Can someone help me understand the difference between using a Merchant Account versus Paypal?

Question

I want to open up a website to sell stuff, but I'm not sure if I should use a Merchant account or a Paypal account? What's the difference?

Answer 1

Merchant Account - An account for merchants. You generally pay a "discount rate" (a percentage of the sale), a per transaction fee (often 0.10 to 0.30) for each sale and then other misc fees (statement fee, chargeback, etc, etc) It is a necessary cost of doing business. VISA/MC general sets the minimums. The biggest difference in the discount rate is "card present" (the customer is there and you swipe their card and "card not present" - what you are talking about on the web site. For website transaction, you're probably looking at about 2.25 to 3 percent going to the merchant bank. Check out Costco. Their members can go through NOVA(a merchant bank) and get pretty good rates.

In addition, you have to have an online payment processer (e.g. Authorize.net) and a shopping cart that will work with your merchant account and the payment processer.

Sounds a little confusing - but once you get set up its a breeze.

Paypal is the way to go for a small number of transactions. It's less expensive BUT you have the inconvenience of the customer getting the "sign in to Paypal" screen. This turns a number of customers off. PayPal is also offering merchant accounts - but generally at higher discount rates that you can get elsewhere.

In summary, a small number of orders/day and inexpensive - PayPal. A better user experience and more than say 20 orders/day - get a merchant account and payment gateway set up.....

Answer 2

A merchant account is a bank account. The bank will charge you a monthly fee and a per transaction fee. It DOES NOT INCLUDE a payment processor. That is an additional charge per month and per transaction. The fees are higher on the internet than in a regular store.

PayPal charges someone's card and sends the money to your account. For this they deduct a fee.

PayPal is easier to set up, but always read the fine print. With either PayPal or another processor, the merchant is responsible for fraudulant charges. If someone disputes a charge, both can immediately take the money back from you.

Answer 3

In simple terms, a merchant processing account is a direct relationship between yourself and a merchant processor who has a relationship with the card associations. When you process a credit card, the money is directly deposited into your chosen bank account. Part of your merchant agreement is that you must abide by all card association rules.

Paypal, on the other hand, manages a large relationship with a merchant processor and then processes cards for you through their account. The money goes to Paypal and then they reimburse you. In this case your agreement is that you must abide by all card association rules AND Paypal rules.

Many factors must be considered when making this decision including average ticket, total volume, type of biz, etc. Feel free to contact me if you have specific questions.