Processing $5,000 per month or less in card payments?
- Date Established
- San Jose, CA
- Trusted by consumers
- Predictable flat-rate pricing
- Multiple pricing plans available
- Ideal for low-volume merchants
- Extensive integrations
- Good developer tools
- All-in-one payments system
- Account stability issues
- Inconsistent customer support
- Not suitable for high-risk industries
As a merchant, accepting PayPal is a no-brainer. Almost everyone has a PayPal account these days — in fact, PayPal claims 218 million active consumer accounts and more than 17 million merchants. It’s incredibly easy to setup and use, and it can get you up and running in a very short amount of time (i.e, immediately). Your customers don’t even need a PayPal account…though odds are good they have one.
PayPal is extremely transparent with its terms and pricing, and it doesn’t lock you into a contract with an early termination fee. The number of integrations offered is unreal, so you can be certain that PayPal will sync with your shopping cart, accounting application, or shipping software. PayPal even offers an mPOS app, PayPal Here.
And unlike just about any sort of merchant account or payment processor out there, you can implement PayPal as your exclusive means of accepting payments, or as a supplemental option.
But the question remains: Should PayPal be your primary payment processing platform?
PayPal is absolutely set up in a way that will grow with your business from day one until you make it to the big leagues. With no contract, no monthly fees, and a strong suite of tools for merchants to sell virtually anywhere, anytime, there’s no denying the appeal, either.
However, when you reach a point where you’re consistently doing more than $10,000 or $20,000 in card processing per month, a traditional merchant account may become more cost-effective. A merchant account will give you the personalized service and attention that PayPal doesn’t offer.
If you only process sporadically, you have a low volume, you are just starting out, or you have trouble opening a merchant account (for a reason other than “I run a high-risk business”), PayPal should be near the top of your shortlist for payment options. It’s hard to beat that value, especially for new merchants. But you should also ask whether PayPal has all the features you need. If the answer is yes, you should go for it!
We’re giving PayPal 4 stars for its ease of use, clear pricing, and transparent advertising. When we start to see actual, consistent improvement in PayPal’s customer service and account stability, we’ll consider bumping up the rating — but not until then.
PayPal offers many different businesses services, many of which we’ve reviewed favorably. One of its new products is a service called LoanBuilder (see our review), a simple and straightforward short-term loan program available to all merchants, not just those that use PayPal. It’s one of our favorite small business loan programs currently. So if you like the PayPal brand, are interested in a loan, and have a credit score of at least 550, definitely check it out.
Read the full review for all the nitty-gritty on PayPal’s merchant solutions, including all the features and pricing. If it isn’t for you, we’ve got some alternatives to PayPal at the end of this review. You can also head over to our comparison chart to see some of our favorite merchant account providers!
Table of Contents
Products & Services
Most people think of PayPal mostly as a P2P payment app or the default payment method for eBay. It’s both of those things, but PayPal offers a lot more features and capabilities. In fact, it’s expanding and diversifying a lot now that it’s a publicly traded company in its own right. I like to see this because it means PayPal is keeping up with the times.
The company breaks down its processing options into three categories:
- PayPal Express Checkout
- PayPal Payments Standard
- PayPal Payments Pro
PayPal Express Checkout is a simple add-on for businesses that already accept credit cards and just want to let consumers pay with PayPal as an alternative or supplement. It’s very low investment and easy to implement. You’ll pay the same rates as the other PayPal options. This is awesome if you want to add PayPal as a supplemental option for your existing setup.
Standard is a basic payment processing plan for merchants who don’t already have a way to accept payments on their website. It’s just a percentage plus a flat fee per transaction, with no monthly subscription. Customers are routed to PayPal’s site to enter their payment information before finishing the transaction, but you’re 100% PCI compliant as a result.
With the Pro version, you can handle the entire checkout process on your site, with no need to redirect to PayPal’s site. For some business owners, that hosted payment page could be a huge plus. There are other perks you get with the Pro plan as well, namely the virtual terminal. However, this does mean you’ll have to deal with PCI compliance. PayPal simplifies this by offering a free Transparent Redirect tool. You’ll also have to handle quarterly scans and periodic audits.
Additional services offered by PayPal are:
- PayPal Here: This is PayPal’s mobile payments app. Check out our review here.
- Payflow Payment Gateway: If you already have a merchant account but need a payment gateway, then you can use PayPal’s stand-alone Payflow Gateway. The gateway supports nearly every major processor and a whole host of other applications including shopping carts, accounting & billing software, shipping & labeling software, etc. It also charges just a flat fee per transaction, not a monthly subscription.
- Virtual Terminal: If you need to process mail/phone orders, then you can do so through PayPal’s virtual terminal. It’s $30/month on its own, or included for free in the Pro plan (which is also $30/month).
- Online Invoicing: Consultants and contractors can use PayPal’s invoicing features to invoice their clients for the same rate as regular web transactions.
- Bill Me Later: This credit offering gives you the ability to offer no-interest financing to your customers. PayPal handles it all for you. You just need to make it available on your site.
- Recurring Billing: If you offer a subscription-based service, you can set up monthly payments for your customers. Recurring billing runs $10/month, but you have to have Payments Pro or the Virtual Terminal added to your plan (another $30/month).
- Pre-auth: You can capture the funds on a customer’s card and charge them later. This is great for appointment-setting and other services that require reservations. 100% of the funds are guaranteed for only three days, but you can run a pre-auth up to 30 days in advance.
- Digital Goods: If you’re in the business of selling digital goods or content, you can accept micropayments, subscription payments, and pay-as-you-go payments.
- “One Touch” payments: Originally launched as a mobile feature so that smartphone users did not have to continually sign into PayPal to make purchases on their phones, it’s now available for websites as well. One Touch allows users to skip entering payment and shipping details, which means one less step for your customers. And having a convenient checkout process is a huge deal for businesses since it can decrease shopping cart abandonment.
- Mass Payment: PayPal has also added a mass payment feature to make it easier to send payments in bulk for a reasonable price — 2%, capped at $1 per transaction in the US. You can send payments via an Excel spreadsheet or via the API.
PayPal also has its very own debit card for businesses. The card gives you fast access to cash from your PayPal account — no reason to wait for an ACH transfer. Instead, you can withdraw money from any ATM with a MasterCard, Maestro, or Cirrus acceptance mark. It also makes accounting simpler because you don’t have to use your personal accounts to make business purchases or constantly shuffle funds around.
There’s another feature that I’m greatly interested in, but it’s STILL in beta, and has been since it was announced in February of 2016: Commerce. The name may be a bit broad, but this is specifically a set of contextual commerce tools so that merchants can embed checkouts in email newsletters, blog posts, and more. This is a feature that I really want to see do well and be available to everyone, but alas, we’re all stuck waiting. (I hope the case studies are full of compelling data about the Commerce suite when we finally get them. It better be worth the wait.)
What’s New with PayPal
PayPal continues to innovate and is rolling out new features on the regular. Most are pretty small, but the list is growing pretty fast. So it’s worth paying attention to PayPal’s blog to see what’s going on. Here’s what I’ve found since my last check-in.
- PayPal LoanBuilder: A simple short-term loan service available to merchants regardless of payment processor. The service requires a credit score of at least 550, but the application process is simple and we found it reliable in our review.
- Instant Transfer: Consumers and merchants alike have complained for years that having your money in your PayPal balance is great, but it can take up to 4-5 days to move it to your bank. That’s one of the big draws to the debit card, but now PayPal has an Instant Transfer option to move your money from your PayPal account to your bank for a nominal fee of $0.25. That’s a bit better than Square’s 1% of the transfer amount.
- Marketing Solutions: Honestly, PayPal’s new “Marketing Solutions” makes me think of a pared down Google Analytics with some PayPal tools thrown in. If you really want to understand PayPal users and how they interact with your site, this would be good. PayPal has some benchmarking tools using anonymized PayPal user data. However, if you’re after more robust data, I think you’re better off with Google Analytics or another more powerful analytics tool.
- PayPal for Marketplaces: Also new to PayPal’s (already enormous) list of features is a suite of marketplace tools. Despite powering eBay payments almost since the beginning, PayPal hasn’t actually had a unified set marketplace tools before. So this is exciting. The question is, whether those tools are any good. PayPal certainly has the knowledge to make it work, but does the reality live up to the potential? It’s too early to say. We’ll just have to wait and see.
- Business in a Box: PayPal’s Business in a Box suite is for new entrepreneurs who want to get set up with a seamless, integrated solution in one go. In addition to PayPal, you can get set up with WooCommerce for an online store, and Xero for accounting. When you sign up for Business in a Box, you get discounts on WooCommerce and Xero, which is about the extent of the benefits. If you’re an existing merchant, you’re not eligible (that leaves me a bit disappointed). If you prefer alternate products, you might as well pursue them. But if you aren’t sure what you want and new to all three services, it’s worth giving Business in a Box a try.
PayPal has something for everyone, and overall it makes a great “starter” one-stop payment option. It’s nice that PayPal keeps innovating. Some companies reach the top and just stop trying to keep up. Watching these new services roll out is great because they empower merchants, and because it shows that PayPal is paying attention to how the market is shifting toward integrated, one-stop solutions. It’s also making online payments more feasible for all kinds of businesses, not just traditional retail and restaurants.
Fees & Rates
All PayPal services come with no annual fee, no setup fee, no PCI compliance fees, and no cancellation fee. The company also offers volume and non-profit discounts. I’ve listed the most important fees below, but you can find a full list of PayPal’s fees on the company’s website.
PayPal is very straightforward about transaction costs, even if they are a bit higher than most traditional merchant accounts. However, its pricing structure is absolutely competitive with other pay-as-you-go and payment aggregating services, and many new merchants might find the lack of other fees more cost effective than an interchange-plus plan.
Remember there are two options for accepting PayPal on your site that charge nothing beyond transaction fees. But If you opt for Pro, you’ll be paying a monthly subscription fee on top of standard fees.
- Paypal Payments Standard: $0 per month
- Paypal Payments Pro: $30 per month
The biggest advantage, as we noted before, is that the Pro account lets you keep customers on your page to finish the checkout process. You can even design your own checkout page. In addition, Pro subscribers get access to the Virtual Terminal to accept payments by phone, mail, and fax. Frankly, I’m a bit confused by the terminal is $30/monthly on its own and included in the $30/month Pro plan, but you might as well go for the Pro plan and get that hosted payment page, too.
Unfortunately, that doesn’t include an option for Recurring Billing. Subscription services are hugely popular — and if you want to offer them with PayPal, that will run you an extra $10 per month on top of your Virtual Terminal or Pro plan. Still, PayPal does give you a decent assortment of options for customization, though my impression is that Braintree (and yes, Stripe) are more robust.
Finally, it’s worth noting that PayPal offers its own gateway, the PayFlow gateway, to process payments. It has a high degree of compatibility, so it works with most options. The basic version costs you just $0.10 per transaction — but for $25/month instead, you can get a fully customizable setup.
Regardless of which plan you are on (Standard or Pro), your transactions fees will be as follows:
- For all web transactions, you pay 2.9% + $0.30 per transaction.
- For all swiped mobile and in-store transactions, you pay 2.7%.
- For all keyed-in mobile and in-store transactions, you pay 3.5% + $0.15.
- For virtual terminal transactions, you pay 3.1% + $0.30 per transaction.
- For mass transactions, you pay 2% up to $1.
- If you are a 501(c)(3), you pay 2.2% + $0.30 per transaction for web transactions.
- For any chargebacks, there is a $20 fee.
Something else that PayPal offers for merchants who consistently deal with microtransactions (as in, your tickets are under $10 apiece) is an alternative payment rate: 5% + $0.05.
With consistently small transactions, you can wind up saving money on the per-transaction fees, which tend to be very problematic for small-ticket businesses.
Using PayPal’s own numbers, with a $2 average payment, you would pay $0.15 per transaction using the microtransaction plan, and $15 total on 100 payments. Compare that the $0.36 per transaction/$36 per 100 payments with the standard payment plan.
PayPal’s micropayments option might appear to complicate matters for some merchants, but it is a great way to cater to artists, musicians and others who want to sell digital products — especially low-cost digital products. So I actually really like it. I also like that PayPal offers nonprofit and mass-payment discounts and volume discounts. Not many aggregators offer any of those options.
In PayPal’s case, I think it helps to be a very big fish in a medium-sized pond. It can afford to take risks and experiment with features and pricing that leaner operations can’t. And, it hasn’t slowed down to the sloth-like speeds of innovation that some of the biggest processors have achieved. (I’m looking at you, First Data.)
Contract Length & Cancellation Fee
All of PayPal’s payment solutions are contract free and have no early termination fee. It really is that simple.
That’s great if PayPal is your starter option and you want to upgrade to a merchant account later. However, if the rates work for you (particularly as just a secondary option), PayPal will also scale with your business. It is rare that we find any service that will help you start out and stay with you as your business grows larger, and we like that quite a bit.
Sales & Advertising Transparency
The best thing about PayPal is that its sales and advertising is very up-front. All of the rates are listed in plain sight, so there’s no hidden agenda. It has, over the years, gotten even better about disclosing pricing and fees (such as its chargeback fee, which used to be hidden in the fine print).
Most of its business comes directly through the website or via referrals. PayPal doesn’t have the traditional sales team “pounding the pavement” and luring in potential customers with too-good-to-be-true deals the way you’ll find with some merchant account providers (and yes, some are far more guilty of this than others). There’s no doubt that PayPal offers real value, particularly for new merchants without a sales history, and it doesn’t make any outrageous claims or promises about the nature of its services.
It bears mentioning that the Consumer Financial Protection Bureau filed a complaint against PayPal on May 19, 2015. In the complaint, it alleged that PayPal was responsible for a myriad of sketchy practices, such as false advertising, refusing to provide consumers with information, and even signing consumers up for credit accounts without their knowledge. PayPal settled up pretty quickly (as in, the very same day), agreeing to pay $15 million to consumers and another $10 million in fines to the CFPB.
This mostly affects PayPal customers, not merchants, and it appears to be an isolated incident. While I am frustrated by this as a PayPal user and a consumer, this doesn’t automatically lessen my opinion of PayPal’s merchant services. I’ll still tell you to be on your guard because every merchant should be paying close attention to their monthly finances and statements, regardless of who they process with.
Also, please don’t fall into the trap of thinking that just because anyone can open account, everyone can process with PayPal. That’s not true, and I think it plays a major role in complaints against PayPal. PayPal has a specific list of prohibited businesses, which I encourage everyone to check out. You’ll also be under scrutiny as soon as you start processing, and if PayPal decides you present an unacceptable risk, it will terminate your account. So make sure you operate transparently and use sound business practices. Check out our guide on how to prevent holds, freezes, and terminations.
Customer Service & Support
PayPal has a bunch of different customer service and support options. All of this is pretty much exactly what I expect from a company that caters to startups and small businesses in the 21st century, but it is nice to see.
Depending on your question of problem, you can check out any of these options:
- Community Forum
- Phone/Email: Judging from the online chatter (see “Negative Reviews and Complaints”), PayPal’s phone support is very inconsistent. Sometimes you’ll get a rep who knows what they’re doing, other times you won’t. My advice is to avoid calling if at all possible. Answers to most common problems can be found with just a little bit of searching. Between the knowledge base, community forum, and quick answers sections, you should be able to find a solution.
PayPal is also very active on social media sites like Twitter and Facebook, as well as its blog. There’s even an @AskPaypal Twitter account where they’ll field your service and support questions.
One major benefit to using PayPal is the sheer volume of users. Any time you encounter an error or a problem, you can Google it and odds are good you’ll find a solution from another merchant who has already dealt with the same issue. However, when it comes to account issues (such as holds), you’re going to have to talk to someone over the phone. If need be, you can go through the BBB (read more about that in the next section).
Negative Reviews & Complaints
PayPal is a gigantic company, and like all big companies, there are a very large number of complaints. The biggest difficulty with trying to quantify complaints against PayPal is the simple fact that PayPal is also a consumer product. That means a good chunk of the complaints are from consumers who had problems with the digital wallet, or from customers who purchased something on eBay or from another seller. They turn to PayPal expecting a solution. So the number of complaints about PayPal is not representative of the complaints about its merchant services.
At the time of writing this, PayPal’s BBB page has 6,964 complaints in the last three years (up from 6.583), with 2,459 closed in the past 12 months (up from 2,423). Again, many of these come from disgruntled consumers who have had trouble with PayPal merchants, not necessarily merchants who are having troubles with the service.
While the number of complaints isn’t particularly helpful, the content of those complaints is. I did read over a chunk of the complaints, dating back about 12 months. One thing stuck out to me:
I was honestly impressed with PayPal’s quality of service. The department handling BBB complaints is full of real people writing the responses and explaining where the problem occurred. They’re genuinely trying to help where they can. If you go through the BBB, the odds are good you can probably get whatever help you need — it just might take a little while, and you should try going through PayPal’s customer support first.
The BBB is a major source of information for us, but I do check out a few other review sites for more information. I see the same trends there, for the most part: a mix of consumer and merchant complaints. Of the merchant complaints, there is one single complaint that dominates all others:
- Withheld funds, freezing of accounts, and termination of accounts: If PayPal notes any suspicious behavior on your account, it may implement a hold on a certain percent of your funds, freeze your account, or even terminate your account. Usually, a red flag on your account is accompanied by a request for documents such as bank statements, photocopies of your IDs, purchase orders, invoices, and more. PayPal uses that information to make a determination about what to do with your account. One of the criteria PayPal uses to flag an account is a sudden spike in processing volume. It also doesn’t like seeing merchants sell goods below cost (an unfortunate tactic used by a LOT of newbie eBay sellers), or merchants selling vague, mysterious products. Anything that indicates an unsustainable business model might be grounds for an account termination. Again: You can learn more about how to avoid holds, freezes, and terminations here.
That said, this certainly isn’t a problem unique to PayPal. Other aggregators, including Square and Stripe, have a similar reputation. Such is the nature of the “come as you are” business model — it’s easy to get an account with minimal history, but there’s an inherently higher risk because you’ll be under scrutiny once you actually get started.
In addition to the withheld funds issue, here are some other common complaints:
- High transactions fees: Compared to a traditional merchant account, PayPal’s transaction fees are higher. Visa’s wholesale rates for an eCommerce transaction are anywhere between 1.5% and 2.4% + $0.10 per transaction. At 2.9% plus $0.30 per transaction, PayPal’s rate is over that amount, even when you factor in a merchant service provider’s markup. However, merchant accounts aren’t always accessible or even viable for low-volume merchants. For them, when you factor in the various costs that a merchant account often generates, PayPal often comes close to breaking even. And, you don’t have a contract to worry about.
- Inconsistent phone-based customer service: Most merchants will rarely have to call PayPal’s customer service line, but those that have done so complain that the quality of service can be inconsistent. Some reps are obviously more knowledgeable than others. The good thing is that PayPal has a whole slew of other service and support options (e.g., the knowledgebase, forum, email, etc.), so (barring account-related problems) chances are you can find your answer without having to call in.
- Chargebacks: Let’s be honest. Chargebacks are the bane of existence for any merchant who sells online. They’re also bad for your account stability, no matter who you process with. A lot of chargeback-related complaints seem to come from sellers on eBay, or from merchants who aren’t happy with how a chargeback was resolved. PayPal does offer some limited seller protections for online transactions, but you should brush up on what is and is not covered (eBay sales, for example, aren’t covered).
That’s really about it for consistent complaints about PayPal. You might find the occasional odd story, but they are few and far between. If these complaints make you worried, check out our top slections for small business credit card processing instead. No business is perfect, but you might find that other companies make you less worried.
Positive Reviews & Testimonials
Despite the negative reviews, there are plenty of good comments and reviews from merchants (and even some developers). Considering there are 17 million merchants using PayPal, this shouldn’t be too much of a surprise. Here’s what the positive chatter concerning PayPal is all about:
- Easy setup: Most business owners rave about how easy it is to set up a PayPal account. If you’re exclusively offering PayPal Payments Standard (or even Express Checkout), then you can get started almost instantly.
- Widely accepted: PayPal has a very large user base, which makes it a trustworthy payment option for everyone. If you’re just getting your business off the ground, then starting with something like PayPal is a good choice. The name recognition and trust associated with PayPal (especially with its buyer protections) can be a serious asset in the early days of operation.
- Almost-instant access to cash: Your PayPal transactions clear almost immediately, so you can spend the money in your account as soon as you have it — provided the place where you’re spending it accepts PayPal, of course. If you want your money anywhere, don’t overlook the PayPal Business debit card, which spends like a debit card, but deducts directly from your PayPal account. And now we have the instant transfer option, too.
- Multiple products/services under one roof: PayPal offers you everything you need to process online or mobile payments (e.g., payment gateway, payment forms, virtual terminal, invoicing, micropayments, recurring billing, developer tools, etc.). It really is a solution that will grow with you.
- Transparent pricing: As mentioned earlier, what you see is what you get with PayPal. There are no setup fees, annual fees, cancellation fees, or downgrades for sellers.
Integrations & Add-Ons
PayPal integrates with a huge number of applications from shopping carts to accounting software to shipping applications and email marketing software. There are just way too many to write out, but you can find the full list here.
Here’s a small selection of some favorites:
There’s an obvious benefit to having so many integration options. You won’t have to worry about whether your shopping cart is compatible or not because it most likely is. The same goes for major accounting applications like QuickBooks. And there’s no shortage of well-known, robust POS solutions for retail stores and restaurants. PayPal has ALL the bases covered in this regard. It really does seem to be trying to make payment processing accessible to everyone.
I haven’t talked too much about this, but with PayPal’s developer tools, but you can use them to create custom integrations with your site, and quite a bit else besides. It’s another way PayPal is making itself accessible to all kinds of businesses.
However, if you’re primarily concerned about developer tools, you might be better off pursuing a Braintree account. Braintree is one of several companies PayPal has acquired over the years, and while it does integrate seamlessly and model a lot of PayPal policies, it does stand on its own as a payments solution. Braintree’s dev tools are industry leading and you get a merchant account of your own, to boot.
PayPal is a great payment option to start with, and there’s no question you should keep it around as a backup form of payment if you sell online. It also works very well for businesses as the primary payment option.
Account setup is fast, it’s easy to use, and it’s widely accepted. If you’re a brand new business and you need to accept payments quickly, PayPal is the way to go. The mobile integration, PayPal Here, is seamless, which is useful for retailers and vendors who want to accept payments on the go, and there are plenty of POS options if you need something more advanced. There’s a massive array of shopping cart integrations and developer tools for online sellers as well.
That said, as your business grows, and you exceed $10K per month in revenue, it may be more worthwhile to pursue a traditional merchant account, because the processing costs will be lower. But you should make sure that the merchant account provides everything you need — or that if you have to pay for additional services, that they don’t exceed the costs of using PayPal.
As with any other payment processor that aggregates accounts, you also have to worry about account stability. While your account may be approved almost right away, you’ll be under scrutiny as you keep processing. Red flags can lead to held funds, or worse, account freezes or terminations.
But despite all of that, the credibility PayPal offers beginning and small-time merchants, its widespread recognition, and the sheer number of features available are serious advantages. Even well-established merchants can benefit from using PayPal. For those reasons, along with its ease of use, transparent pricing, and overall versatility, our PayPal review keeps its 4-star rating. We’d love to see more reliability and improved customer service, which would easily bump PayPal up a half star or more.
We’re confident in recommending PayPal to you, but we acknowledge that like most other aggregator services, it’s not for everyone.
If you want the processing freedom that comes with no contract and no monthly fees, but you’re determined not to use PayPal, it might be worth looking at either Stripe, which is very developer-friendly, or Square, which doesn’t have quite the wide-ranging eCommerce support that PayPal does, but is still a powerful all-in-one option. If you want a bit more account stability but still all the trust and tools that PayPal offers, it’s worth looking at Braintree, which is owned by PayPal and integrates seamlessly, but offers merchants their own unique merchant accounts. All of them have comparable pricing models.
As we mentioned eariler in the review, PayPal has a new product we like called LoanBuilder (see our review), a simple and straightforward short-term loan program available to all merchants, not just those that use PayPal. It’s one of our favorite small business loan programs currently. So if you like the PayPal brand, are interested in a loan, and have a credit score of at least 550, definitely check it out.
Thanks for reading! If you have experiences with PayPal — good or bad — feel free to leave us a comment!