How Does PayPal Compare For Small Businesses?

Mantis Funding July 13, 2023

PayPal is one of the largest online payment platforms on the planet. With so many people and organizations using it, you might wonder if opening a PayPal Business Account for your organization is worth it. Creating a PayPal account for your business is free and grants you access to an abundance of features unavailable to users who enjoy PayPal for personal use; however, there are some drawbacks and fees to consider when debating on opening a PayPal Business Account.

Here, we will explore the various features that a PayPal Business Account can offer companies and weigh some pros and cons for small businesses to consider. Read on to learn more.

PayPal Business Account Pros & Cons: An Overview

 

Pros Cons
Simple Integration with online shopping carts. Higher per-transaction fees than other payment platforms
Easy-to-use interface Not ideal for businesses that have a high sales volume.
Widely used by businesses and customers Higher chargeback fees than other platforms
Can accept a wide variety of currencies (25) Limited in-person and POS capabilities.

What Is a PayPal Business Account?

As the name suggests, a PayPal Business Account is a type of account on the widely-used payment platform that helps small to medium-sized businesses manage their payments. Companies can use their PayPal Business Account for in-person and online transactions. While PayPal is easy to use and widely available, it does charge its users higher rates than other transaction processing companies in the industry, such as Stripe and Square. Despite this, PayPal is a decent choice for new businesses looking for a familiar and straightforward payment platform.

For more established businesses or businesses with a higher sales volume, it may be worth looking into cheaper payment processing platforms that offer volume discounts on transactional fees.

How Does PayPal Business Work?

PayPal Business Accounts give online and brick-and-mortar merchants the ability to process transactions. Businesses can use the platform to accept major card payments for a fee without paying for an annual subscription. Users can accept payments from international customers and customers that do not have PayPal.

Online businesses can also integrate PayPal business right into their shopping carts, providing customers with a straightforward way to check out. Learn more about the different ways PayPal can benefit your small business below.

Subscription Payments

Merchants with PayPal Bussiness Accounts can use the platform to charge customers for subscription-based services. With PayPal Business, businesses can establish custom subscription plans and incentives, including free trials and discounted periods for their customers. Merchants can also enjoy PayPal’s free invoicing app with link sharing and custom templates, among other features.

Integrations

Businesses can seamlessly integrate their PayPal accounts with their online shopping carts, POS systems, and other products to facilitate a smooth shopping experience for their customers. Zettle, PayPal’s dedicated POS software, allows brick-and-mortar businesses to accept payments in person. Additionally, PayPal has a platform for businesses that need to process mass payments called Payouts.

Seller Protection program

PayPal Business Accounts also offer 24/7 monitoring for merchants via its Seller Protection program. This program covers two common buyer complaint types:

Item Not Received
Unauthorized Transaction

In the event that a customer files a claim against the merchant, PayPal will side with the business as long as it meets certain requirements.

Advantages of PayPal Business

PayPal Business offers merchants a convenient and widely accepted payment solution, allowing them to process transactions online and in person. The platform’s robust features, including invoicing, reporting, and integration, can help businesses streamline their payment processes. Learn more about the advantages of using PayPal Business below.

Easy to Use

PayPal Business offers small and medium-sized business owners an easy-to-use way to process payments from customers. PayPal is easy to integrate into most online shopping carts and websites, making it the perfect option for small businesses that need to start accepting online payments as soon as possible.

Universality

Since PayPal is one of the most popular pay processing platforms worldwide, many customers use it as their go-to when shopping online and elsewhere. For business owners, chances are they are already familiar with PayPal’s user interface from the customer’s point of view, meaning there will not be a steep learning curve. PayPal also has an expansive online forum for merchants called PayPal Community, a valuable resource for troubleshooting issues that might appear along the way.

Transparent Fees

While higher than competitors that offer businesses the same services, PayPal’s per-transaction fees are transparent and easy to find on their website. This transparency allows merchants to estimate their monthly payment processing costs more precisely.

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Disadvantages of PayPal Business

On the other hand, PayPal’s strict terms of use can limit certain industries on the types of products/services they can provide, potentially restricting businesses operating in specialized or high-risk sectors.

Some users have reported challenges with PayPal Business’s customer service, which can hinder prompt issue resolution and impact the overall user experience.

Strict Terms of Use

PayPal Business has strict terms of use that businesses must follow to continue using the platform to accept payments. While these strict terms help protect users from falling victim to fraud and other issues, they can sometimes lead to wrongful punishments for businesses, including withholding funds and terminating accounts. Some merchants may find these restrictions limiting if they operate in industries with specific regulatory requirements or offer products or services that PayPal’s policies do not support.

Not for High-Risk Businesses

PayPal Business may not be a suitable option for businesses in high-risk industries. For age-restricted items or products that have a high risk for chargebacks and credit card fraud, including alcohol and tobacco, PayPal requires businesses to undergo a pre-approval process.

PayPal has a risk assessment process in place, and businesses operating in these industries may face difficulties obtaining or maintaining a PayPal Business account. PayPal prohibits merchants who sell firearms and drug paraphernalia from using the platform altogether.

Customer Service

While PayPal offers phone support, text support, and a resolution center for transaction or account issues, many customers view PayPal’s customer support as unhelpful. A significant number of businesses have also experienced delays or difficulties in getting their issues resolved. This can be frustrating for sellers that require prompt and efficient customer service to address payment disputes, account issues, or technical problems.

How Much Does PayPal Business Cost?

PayPal provides a convenient payment solution for small businesses, enabling them to accept online payments via credit or debit cards. However, it’s important to take a closer look at the associated fees, such as:

Receiving Funds Fees

For merchants who choose to have their payments directly deposited into their bank account, PayPal imposes a small receiving funds fee. This fee is usually around 1% of the total payment, with a maximum fee cap of $10. For example, on a transaction amounting to $500, the receiving funds fee would only be $5 (1% of $500).

Transaction Fees

For each payment you receive through PayPal, there is a transaction fee applied. Typically, this fee amounts to roughly 2.9% of the transaction value, plus a flat fee of $0.30. For instance, if you receive a payment of $200, your transaction fee would be $6.20 ($5.80 + $0.30).

Withdrawal Fees

When you transfer funds from your PayPal Business Account to your bank, PayPal charges a nominal withdrawal fee. Domestic withdrawals typically incur a flat fee of around $1.50, while international withdrawals are $5.

PayPal Businesses vs. Competitors

 

PayPal Square Stripe
Monthly Fees 2 Free Plans + Pro Plan @ $30 monthly $0 – $60 Starts at $0
Online Payments 2.59% + 49 cents-3.49% + 49 cents per transaction 2.9% + 30 cents – 3.5% + 15 cents 2.9% + 30cents – 3.4% + 30 cents
Mobile Card Payments 2.29% + 9 cents. 2.6% + 10 cents 2.7% + 5 cents – 2.9% + 30 cents
In-store POS Payments 2.29% + 9 cents. 2.6% + 10 cents 2.7% + 5 cents – 2.9% + 30 cents
Virtual Terminal 3.49% + 9 cents. 3.5% + 15 cents 3.4% + 30 cents
Recurring Payments 3.49% + 49 cents. 3.5% + 15 cents 2.9% + 30 cents – 3.4% + 30 cents
Peer-to-Peer Free Free (via Cash App) Not Supported

Is a PayPal Business Account Right for My Business?

Determining if a PayPal business account is the right choice for your company depends on several factors. One of the first things to consider is the type of transactions your business processes. PayPal is a widely recognized and versatile payment platform that processes peer-to-peer and commerce transactions.

PayPal offers a range of features and benefits that may be advantageous for your business. It provides a user-friendly interface and higher transaction limits than other platforms. With PayPal, you can accept payments from international customers, manage invoices, and integrate with various e-commerce platforms.

However, it’s important to note that some of PayPal’s transaction fees are higher than other payment platforms, which may impact smaller businesses with tighter budgets. It’s crucial to carefully evaluate your business’s needs and compare PayPal to alternatives like Square, Stripe, and more.

A PayPal business account can offer your business a wide range of features and global reach. However, it’s essential to carefully consider your business’s specific needs and compare PayPal to other platforms to determine the best fit for your operations.

If your small business requires funding, Mantis Funding provides revenue-based funding solutions. Our team of professionals is here to help businesses of all sizes reach new heights with an easy application process and swift turnarounds on funding. In many scenarios, we can even disburse funds in less than 72 hours. Contact us today for more information on how we can assist your business!

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About Mantis Funding

Mantis Funding is a business financing solutions firm catering to small and mid-sized business owners in the United States.