What are the total costs of using Paypal to accept payments vs a regular merchant account and with another gateway, such CenPOS? Paypal is just another bundled pricing plan which always costs more. ( I still recommend Paypal for small businesses as an easy way to get started accepting credit cards if in a card not present environment. ) All credit card processing fees are subject to interchange rates, but in the case of Paypal, merchants see only one rate. Paypal has calculated an average cost of all interchange fees that will be incurred and then added a profit margin on top to come up with their simplified merchant rate structure. It’s easy for merchants to understand, but it’s not the least cost.

On the surface, it looks pretty straightforward. Just check your business volume and then see which rate you’ll fall under.

Paypal published fees as of 1/27/2012.

$.30 per transaction is particularly hefty if you have a low average transaction, such an online donations.

Here’s 5 Ways a Regular Merchant Accounts cost less, particularly for mid to large businesses, or those processing at least $1 million annually.

1. Fee refunds: With Paypal, the Fixed Fee portion of the Transaction Fee will be deducted from your Account at the time of the refund, in addition to the full payment amount that is refunded to the buyer. With the pricing above, the refund is $.30.  You don’t get back the 2.4% fee. For a regular merchant account, the merchant can have interchange fees refunded ( though not all merchant accounts are set up that way).
2. Debit: As a percentage, Regulated debit is now .05%. Unless you’re strictly B2B, you’re average effective rate will be significantly lower with a regular merchant account, since as much as 30% of  your transactions are likely to qualify for this rate. You’ll never exactly what your costs would be to compare outside of Paypal because there is no breakdown of what types of cards your customers presented for payment.
3. Cross Border or Foreign Card Fees: Paypal charges a 1% surcharge for cards issued outside the US, but the most credit card processors will simply pass through the actual fees which ranges from .40% to .55% depending a the card.
4. Paypal nets fees daily vs monthly. This represents lost opportunity for working capital.
5. Paypal Recurring Billing Monthly Fee: $29.95. This is a free service with many other solutions.

See more Paypal blog articles, such as When should I convert from Paypal to a merchant account?

This is Part 1. At a later date I’ll compare the gateway fees and benefits for Payflow Pro.

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Tags: interchange rates, merchant account, paypal

This entry was posted on Friday, January 27th, 2012 at 2:06 pm and is filed under rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.