Advantages Of Using a Merchant Account vs. PayPal Account

by on August 2, 2011 · 10 comments

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.

Merchant Account vs PaypalA 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 for the last 2 years. She loves to write and give online business advice to new and growing businesses.

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{ 10 comments… read them below or add one }

MatchRate PLUS August 3, 2011 at 1:53 pm

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.


Amanecer Parte 2 April 3, 2012 at 4:56 pm

i love paypal, its the most used on the online world


litebrite February 7, 2013 at 11:39 am

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.


Stephanie May 26, 2013 at 9:33 pm

Thanks much for this helpful post. I agree having a merchant account will open greater doors for your business especially in terms of payment transfers and cost efficiency in services.

I took the option to go by the monthly service fee of my merchant account provider than the per transaction fee of PayPal because I found by calculating my costs, that I can save more in getting the fixed monthly fee.
Another thing I hate about PayPal is that I have to wait for about a week for my money to be transferred in my bank account!


Mike August 3, 2013 at 10:42 pm

Merchant account is per transaction fee as well as monthly fee… Paypal takes 2-3 days to transfer to my bank. I still don’t like both though


Bhagesh Nair June 4, 2013 at 2:27 pm

Although Paypal is a very commonly used and very easy to integrate payment solution, it is not recommended for all business categories.
Paypal is a third party processor and does not approve high risk business types, hence if a merchant is selling a product which maybe prone to high refunds or higher CB rate, they should definitely opt for a direct merchant ID with an acquiring bank. For startups and small businesses, Paypal seems to be the best available option in todays scenario.


Stacey June 27, 2013 at 12:46 pm

can anyone speak on the difference with have a paypal pro vs paypal advanced merchant acct?

i am starting a biz. the page will be a wordpress ecommerce page and i am not certain which would be better for me.



Don Campbell June 27, 2013 at 1:40 pm

I used a PayPal standard account for years. I also have a merchant account with my bank, and a payment gateway with so that I can accept credit cards directly, in addition to PayPal.

With PayPal Pro, it acts as both PayPal and a payment gateway, so you could do it all through them instead of having a separate payment gateway like PayPal Pro also allows you to integrate with them so that the entire transaction happens on your website, rather than sending your customer over to PayPal to complete the transaction.

I hope that helps!


Stacey June 27, 2013 at 1:54 pm

hey don,

thanks for getting back to me so fast. so i am fine with pro vs advanced? which is a $5 monthly fee vs $30, respectively.

thanks. 🙂


James December 4, 2014 at 11:13 am

Thank you for sharing this post. I’d recommend you also do one explaining to merchants the payment gateway and how their option to have the customer stay on or leave their site differ. Depending on what service they opt for, the customer may leave their website and go to the payment gateway’s website (offsite) to enter credit card information. This is generally less expensive, but the customer experience could be affected potentially leading to less completed sales.

Either way, there could be another whole article on SSL for onsite gateway integration.

I definitely agree that, for most merchants, it is more timely but less expensive to set up a true merchant account through a credit card processor. I guess most people still want to do things the lazy way…no offense to anyone, though.

Thank you for sharing, and I really think it was very well-written.



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