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 payments received (monthly)||Fee per transaction|
|$0.00 USD – $3,000.00 USD||2.9% + $0.30 USD|
|$3,000.01 USD – $10,000.00 USD||2.5% + $0.30 USD|
|$10,000.01 USD – $100,000.00 USD||2.2% + $0.30 USD|
|> $100,000.00 USD||1.9% + $0.30 USD|
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.