Anyone who has made a purchase online in the past decade is likely familiar with PayPal. The company, once part of eBay, originated as a ‘middle man’ between online sellers and buyers, offering protection. A buyer didn’t have to hand over their credit card information directly to a seller, and both buyer and seller would have a neutral third party to mediate any problems.
Since its beginnings almost 20 years ago, PayPal has expanded to offer additional services, but there’s a lot of confusion surrounding credit card processing with PayPal. If you take credit cards online, chances are you’ve wondered if it’s worthwhile to offer PayPal acceptance.
Many businesses think that if they want to accept PayPal, they have to use the company for all of their transactions and pay the PayPal processing rate of 2.9% + 30 cents per transaction, but that’s not exactly the case. There are three options for accepting PayPal: using a direct account with PayPal, adding PayPal Express Checkout to your existing ecommerce checkout solution, or using the Payflow gateway with a compatible credit card processing company. Each option fits a different need and has specific rates and fees associated.
Note, this article is about options for taking PayPal online. If you’re looking for information on taking PayPal cards or the PayPal app in a physical store, go here.
- Direct Accounts with PayPal
- PayPal Express Checkout
- Payflow and Your Choice of Processor
- Costs of Accepting PayPal
- Does it really matter if I don’t take PayPal?
- Finding a Processor to Use with PayPal
Direct Accounts with PayPal
You can get set up with PayPal directly through PayPal Payments Standard or Payments Pro and use the company to process all of your customers’ credit card transactions. This means that whether they sign in to their PayPal account to pay (or enter their card information into your secure payment form directly) the transaction will be handled by PayPal. You will not have a merchant account with a traditional credit card processing company.
PayPal offers flat rate pricing. Using PayPal as your processor may be a good choice if you have low monthly volume. But if you process a lot of cards, a flat rate processor is likely to be more expensive.
You can also choose to send invoices for payment instead of using a buy button. PayPal offers this video about its invoicing service:
PayPal Express Checkout
The second way to take PayPal is to add the Express Checkout to your existing checkout options. Express Checkout is specifically designed for businesses that already accept credit cards through a processing company. This option simply adds the ability for customers to pay with PayPal.
With PayPal Express Checkout, you’ll copy and paste a few lines of HTML into your website to enable to a Check Out with PayPal button. When customers choose to pay with PayPal instead of a credit card, you’ll be charged PayPal’s flat rate of 2.9% + 30 cents for the transaction. When customers pay with a credit card, you won’t owe PayPal anything, and the transaction will be charged according to your pricing with your processor.
PayPal Express Checkout integrates with many existing shopping carts, but be sure to check that your preferred cart is supported.
Payflow and Your Choice of Processor
The third way to take PayPal is to work with a credit card processor that can support Payflow, PayPal’s payment gateway. The gateway acts as the “credit card machine” of the internet. Basically, it’s what your customers “swipe” their cards through when making a purchase. The gateway links with a payment processor, who handles the transaction behind the scenes. With this choice, if your customers enter their card information into your secure payment form directly, the transaction goes through the PayPal gateway, but your processing company handles it.
Within Payflow, there are two options: Payflow Link and Payflow Pro.
Payflow Link is a hosted checkout option. That means your customers will enter information into a secure payment form PayPal hosts for you. You can use an embedded template or customize a full-page template for your site. With a hosted checkout page, you don’t handle sensitive card details on your server.
Payflow Pro is a customizable checkout page hosted on your existing ecommerce site. You can tailor more of the look and feel than with Payflow Link. Payflow Pro is a better choice for developers and businesses with IT staff.
Payflow allows you to accept PayPal payments and non-PayPal credits while still allowing a choice of processors.
Costs to Take PayPal Payments
The costs for PayPal transactions will vary depending on which option you choose.
A direct account with PayPal is 2.9% + 30 cents per transaction (both PayPal transactions and credit card transactions) unless you qualify for a volume discount. Depending on whether you choose the standard or Pro payment account, a monthly fee may also apply.
The PayPal Express Checkout costs 2.9% + 30 cents for any PayPal transaction. (Your credit card processor will charge for non-PayPal transactions.)
The Payflow gateway costs 10 cents per transaction in addition to the costs charged by your processor.
Published pricing is subject to change, and may not reflect all costs.
PayPal Fee Refunds
Effective May 9, 2019, PayPal will not refund processing fees to you if you refund a customer. The company announced the change in a policy updates bulletin posted to its website. The policy update relating to refunds is short, simply stating:
We’re changing how we treat refunds. If you refund (partially or fully) a transaction to a buyer or a donation to a donor, there are no fees to make the refund, but the fees you originally paid as the seller will not be returned to you. Source.
PayPal is not the only company that keeps the fees you paid when you refund a customer. It’s common enough that we have an article about processors keeping fees on refunds. However, there are still processing companies that will return fees to you. (In fact, CardFellow requires that for processors that place quotes for our clients.)
If you run a business that processes a lot of refunds (looking at you, clothing and shoe stores!) it’s worth your time to ensure you’re using a processor that refunds fees to you. If you need help finding one, we can help. Fill out a free quote request form to get started.
Does it really matter if I don’t take PayPal?
While it’s true that people feel more comfortable purchasing online these days and may still patronize retailers that don’t take PayPal, it certainly can’t hurt to accept it. While preference for PayPal and credit cards hasn’t been widely studied, indications are that PayPal still has an edge over credit cards, especially when customers are considering purchasing online from smaller or ‘unknown’ businesses. A 2013 survey of online buyers by the Hill Marketing Group, in conjunction with Starbucks, revealed some interesting information:
- Over 90 percent of those surveyed say they’re comfortable using PayPal to pay for products and services
- About 55 percent said they feel safer using PayPal than a credit card
- Almost three in four preferred using PayPal over a credit card
While three in four prefer PayPal, it’s not clear if they would shop elsewhere if PayPal isn’t an option. Still, many businesses may take a “why risk it” approach. Therefore, they implement PayPal to ensure that they’re offering the payment methods the customer prefers.
A common response from those surveyed was that if the seller was a trusted retailer (Walmart, REI, etc.) they would likely use a credit card. For other businesses, customers prefer PayPal. PayPal’s established history, coupled with the fact retailers such as Target and Home Depot (among others) have suffered significant data breaches likely adds to consumers’ wariness of credit cards and trust of PayPal. If you’re a smaller or less well-known business, it may be worthwhile to consider adding PayPal as a payment option.
Additionally, a 2016 agreement with MasterCard may enable you to get funds faster. The agreement suggests that businesses can immediately “cash out” their funds from a PayPal account to a MasterCard debit card.
Finding a Processor to Use with PayPal
The good news is that there are multiple options that allow you the flexibility to choose your own processor and still take PayPal. Choosing a non-PayPal processor gives you a chance to shop around for better pricing than the direct account rates offered by PayPal. If you’re looking to quickly and easily compare pricing from processors, CardFellow’s free quote request tool will provide a breakdown of costs from any processor you’d like. You’ll get the best of both worlds – lower costs for your regular credit card transactions without losing sales by not offering PayPal.