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.

$.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.

At what point does it make financial sense to convert from a Paypal to a regular merchant account? I frequently recommend new small businesses start out with a Paypal account initially. There are factors you need to consider in making this decision, including risk of chargeback and whether you’ll be in front of your customer at the time the payment is needed. Below we examine two  business scenario’s and solutions. Both have customers that pay mostly by check or cash so credit card volume is low.

• A home improvement company meets with customers in person. Multiple salespeople are in the field so traditional wireless devices could be expensive. Some customers make a decision later and fax over their signed contracts.
• A boat towing service company has a fleet of part time captains that respond to emergencies on the water. Most customers pay cash so the credit Traditional wireless devices are impractical due to the number needed and inability to withstand weather elements.

All companies have their service personnel call in the credit card information for an approval over the phone, or they key enter it back in the office later.

Charge slips are impractical and expose the company to risk of a data breach whether through internal or external theft. Paypal is month to month, enabling new businesses to test the waters and build credit card volume before seeking prices from traditional merchant services companies. On the negative side, deposits to your bank account will usually take 3-5 days.  A merchant account will deposit funds to your bank in 1-2 days automatically, and deduct fees once per month.

Paypal is $30 per month plus the table below:

Paypal -month to month, no application fee. Deposits to your Paypal account, then you have to manually transfer it to your bank account which takes 3-5 days. Fees are deducted from every transaction, so you receive net transaction deposit. Some find this to be inconvenient for accounting.

Merchant account- Usually a 3 year agreement, and penalty for early termination and application fee may apply. Deposits to your bank account in 1-2 days and fees are deducted via ACH monthly.

How much will a merchant account cost? All credit card processing fees are based on interchange rates.  There are hundreds of rates. Hardly anyone charges $30/mth, so if your volume is low, be sure to include this when calculating your effective rate.

PAYPAL VS MERCHANT ACCOUNT FEE COMPARISON

The chart below shows examples of multiple scenarios of credit card processing for card not present transactions.  Foreign cards can have a major impact. Paypal charges 1% for foreign bank issued cards and most merchant accounts will pass through the extra fee which varies from .4% to .6% depending on the card brand. The chart assumes NO foreign cards which is a bit unrealistic.

Every situation will vary by number of transactions, types of transactions and actual merchant account fees. For your convenience, you can download the excel spreadsheet above and put in your own numbers. This spreadsheet is offered FREE for your convenience. It may not be used for commercial purposes, nor modified and distributed without express written permission from 3D Merchant Services.

Click to download the xls file Paypal vs merchant account fee calculator .

Following up on last weeks Virtual Terminal checklist, here is the new Paypal vs Authorize.net vs CenPOS virtual terminal comparison chart. It highlights some key differences whereas the last article asks, “which Virtual Terminal features do you need?”.

The chart is hardly exhaustive, but is a good starting point to understand some key differences between the terminals. Nearly all virtual terminals fit the “basic” model. I’ve omitted listing most things that are common to all and instead focus on their differences. The ADVANCED VT has many more features not listed that are not in the others, but again, the idea is to identify what key elements you must have in order to choose the best solution for your business.

Download the PDF Virtual Terminal Comparison.

Read more articles about Virtual terminals.

Today’s inquiry is where can I get a merchant account with no monthly fees? The question is for a new non-profit 501c3 with less than $25,000 annual projected in credit card processing. The group needs a both a virtual terminal and online donation capability.

Answer: I don’t know any suppliers with zero monthly fees that would meet the requirements for the specifications above. My recommendation is to get a paypal Website Payments Pro account for $30 per month. The non-profit rates for the volume are as good as it gets. You’re going to pay fees whether it’s higher monthly and low rate or low monthly and high rates. I think Paypal offers some benefits for newbies with their instant online donor form, and the contract is month to month.

Step by step on paypal:

>Payment Solutions

>Accept Credit cards non-profit

>Sign up for a PayPal Business account If you don’t need a virtual terminal, you’ll select business/standard account/type of business, non-profit.

Discounted fees for nonprofits with 501 (c)(3) status

More than $100,000 in monthly volume: 1.9% + $.30 per transaction

Less than $100,000 in monthly volume: 2.2% + $.30 per transaction

There is no monthly fee. All other nonprofits are charged regular transaction rates. Discounted rates do not apply to transactions made using Website Payments Pro or Virtual Terminal.

If you need a virtual terminal, you’ll select Business>website payments pro. The non-profits rate do not apply! Pricing as of 12/15/2010:

• $30 monthly fee
• 2.2% – 2.9% + $0.30 USD per transaction* (Visa, MasterCard, Discover)
• 3.5% and no fixed fee per transaction (American Express)

Note- fees are likely to go up again in April 2010, as a result of the bi-annual interchange update.

For a new non-profit you need to estimate how many transactions you’ll have a month, and a dollar volume. Assume 50% of your transactions will be a the lowest quoted CARD NOT PRESENT rate. Assume 50% will be at the highest quoted ECOMMERCE rate. This is a general guideline to help you compare different options you may be considering.

The above information does not apply to larger volume non-profits. Click this link for related article:

industry insider reviews merchants fees for non-profits

Our solution offers extremely robust chargeback management. How does this compare with Paypal?
Unfortunately, we can’t show you the paypal screens due to copyright issues.

Since Paypal is web based, they do have a web based solution. Buyers and sellers alike manage disputes and chargebacks in the Paypal Resolution Center. There are two main types:
Disputes:
- Buyer and seller negotiate to resolve issue. Communications are via email using the Resolution Center.
- Dispute is resolved or escalated to PayPal claim.
- Paypal investigates and resolves the claim. This section says they “try to resolve within 30 days.”
Unauthorized activity:
- Buyer says they didn’t make the purchase. A lot of times the buyer may not remember who they made the purchase from.
Paypal reviews the claim and asks seller to respond.
Seller are notified and have 7 days to respond. Paypal resolves the claim.

A more robust solution works like this. First, the buyer calls the credit card company to complain. They file a form which asks questions like ‘have they contacted the merchant and attempted to resolve first’. Ultimately, the payment processor sends notification of the dispute via email, fax, or mail. The most common practice is via mail. The clock is ticking since you only have so many days to respond.

The best system sends you an email alert so you can respond quickly.
With the addition of a scanner, you can even respond to retrieval requests right from your PC and upload documentation.

Compared to most processors, the Paypal solution is very robust so you can respond quickly. Where it falls apart from the merchants perspective, ie numerous complaints from merchants, is the unilateral decision making and sometimes long process that can last months.

The optimum solution is two-way communications. You can manage all chargebacks from a web based interface. The processor will give you a decision within 14 days after you respond. They will tell you if additional information is needed. If you think the disagree with a decision, you can add additional documentation via file upload, fax or snail mail.

Recently I switched a Volusion hosted ecommerce store from credit card processing with Paypal Payments Pro to the Paymentech platform via my ISO. (3D Merchant is not an ISO, but your blog author is an agent with multiple payment processing solutions to choose from, including Paymentech.)

I chose Paypal years ago when the store first started. It was just a ‘buy now’ button. Then it became a full fledged store, and I upgraded from regular paypal to Paypal Payments Pro. With Volusion, I bought the Volusion branded security certificate and used in the integrated Paypal checkout. This means customers would pay with a credit card just like on any other web site. Shoppers normally never know who a company’s processor is. They just get a receipt from the business they bought from. I also kept the Paypal option. This means a customer could also check out with Paypal or with any credit card.

Paypal Summary:
Paypal regular- customers checkout on the paypal web site.
Paypal Payments Pro- checkout just like any other store with your credit card, all on one page.
In either case, merchant fees are deducted from every transaction. Additionally, you have to login to Paypal, then request to transfer deposits from transactions to your bank. The transfer time to my bank account was about 2-3 business days, sometimes longer.
My typical transaction cost was 2.95% (excludes factoring in the monthly fee). This is not the same as effective rate covered below.

Processing via my ISO/paymentech
Credit cards- customers use a one page checkout. I’m using authorize.net as a gateway. I can login to authorize.net or Paymentech to view transaction information. The transfer time to my bank account with Paymentech is 2 days FIRM, add 1 day if Sunday is in the 2. Merchant fees are deducted once per month, which makes it much easier for reconcilation.
I’m paying pass through interchange now instead of being lumped into one big rate. For example, I hit the CPS Rewards rate of 1.9% most frequently. My worst interchange rate is 2.3%.

Customers who use this same scenario also need to add the merchant discount, per transaction fee, dues and assessments, and monthly statement fee. Paypal checkout is still offered; customer checkout is on the paypal web site. Customers rarely use it.

The old Paypal effective rate was 3.75% when I ran it just before switching and the new effective rate for my B2B stores which usually hit higher interchange rates because of corporate cards is probably going to be about 2.2%. The effective rate includes all fees- monthly statement, percent of transaction, per transaction fee and everything else.

Summary:
The old way (Paypal Pro) was cost efficient when the store first opened, but later became costly and I didn’t like that customers would see ‘paypal’ on their credit card statements when they paid via normal checkout. It was also a manual process when I wanted to partially refund a customer.
The new way (regular merchant account) , which includes authorize.net, has reduced bookkeeping and customer care time because of the superior transaction flexibility. In reality, those costs are probably much higher than what I am saving on the processing, but the hard cash savings is great too!

Old effective rate 3.75% vs new effective rate 2.2%. Your ecommerce effective rate will vary since the merchant discount, a fee over and above interchange, is usually tied to volume. Additionally the type of buyer correlates to the type of credit card used.

Click here to get a new merchant account or fill in our online form for a merchant account analysis.

I’ve owned a couple of ecommerce stores for several years. I chose Paypal years ago when the store first started. It was just a ‘buy now’ button. Then it became a full fledged store, and I upgraded from regular paypal to Paypal Payments Pro. With Volusion, I bought the Volusion branded security certificate and used in the integrated Paypal checkout. This means customers would pay with a credit card just like on any other web site. Shoppers normally never know who a company’s processor is. They just get a receipt from the business they bought from. I also kept the Paypal option. This means a customer could also check out with Paypal.

Summary:
Paypal regular- you checkout on the paypal web site
Paypal Payments Pro- you checkout just like any other store with your credit card.

In 2008, Paypal raised their monthly fee to $30, and rates went up as well. When I started I was at 2% flat rate every transaction. As everyone knows, Visa & MasterCard charge many rates, so the processor that offers one rate needs to charge enough to cover all the different rates for fees they will actually incur. Their hard cost. My stores are B2B. The average corporate card is 2.2%. Paypal was losing money on me. The rate structure has now changed. When you look at the rates, you’d have to be pretty saavy to understand the rates now.

Did you see the “Merchant Rate qualification required”. They do not answer the question what it takes to be qualified. They do not answer what your costs are if not qualified. As I recall, this is now in the fine print, but only after you sign up. My costs escalated so that my effective rate was 3.75% when last checked.

Not posting all rates and the details until after you fill out online forms is very common. Most businesses do not have the knowledge to know what questions to ask.

In conclusion, I recommend Paypal to businesses that are just starting out, but after you’ve been in business for at least 2 years, or have at least $100,000 in annual processing, you’ll want to start looking for other options. Our own minimums for doing business are much higher, and we welcome you to read our blog for lots of tips.

reference: My B2B ecommerce stores
CEOgolfshop.com CEOgolfshop.com“>Golf shirts and dress shirts by Bugatchi

Speedy Displays specializes inTrade show booths and banner stands

One last note: You can find lots of negative information about Paypal. If you run an honest successful business, I can’t imagine you ever having a problem. I never did. If you run a consumer site and have lots of chargebacks maybe you should look somewhere else, but whatever you do, make sure you are not locked into a long term contract.