The payments business is highly competitive and deciding whether to offer a traditional Merchant Account or Paypal option for credit card processing can have a tremendous effect on your bottom line. Paypal might seem the safest solution for clients using e-commerce however a Merchant Account has many advantages for the business owner such as quick funding and flexibility.
Merchant Accounts handle the credit card processing from point of sale to funding. The funds are then deposited into the business banking account within one to two business days via a Gateway account. In most instances these two accounts are combined for ease in use and are commonly treated as one account. Paypal is quite different as the funds remain the property of Paypal until a demand for payment is made. In the event Paypal’s terms are breached in any way then they are under no obligation to release funding. Both accounts are subject to charge backs from the card holder.
Merchant Accounts or credit card processors assume the risk of the cardholder until funds are collected. Strong financials submitted to the payment processor results in the lowest percentage fee for the volume of sales. Start-ups can negotiate directly with processors while both require an application fee. Paypal does not assume risk or require an application fee and the rates are based on volume alone.
The most troublesome aspect of using Paypal vs. Merchant Accounts is that the client is taken to an alternate site to complete the sale and only the shipping information is then shared. Merchant Accounts are included in the check out process on the original site and offer the flexibility that information can be stored for creating customer accounts, mailing lists or coupon codes. These differences can have a tremendous affect on marketing and ease of use for existing clients.
While using a Merchant Account as a credit card processor can be arduous to begin, it creates peace of mind that the approved transaction will be in the business bank account in a timely manner. The transaction fees can also be negotiated as volume increases instead of flat rates with no room for movement. Using Paypal requires a follow up process that can be overlooked or time consuming. This extra step is more time away from marketing the brand and analyzing trends for continued success in the world of e-commerce.