So, you want to allow your customers to pay by credit card. Excellent idea! Over 75% of consumers prefer to pay with credit or debit cards.
Allowing for credit card payments will streamline your customers’ experience and incentivize them to do more business with you, thus increasing your revenue. It’s a no-brainer!
In order to accept credit cards, you must first set up a merchant account. A quick Google search will reveal that your options for merchant account providers are limitless, so you decide to look into a brand you’ve been hearing about for years: PayPal.
But is PayPal really the best choice for your business? It very well may be. But you owe it to your business and your customers to look carefully at your options.
Naturally, as a provider of payment acceptance software and merchant accounts, we’ve got some things to say on the matter.
PayPal vs. PaySimple—What’s the Difference?
Despite having strikingly similar names, PayPal and PaySimple provide very different services.
Let’s start with the obvious first question: What do they each cost?
PaySimple likes to keep it simple…hence the name! Our all-in-one software allows you to accept credit/debit cards, ACH payments, recurring payments and much more. We recommend that merchants take it for a test run with our free trial. For full details on software costs and what it includes, check out our pricing page.
PayPal provides its basic software for free, while its pro plan will run you $30 per month. Credit card processing rates start at 2.9% and they do not offer ACH payments as an option.
The key difference between PayPal and PaySimple is in the type of merchant account each company provides.
PayPal provides users with an aggregated merchant account, while PaySimple provides businesses with a dedicated merchant account.
What’s the Difference Between a Dedicated and Aggregated Merchant Account?
Aggregated accounts, like Stripe and PayPal, use the “one-to-many” approach, meaning that lots of businesses are sharing one merchant account.
While dedicated merchant accounts, such as the ones PaySimple provides, belong to only one business.
Is an Aggregated or Dedicated Merchant Account Right for You?
Both dedicated and aggregated merchant accounts have advantages and disadvantages. Consider these key points when deciding which type is the most advantageous for your small business:
1. Who Controls Your Funds: With a dedicated merchant account, transaction proceeds, less processing fees, are deposited directly into your business bank account. While the merchant account provider can correct errors, react to potential fraud, and debit your account for customer “chargeback” claims, this must all be done based on industry-standard credit card processing rules.
With an aggregated merchant account, transaction proceeds go to the service provider and are then deposited to your bank account at the provider’s discretion. There are no industry standards or rules that govern how an aggregated merchant account provider handles or disburses your money. The provider makes the rules, and can change them at will, so if you choose an aggregated merchant account pay very close attention to the contract terms and any changes made to them.
2. Are You Credit-Worthy?: To obtain a dedicated credit card processing merchant account, your business will need to go through comprehensive underwriting. If your business is very new, if it has a less than stellar credit history, or if you’re in a difficult to underwrite, or “high-risk,” industry, then an aggregated merchant account may be the best choice. While you’ll still need to provide information about your business, underwriting for aggregated accounts is typically far less rigorous than for dedicated merchant accounts.
3. Set-Up Time: Getting a dedicated merchant account can take time. While there are some providers automating the process and providing same-day decisions, a typical application will take 48 hours to approve and additional time to integrate into a POS or electronic payment processing environment. Signing up for credit card processing under an aggregated account service provider can usually be done in minutes, and it often comes with an online system that can have you actively processing payments within the hour.
4. Risk: With a dedicated merchant account the only company processing credit card transactions through it will be yours. Thus, you are in full control of keeping the account in good standing. With an aggregated account, you have no idea about the other companies processing transactions. If a good number of them engage in fraudulent activity, it is possible that the service provider’s processing account will be terminated and even honorable businesses will lose credit card processing ability. For many businesses, this is disastrous.
If you do go with an aggregated account like, it is very important to make sure that your provider is large enough to absorb fraud generated by a few bad apples. If you’re using a small provider, try to get a list of the other businesses using the service, and check them out to see if you want to associate with their risk level.
5. Processing Volume: As soon as your business does more than $100,000 in credit card processing, Visa and Mastercard will require that you upgrade to a dedicated merchant account. If you plan on doing big business, it will save you time in the long run to start with a dedicated account.
6. Cost: As we showed above, the rates you will pay for monthly software fees and credit card processing will vary from merchant account provider to merchant account provider. Of course, the actual credit card processing rates you’ll be charged are a critically important factor. But as with most things, you get what you pay for; so don’t choose a low rate without also considering how the provider you select will impact your overall business.
PaySimple vs. PayPal—Which is Right for Your Business?
Every business is different, so you will need to carefully consider the factors above to make your decision. In general, if you are still testing your business concept and don’t want to commit to the merchant account underwriting process, or don’t think your business will be approved, an aggregated account like PayPal might be a great place to start. You can always upgrade to a dedicated merchant account later.
On the other hand, if you are concerned by the risks inherent with aggregated merchant accounts, or plan to process over $100,000 in credit card payments, then it’s best to go with a dedicated merchant account.
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