When you’re thinking of starting a business, you’ll definitely be thinking about your payment processor options.
We typically think about the most common payment processors and often overlook PayPal as an option.
The thing is, there are considerable differences with PayPal and your typical merchant account providers, so deciding which one to choose is dependent on your business model and overall sales figures.
This guide will look at your options. We’ll explain the merchant options for PayPal users and explain how you may wish to proceed.
So, Does PayPal Have A Merchant Account?
You wouldn’t be alone in thinking that PayPal is another merchant account option, but the fact is, it isn’t.
PayPal is not a merchant account provider. It is a third-party payment processor, also known as PSP (Payment Service Provider).
What this means is that PayPal amalgamates all of its seller accounts into one large merchant account, which you may have also seen with Stripe or Square.
Because your account is thrown into the mix with millions of other PayPal sellers, there’s no real “merchant account” – so the answer to the question is no. PayPal does not have a merchant account.
However, it does operate as a merchant service as it processes customer’s credit or debit cards and makes the transaction.
Is PayPal A Merchant Acquirer?
No PayPal is not a merchant acquirer.
Merchant acquirers provide their own merchant services, such as processing payments from customers through their website. They do not take any fees from merchants for doing so.
Think of them as the “go-between” of the customer’s bank to the merchant to facilitate a sale. They are often part of larger companies like Visa or Mastercard, who handle transactions for them.
Merchant acquirers are more expensive than PayPal because they charge higher fees, but they can offer better support and security.
Risks For A PayPal Merchant
If you choose to use PayPal rather than a merchant account, there are some risks that you should be aware of before you go forward.
Here are some of the main concerns:
Poor Vetting Process
Unlike your usual merchant services, PayPal does not go through such a rigorous vetting process of its users. You simply enter some basic details, and you’re ready to go.
You may be asked for some more details later down the line if you wish for their premium services, but generally, PayPal will only examine your business transactions to check for fraud.
This may sound completely fine, but for merchants, this lack of vetting can risk your funds being held and therefore not released to you. Potentially, this could see your business get into serious trouble.
While there are plenty of advantages to running a cash only business and using PayPal as a secondary service, nowadays, cards are king.
While the majority of customers likely have PayPal and likely have access to PayPal – some will not and will expect your business to be able to process payments using your typical merchant account.
While not conclusive, this could theoretically lead to fewer sales and a lack of business traffic, so beware of this before proceeding.
Merchant Accounts – More Stability
Merchant accounts conversely to PayPal will have a much more thorough vetting process and this will allow them to examine your credit, your business’s credit, your sales traffic, etc.
This is great for you as you may get more favorable terms and extra services. You’ll also receive high quality customer service and help whenever you need it.
Of course, you’ll need to be aware of what services are on offer and what type of business you are running. For example, you may need to apply for a high risk merchant account.
What Is Best For A Small Business: PayPal Or Merchant Account?
You’ll always be looking at what is best for your business and there are many pros and cons for both, so we’ll examine these more closely.
- All in one merchant services
- Can be used as a supplementary option of payment on your website
- Often cheaper
- Risk of held funds
- Poor vetting process
- Difficulty in receiving customer service
Merchant Account: Pros
- Large merchants find it much more cost-effective
- Smaller risk of account termination
- Smaller risk of held funds
- Great customer support
Merchant Account: Cons
- Offered features may differ depending on the provider
- Can’t be used as a supplementary option of payment on your website
Do These Differences Really Matter?
When it comes right down to it, a business can choose either option they wish – but of course it will largely depend on your business model.
If you want to sell products online then you’ll most likely opt for PayPal. This is because it allows you to accept various forms of payment including cards, which means that you can easily expand your customer base.
However, if you don’t mind selling goods through other channels such as phone or mail order, then you should consider a merchant account.
Here, you can use a variety of methods to collect money from your customers, meaning that you can reach out to a wider audience.
So What Should I Do?
Ultimately, it all depends on your needs. If you’re just starting out with your own business, then it’s probably better to start off with PayPal.
However, once you’ve established yourself, then you might want to consider switching over to a merchant account. The choice ultimately lies within your budget and how you plan to grow your business.
Frequently Asked Questions
Does PayPal Offer In-Person Sales?
If you’re thinking of PayPal’s credit card processing, they do work in conjunction with Vend, Lavu and Franpos which offer POS solutions.
You should be aware though that any such service will ome with a fee, so you may find it a little counterproductive to choose this service over a merchant service.
Can’t I Use Both?
Absolutely! You’ve likely seen businesses, particularly online, that offer both of these payment options – just be aware that you may be paying more for the options.
The Bottom Line
PayPal does not have a merchant account because it is a PSP, but it does have plenty of merchant services which are popular among small businesses.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.