If you have a business, your customers need to be able to pay for whatever goods or services you are selling using credit cards. To enable you to accept credit cards you will require a merchant account or you can opt to use a third party processing service such a PayPal.
A merchant account is the license that allows your business to process a range of major credit cards. Online businesses also require a payment gateway to complete a transaction, which is the technological component that actually forwards the credit card information from your merchant account to your bank account.
Most internet merchant accounts come complete with a payment gateway. When you use a service like PayPal, you are paying a fee to utilize their merchant account.
Easy Payment Solution for Startup Businesses
Many new start-up online businesses opt to use PayPal because setting up an account is simple, quick and costs nothing. Getting a merchant account, however, is a much more involved process.
You can apply for a merchant account from your bank or through a broker or intermediary company. Unfortunately, banks are somewhat reluctant to give merchant accounts to any business they consider high-risk, including small, start-up or online businesses.
They will often require you to prove that your business is viable; asking you to provide business plans, one or more years of audited accounts or evidence of investment capital. Applying for a merchant account through an intermediary company increases your chances of being accepted. They deal with the bank on your behalf.
Merchant Account Advantages
Merchant accounts have several distinct advantages over PayPal accounts. With most merchant accounts you can expect the money paid by your customers to be deposited directly into your bank account within one to two days. When customers pay using PayPal, the money is deposited into your PayPal account where it remains until you request a transfer to your bank account. The transfer process takes up to seven days. This delay in receiving payment can be problematic to a business.
Another advantage is that merchant accounts are more cost effective. All merchant accounts and third party processors charge fees which can be a set monthly service fee, fees for particular services and/or a per-transaction fee. PayPal doesn’t charge a monthly service fee for their standard account but their transaction fees are far higher. If your business is producing a high transaction volume monthly a merchant account will save you money.
If you have a merchant account, customers never leave your website when they are making a purchase and when they get their credit card bill, the name of your company will show up on the bill. If you are using PayPal, the customer is sent to the PayPal website when they make a purchase and the transaction.
In the past transactions could only be completed if the customer also had a Paypal account. Although setting up an account is a simple process, some customers were not comfortable doing so. Today you can still use your credit card via Paypal without taking the time to set up an account.
Another factor to consider is the level of customer service you can expect. Most merchant accounts charge a service fee, in return for which, you can expect prompt service should there be a problem. A drawback to a standard PayPal account is a lack of service. It can have a negative impact on you business if you have issues with transactions or if PayPal freezes your account because they have noticed some suspicious activity, and you are not able to resolve the issue in a timely fashion.
PayPal is a great option for anyone who is just starting out or has a low-volume online business. But if you are running a successful online enterprise, a merchant account will not only save you money but provide greater flexibility and easier customer management.
About Nisha
Nisha Sandhu is 26 years old and an Editor at www.MerchantAccountForum.com for the last 2 years. She loves to write and give online business advice to new and growing businesses.
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{ 3 comments… read them below or add one }
Great article Nisha! Agreed with the above. When a business starts doing a lot of volume through PayPal, it may make sense to go to a merchant account because you’ll get lower fees. PayPal can be high. PLUS PayPal can freeze your account at any time – for any reason – which locks funds for weeks, even months. I’ve had that happen and know many people that has happened to them as well.
i love paypal, its the most used on the online world
The most negative thing that paypal has going for it is the customer support. I am fairly confident their support is based over seas because I usually get emails from email around 1 am.