• PayPal works like a merchant account, but offers many additional functions.
  • Processing credit card transactions via PayPal is more expensive than most other processing methods.
  • Business loans and credit lines are also available through PayPal.
  • This article is for small business owners who are interested in reviewing payment processing options.

PayPal is a financial services company that accepts payments from customers online and in person. A merchant account is a commercial bank account that allows you to collect and process credit card payments from customers. Cash from customers will be kept in your merchant account until they are transferred to your company’s bank account.

Here’s how to differentiate PayPal from a merchant account and determine what’s right for you.

What is the difference between a PayPal and a merchant account?

PayPal differs from merchant accounts in that it works primarily as a digital wallet, with all your business accounts – derived from credit card transactions or deposits to pay for providers – integrated into one account.

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PayPal is also different because it offers credit card processing services and can work in the same way as merchant accounts, but it is more expensive than most major credit card processors.

In most cases, your company will want to sign up for more credit card transactions – such as retailers and restaurants – with a small business credit card processing company that is not outside of Pipal, even if you intend to use PayPal to pay. Sellers.

However, keep in mind that both PayPal and merchant accounts can be used.

PayPal and merchant accounts at a glance

PayPal Merchant account
Best b A new, small business that requires an easy-to-use payment processor A large amount of business that benefits from low process fees
Cost 3.49% + $ 0.49 per online transaction It varies by provider and may include rating
Payment methods Credit and debit cards, PayPal, Pay in 4, Venmo, Google Pay Credit and debit cards, Google Pay, Apple Pay, AHH
E-commerce payment process Credit and debit cards, PayPal cash Credit and Debit Cards, AC
Sales Point Systems Zet It varies by provider

What is PayPal?

PayPal is a financial services company that operates primarily as a digital wallet and money transfer service. The forum is usually used to send money to friends and family. Although your business is primarily online, you can use PayPal to send customers and receive payments.

PayPal can also be used as a payment processing platform, including for credit and debit card transactions. When you make a credit card transaction using PayPal, the proceeds – net payments – are deposited into your company’s PayPal account.

Key pick-up; Unlike other payment processing companies, PayPal is more designed for personal use, with the main business focused on paying customers and receiving payments directly.

How PayPal works

Setting up with PayPal is straightforward. All you have to do is visit the website and register. As soon as you sign up, you will receive a digital wallet for your business, and you can immediately send and receive money. Although this may take a few days to verify, you can link existing bank accounts to the platform.

Here are some of the services you can access via PayPal once you sign up

  • Invoice: There is no charge for sending receipts, but customers pay a small fee each time they make a bill through the platform.
  • Payment process; PayPal, like other processing companies, allows account holders to accept credit and debit card payments. However, PayPal fees are higher than most companies.
  • Business loans; PayPal Business users can apply for a PayPal Business Loan to get a short-term small business loan. There is also an online tool to check your eligibility without affecting your credit.
  • Credit lines; PayPal offers credit lines that are very similar to banks or other lending lines. These can help your company with short-term financial needs, such as easing current expenses.
  • Seller protection; PayPal Vendor Protection protects against fraud and protects invoices.
  • Tax calculation tools; Platform transactions can help you calculate how much debt your business owes in sales tax.

Here is a brief look at the PayPal device:

PayPal Receipt
PayPal Receipt

Source – PayPal

Did you know?Did you know? One of the good things about PayPal is that you don’t have to know exactly how to use it before you sign up. You can sign up and then decide how PayPal supports your business.

PayPal Advantages and Disadvantages

Here are some of the benefits of PayPal:

  • Setting up is easy. You can configure it normally without any development experience or external resources.
  • Flat-rate pricing available. Many merchant accounts have a rating, but PayPal is simpler and clearer.
  • Digital wallet tracks money. PayPal is a digital wallet that holds all of your business transactions on the platform, including the proceeds from credit card transactions.
  • Typical merchant accounts are strong. PayPal users get an account that works like a traditional merchant account, but the platform also offers additional features and functionality for your business – including a mobile credit card reader.
  • Receipts are easy to create. PayPal has a user-friendly invoice that makes it easier to charge customers.
  • Repeated payments are allowed. In dollars or other currencies – you can schedule payments to withdraw automatically.
  • E-commerce platforms can be integrated. PayPal can be easily integrated into many e-commerce platforms, including WooCommerce, Shopify, Wix, Depop and Squarespace.

Here are some weaknesses of using PayPal

  • Physical options are limited. If you are a retailer, PayPal Zettle is your only option for conducting credit card transactions in person.
  • Other providers are cheaper. PayPal increased process fees in August 2021, and is more expensive than many other major payment processors.
  • You will be charged a refund. If transactions are in dispute, your company will pay a refund of $ 20 – unless the transaction is covered by the seller’s protection policy.
  • Business accounts may be blocked. If you have multiple fraudulent transactions or invoices, you may not be able to process any payments.
  • Customization options are limited. PayPal is simple and easy to set up, but it’s not very good at folding to meet your specific needs.
  • Not all buyers like it. Some people think they are insecure, or do not have accounts set up to send or receive money.
  • Not all major payment methods are acceptable. You can use PayPal cash, debit or credit cards via PayPal, but some forms of payment – such as Apple Pay – are not accepted.

TipTip Read our in-depth review of PayPal to further evaluate PayPal credit card processing features and determine if it is suitable for your business.

What is a merchant account?

A merchant account is an account you have set up so your company can receive transactions made through a third-party payment processing company.

Most merchant accounts are set up directly with a credit card payment processing company to deposit credit card transactions into your bank or other financial institution until credit card transactions are transferred.

How Merchant Accounts Work

When a customer attempts to make a purchase with a credit card, the merchant service provider verifies the availability of funds, and then approves the transaction. The customer’s money is then transferred to the merchant’s account.

Once the funds have been transferred, the payment processing company will reduce the processing fee – usually 3% to 5% of the transaction amount. Money will be kept in the merchant’s account until it is transferred to your company’s check account – usually within one or two business days.

Most merchant service providers charge between 3% and 5% of the transaction volume – a flat fee per transaction and a percentage of the total – these fees vary by service provider, transaction type and industry. Merchant service providers often incur additional costs, including application, setup, and monthly fees.

Advantages and disadvantages of merchant accounts

Here are some tips to help you work with merchant accounts:

  • Your business efficiently collects payments. You will receive credit and debit card transactions – after payment – to your account within one or two days using a dedicated merchant service provider such as Square or Strip.
  • Safety is a low risk. In normal business accounts, only one or two business receipts are held on the last day or two, so there is nothing to lose when a security breach occurs, however, violations are much smaller than digital wallets such as PayPal.
  • Your company can receive many currencies. Although PayPal may still be a better choice for international payment processes, using a dedicated merchant service provider may allow you to receive payments in dollars or other currencies.
  • Customer support is strong. Payment managers have resources nearby to help you make mistakes. As a digital platform, PayPal’s service resources are limited.

TipTip Read our Stripe and our Square review to learn more about these dedicated merchant providers.

Here are some negative aspects of working with merchant accounts:

  • Pricing can be variable. The price of merchant accounts varies widely from supplier, and depends on many factors. This can make it difficult to evaluate exactly what you are paying for.
  • Fraudulent transactions can occur. If you unknowingly make a fraudulent transaction with a customer, you may be liable for refunds.
  • Transactions can be saved. Suspicious transactions for the merchant service provider may be placed on them, which prevents your company from earning revenue until your payment is completed.
  • Math combinations are less robust. Conventional merchant accounts are only used to temporarily retain credit or debit card transactions. You will need a separate account to handle cash purchases.
  • Merchant account holders only accept certain cards. Credit cards that you can accept vary depending on the processing company you choose.
  • Not all merchant account providers accept different types of payments. Some processing companies are built on face-to-face transactions, for example in retail stores and restaurants, while others are designed for e-commerce — some work for both, but not for all.