal’s standard transfers are free.
If your business needs or wants faster transfers, you can sign up for Instant Transfer, but you’ll pay a fee for each amount transferred (1% of the transfer amount with a maximum transfer fee of $10.00).
When is PayPal Good For You?
When it comes to simply accepting PayPal payments on your website (as an add-on), PayPal is probably a valuable option for just about any business that accepts online payments. It’s a trusted brand, a lot of consumers have PayPal accounts already, and it can add a sense of legitimacy to your website because it is so well known.
But the real questions about PayPal’s value come down to whether it’s beneficial as a business’s sole payment processor (particularly for in-person and mobile payments).
With regard to that question, we can say that PayPal is most beneficial for very small businesses that don’t need a lot of hardware options. Though the card readers PayPal offers a little more expensive than those offered by Square, PayPal’s processing rates are similar to Square’s, and the general benefits of going with a payment aggregator are the same as well.
Basically, if you don’t have a high enough sales volume to bother setting up a merchant account of your own, you need to start accepting credit cards right away, or you want an easy way to integrate online credit card processing on your website, PayPal might be a good choice for you.
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