
When to Use PayPal vs. Merchant Account - runako
http://feefighters.com/paypal-calculator
======
drm237
I used to recommend PayPal Website Payments Pro until they screwed me
recently. I assumed the people that were abused by PayPal were few and far
between until it also happened to me. Now I tell everyone to get a real
merchant account. It's just not worth gambling with your ability to process
transactions.

~~~
originalgeek
Do get back to us in about 6 months to let us know how your merchant account
is performing in regard to chargebacks. In my experience, we never win with
our merchant bank, yet almost always win with PayPal.

~~~
jasonkester
What sort of business are you in that you're fighting with your customers over
chargebacks? Couldn't you interpret this as something being horribly broken
with the way you handle refunds?

If you're selling software, there's no reason you should _ever_ have a
chargeback happen against you. Just make sure your policy is to refund anybody
for any reason at any time. I remember reading a JoelOnSoftware article where
he talked about running 4 years straight with zero chargebacks using a policy
like that.

~~~
SwellJoe
"If you're selling software, there's no reason you should ever have a
chargeback happen against you. Just make sure your policy is to refund anybody
for any reason at any time. I remember reading a JoelOnSoftware article where
he talked about running 4 years straight with zero chargebacks using a policy
like that."

This is a fairy story.

We have a no questions asked 60 day full refund policy. We have at least one
chargeback a week due to stolen credit cards. We, of course, don't have any
reason to fight them over it, so we just accept the chargeback when that
happens. But, we _definitely_ get chargebacks.

I do occasionally get phone calls from people who don't know who we are. I
answer their questions, and if the description doesn't ring a bell (sometimes
they'll say, "Oh, I need to ask our system administrator if he bought that."
and I never hear from them again), I process a refund immediately.

But, software companies definitely get chargebacks. There's no way to
completely avoid fraud without refusing lots of legitimate customers (AVS, for
instance, doesn't work for most non-US card holders, and we do half of our
business outside the US, so we can't reject orders with an AVS mismatch).

~~~
jasonkester
Here's a link to the fairy story in question:

<http://www.joelonsoftware.com/articles/customerservice.html>

~~~
SwellJoe
This is not a customer support issue. It's a fraud management issue. No amount
of fanatical customer support can stop people from using stolen credit cards
to order your software. It is a digital good, delivered instantly over the
Internet.

Most people, when noticing their card has been stolen, will simply request
chargebacks of every unrecognized item on their bill. The vendor _never_ hears
about it, and has no idea it has happened, until after the chargeback has
taken place.

------
keltex
Ok, so I go to the site and the default settings have $20K per month in sales
with $440 for Paypal and $478.90. The difference is $38.90. Or 0.2%.

If your going to choose a credit card processor exclusively based on saving
0.2%, then I don't know how the hell you got to $20K in monthly sales.

~~~
RickHull
> _Ok, so I go to the site and the default settings have $20K per month in
> sales with $440 for Paypal and $478.90. The difference is $38.90. Or 0.2%._

I believe that default was chosen to illustrate the 'inflection point'.

------
jeffmould
According to this PayPal becomes more economical somewhere between the $15 and
$30 mark. However, I am not sure my comfort level with PayPal increases with
larger transactions. If I am dealing with larger sums of money I want access
to live customer service people and the regulations that banks have to follow.
I do not want random email support, weeks of poor communication, a company
that has a history of complaints when dealing with high dollar and high
monthly volume transactions, and a company that acts like a bank but is not
held accountable to banking regulations.

EDIT: For that added peace of mind I will pay the extra couple hundred a
month.

~~~
dangrossman
If you have a PayPal Business Account (which doesn't cost anything), you get
the business support phone number. It's answered on the first ring by a real
person.

I get payments daily from as little as $1.95 to as much as $3000, with volume
in tens of thousands a month. I've never had my account
frozen/limited/whatever or had any trouble getting in touch with support.

PayPal is also registered in all 50 states as various types of money transfer
agent, and in several countries operates as a registered bank.

They're not perfect, but I don't find them worse than your typical bank, which
has the same rules as PayPal for freezing accounts, holding funds after an
account is closed, etc.

------
ck2
If you find you "must" use PayPal, be sure to keep as little balance in there
as possible at all times.

Also, close the original bank account you tied to the PayPal account ASAP,
because they can and will withdraw reversed charges and fees without notice,
at any time on their whim.

~~~
spencerfry
There's a way for PayPal to deposit money into your bank account every night
at midnight. I forget how I stumbled upon this, but we use it at Carbonmade
now.

~~~
ck2
The problem with that logic is they can also withdraw from it.

Use their debit card (or snail mail check) to withdraw, close your bank
account tied to PayPal if possible, they will overdraft you someday and cause
you as much hassle as closing the account now.

~~~
quellhorst
Turn off overdrafting on your bank account. Transfer the money out of that
account as soon as paypal sends it in.

------
sammcd
I like the site and think its helpful.

I have to say it isn't for my case though. I'm using Paypal's website payments
pro for my current app, and that comes with a monthly fee not factored here.

Also when I looked at using a real merchant account, these fees vary greatly
and no one I was looking at was as cheap as 1.8. All the merchants I looked at
were more expensive than Paypal percentage wise. I also feel like this doesn't
account for some batch fees I saw.

Not to mention that many times with merchant accounts you are paying a
merchant fee and a gateway fee.

~~~
pitdesi
Check out the gear thingy under the total volume slider that says "More
options? We have some, try the comparison with Paypal Pro..." ;)

Apparently, when you were looking for a merchant account, you weren't using
FeeFighters to bid down your fees ;) or you would've gotten a better rate.

Try us out!

~~~
trevelyan
Have you guys got the ability to support non-American businesses yet?

~~~
pitdesi
Sadly, it would be really hard to do this around the world, as each country
has it's own completely different setups when it comes to credit card
processing.

It seems like you're in China, which would be a really hard market for us to
enter. We are expanding though, and will be in Canada in the very near future.

~~~
trevelyan
We're actually BVI, although I'm Canadian. Looking forward.

------
chopsueyar
You have many more rights with a merchant account. What is that worth?

------
burgerbrain
Amazon Payments is often overlooked as a fine alternative to Paypal, for those
who have had issues with Paypal's... inethical business practices. Moxie
Marlinspike uses it to accept donations for example.

~~~
schwabacher
Another awesome thing about Amazon payments is that they don't charge you
anything to send an invoice and accept payment with a personal account. I
think paypal takes something like 3%.

------
YooLi
Hmm... So if I want to have $0.99 payments, it will cost me 32% to go with
paypal or 26% to go with setting up my own merchant account, and both are only
for domestic payments.

Suddenly Apple's 30% for payments from ~100 countries sounds like a bargain.

~~~
SwellJoe
PayPal has micropayments. 5%+$.05 fee, so it'd be ten cents to process your
.99 example.

I haven't figured out how to actually get these rates yet, but I've just
started looking into micropayments options, and PayPal looks like one of the
best.

~~~
YooLi
Those are _only_ domestic. If you want international, though still not as many
countries as Apple, it would be 3.9% + $0.30 or thirty-four cents on the .99
example.

~~~
SwellJoe
According to the PayPal website:

"PayPal offers support for Micropayments to merchants for US to US, GB to GB,
AU to AU, and EU to EU transactions for Business and Premier accounts. This
feature is offered at a special rate of 5% + $0.05 per transaction."

Then, there is a currency conversion fee of 2.5% and a cross-border fee of 1%
for payments from outside your country and currency. So, total for a foreign
currency payment would be 8.5%+.05, if I'm reading it right.

Dramatically cheaper than Apple.

You can see all that here:

<https://micropayments.paypal-labs.com/>

Though the popups and menus don't work in Chrome, making it impossible to see
all this information. Firefox 4 works fine, though.

Anyway, it appears impossible to revert to the standard rates/fees structure
with PayPal micropayments.

------
charlesju
This website is wrong, do not buy into it.

Paypal has a micro-payments model that makes it so that it is SIGNIFICANTLY
cheaper to use paypal for transactions under <$12 as opposed to a traditional
merchant processor.

<https://www.x.com/community/ppx/xspaces/digital_goods>

~~~
jeffmould
Yeah, the website also does not take into account monthly fees if you have
PayPal Premium (or whatever it is called) account, which I would assume most
larger volume merchants are paying.

~~~
pitdesi
It actually does take that into account... click on "more options"

~~~
jeffmould
Didn't see the "More Options" link, so sorry I offended you. My statement is
still correct in that if you add a Pro account to PayPal, the merchant account
becomes the cheaper option in most cases. Also, I would be willing to bet that
most merchants who process high transaction size and high volume with PayPal
are using Pro accounts.

~~~
pitdesi
That's totally correct, no offense taken, just wanted to make sure you saw
that we'd included it!

You are totally correct that for merchants that process decent volumes, a
merchant account is usually the better bet.

------
MrAlmostWrong
They left out the 'Paypal might hold all your funds and make it a pain to get
them back' fee.

~~~
jasonlotito
This is true even if you have your own Merchant Account. Though, if you have
your own merchant account, your rep is probably more accessible.

While people like to blast PayPal, they all to often forget that merchant
accounts are controlled by banks who can be even more uncaring.

~~~
runako
Banks are regulated. PayPal isn't. Presumably that's worth something.

~~~
citricsquid
Not entirely true, Paypal is treated as a bank in Europe and is regulated as
such. I believe the only place it isn't is America.

------
wiredd
It looks like for many businesses (including mine), the fee difference between
PayPal and a merchant account is fairly small. Given that, what I really want
is a service with:

1\. a good API

2\. good customer service

neither of which PayPal has in my opinion (we've used PayPal for over a year).
PayPal's API works fine most of the time, but occasionally it returns a 500
HTTP error on a successful charge. This has caused several customer problems
for us, and we've taken the ridiculous step of considering a 500 error a
success and manually following up in those cases. We've pretty much given up
on trying to work with their customer support, and are looking for
alternatives. Anyone have recommendations on service with a great customer
support?

------
jayzee
As always gotta love the feefighters design and graphics.

But I would have just preferred to see a 2D plot with average transaction and
monthly volume along the X and Y and regions shaded as blue/red for
paypal/merchant account.

~~~
notahacker
The design's beautiful, but I can't help wondering why they didn't stick a
PayPal affiliate link below the PayPal fees table and a "sign up to compare
merchants" link below the merchant fees table

~~~
pitdesi
Working on it... we actually didn't post this to HN or expect the traffic
bump, or we would've done that before. It takes a while to get approved.

The main thing we're interested is drawing traffic to <http://feefighters.com>
for people to run auctions and get the best rates on their credit card
processing, but it would be nice to pick up some affiliate revenues as well.

------
JCB_K
This doesn't take your market into account. For example, my Dutch debit card
isn't compatible with international credit-card numbers. My paypal-account is
directly connected to my bank account (direct debit), so it practically works
like a credit card, but I can only use it online. This means that I'll only
order stuff at websites which support Paypal.

------
MicahWedemeyer
Fee differences are such a small piece of the puzzle. There are so many other
differences between PayPal and merchant accounts that can make or break your
business. And good luck escaping once you're locked in one way or another.

I cover it a little here: [http://peachshake.com/2010/06/15/saas-subscription-
billing-o...](http://peachshake.com/2010/06/15/saas-subscription-billing-or-
how-to-avoid-getting-your-nts-in-a-vice/)

------
alex_h
It's staggering to me that these companies are clipping the ticket for 2-3%
for ALL credit card based commerce in the world. That's a lot of money.

~~~
pitdesi
True... There are actually a number of players involved. I should've linked to
this earlier - we have an ebook that explains in detail how this works:
[http://feefighters.com/ebooks/what-is-credit-card-
processing...](http://feefighters.com/ebooks/what-is-credit-card-processing/)

------
rapind
Great little tool I've used in the past to make recommendations to clients.
Looks like it's been reskinned (lighter)?

------
nphase
It seems odd to me that charging business credit cards would cost you more
with a merchant than charging normal consumer credit cards. Are businesses
really more likely to incur chargebacks or generally be problematic than
consumers?

------
tjmaxal
Did anyone notice the relationship changes as you scale both options. The
slider almost always shows paypal winning for transactions under $100 except
at the $5,000 level and the million level. I'd love to see this in graph form.

~~~
iwwr
If your revenue is $1M per month, you will almost certainly get to negotiate
with them in person for a better rate.

~~~
tjmaxal
Very true

------
afterburner
So it looks like high monthly volume and low transaction price is good for
merchant accounts, otherwise PayPal gets the edge.

------
jason_slack
Square. Square. Square...

Did I mention Square?

<http://www.sqaureup.com>

My life is much easier for sure. No Paypal Bulls*it.

~~~
OstiaAntica
Dude that site looks like a click fraud scam.

~~~
damncabbage
Because the link is actually <http://www.squareup.com/>

