PayPal vs Merchant Accounts: What is right for your online business

As a young online entrepreneur, choosing the best payment processing system can be a headache. Ask around, and you will hear all sorts of reasons why one solution is better than the other. However, the thoroughly experienced Internet-based retailer will tell you the truth: competition is stiff, and relying on only one means of processing payment is not enough.

How PayPal differs from traditional merchant accounts.

PayPal uses what is called an “aggregator” account, which theoretically accommodates all retailers, as opposed to traditional providers, who offer each client an individual, “dedicated” account. The idea of PayPal’s aggregate method is to balance the risk of all honest retailers against fraudsters.

Consequently, PayPal doesn’t have to vet new retailers to determine if they are potentially fraudulent before signing them up for its service. Instead, it waits to catch a whiff of fraud from a registered user and quickly shut them down.

As a result, setting up an account is quick and easy, and PayPal can start collecting payment fees from clients almost immediately. Moreover, unlike with dedicated merchant accounts, you don’t have to wait hours for an application to be approved, to start accepting credit cards.

Where PayPal falls short.

Having one large account for everyone has the advantage of fast approval processes and quick card transactions, but there is one major problem: PayPal doesn’t know anything about you or your business, and, therefore, doesn’t understand the level of risk. If something unusual happens such as an increase in chargebacks, or suspicion of fraud, PayPal’s only recourse is to freeze the account.

On the other hand, a dedicated merchant accounts provider like eMerchantBroker will conduct a proper vetting process when a merchant applies for an account, and approve applications based on the information presented. These companies, therefore, know your business and understand the risk. If something happens, they have other ways to mitigate the issue, rather than freezing the account.

When to use PayPal.

PayPal accounts have a much higher likelihood of getting shut down than traditional merchant accounts, but they are quick and easy to start and manage.

You should consider a PayPal account if:

  • You have a business idea that you are still trying to prove as a viable concept, and are thus not assured of its success. Because an unsubstantiated idea might not be around tomorrow, it wouldn’t be wise to have a contract with a merchant accounts provider.
  • Your sales are too low to warrant the need for a traditional merchant account. An account with low sales is also less likely to be flagged down by PayPal.
  • You are thinking of an aggregator account as a supplement to your traditional merchant account. Some established businesses can use PayPal to reach customers who won’t buy unless they can use a PayPal account.

PayPal is a great payment option for an entry-level business, but if you want more protection or are in the high-risk business, you will want to have a traditional merchant account set up. Afterwards, you can use PayPal as an added payment option for customers.

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