QUESTION on How to Accept Payment Online for Ecommerce:
I am planning on starting an e-commerce small business. Do I need to get a merchant account now, or would Paypal alone be okay? I want to accept credit cards on my web site, but unsure whether I need to get a merchant account at this point.
– Edgar (Akron, Ohio)
ANSWER by Isabel Isidro
It is always best to offer as many possible payment options for customers as possible. You want to get as many sales as you can, and the best way to do this is to make sure that you make it easy for your customers to actually buy and pay you.
It really depends on the type of product you are selling, your anticipated sales volume, your resources, and your credit standing. Here are some factors you may want to consider:
1. Your level of resources.
If you do not have enough funds, Paypal is the easiest way to accept credit cards online. Creating a business account with Paypal is easy; all they need is your credit card and bank account routing number for depositing the money in your Paypal account. You will not pay anything else.
With a merchant account, you will have to figure out whether you want payment processing to be done automatically or manually — and either way, you will be incurring additional expenses. If automatically, you will need a payment processing gateway. Verisign Payflow services, for instance, costs as much as $59.95 per month for maximum of 1,000 transactions plus set up fee of $249. Plus, you still need SSL digital certificate to ensure secured transaction, which can set you back anywhere from $199 for two years with Thawte or $695 for two years with Verisign. If manually, you will purchase a credit card payment processing terminal. Verifone Omni 3750, for example, costs anywhere from $398 to $650.
2. Customer’s Preferred Mode of Payment.
One thing to consider is that not everyone has a Paypal account, and not everyone is willing to sign up for one. If you don’t have a merchant account, you will lose the sale of majority of the people who do not have Paypal accounts. Unfortunately, there is no data how many people actually abandon their shopping carts upon seeing that only Paypal is offered for payment processing.
On the flipside, there would be some customers who have stagnant funds in their Paypal account or those who simply prefer to use those Paypal funds instead of cash or credit cards.
Using either option, one thing you cannot escape from, and that is a fee. Both charge processing and other fees per transaction. If you can get a good merchant account provider (especially from a bank), transaction fees of Paypal is higher and it becomes more expensive to process payments using Paypal. This is true especially if you are selling high ticket items.
4. Types of product sold.
Paypal alone is good if you are selling on eBay, you are doing your online selling as a hobby, or you are selling low-ticket items. If the items you are selling have price tags upward of $1,000 or above, you may find fewer customers who will pay with Paypal.
5. Fraud controls.
The level of fraud typically depends on the industry – some are more prone to fraud than others. Unless you can put addons in your payment gateway (e.g. get Verified by Visa or some other controls), Paypal takes care of this on their end. So with a merchant account, the more fraud controls you put, the transaction costs becomes higher and keeping it becomes more expensive.
You don’t get victimized by phishing schemes with your merchant account. There are tons of phishing emails on Paypal around, so it is important not to click on any emails claiming to be from Paypal. If you want to get information about your Paypal account, simply log into Paypal.com.
I suggest give customers the option of using which is most convenient for them — both. If they want to use their credit card, then you have the merchant account to process it. If they want to use their stagnant funds in their Paypal account, then let them do it.
Then review how many of your customers actually use Paypal vs. merchant account, and estimate the cost for each. If only 3% of your customers use Paypal, then you can reconsider and use only your merchant account
Recommended Books on Website Performance and Succcess:
- Essentials of Online payment Security and Fraud Prevention (Essentials Series)
- The SmartPhone Wallet: Understanding the Disruption Ahead
- E-commerce Get It Right! Essential Step-by-Step Guide for Selling & Marketing Products Online. Insider Secrets, Key Strategies & Practical Tips – Simplified for Start-Ups & Small Businesses
- Design and Launch an eCommerce Business in a Week (Entrepreneur Magazine’s Click Starts)
Article originally published February 2006. Updated on January 19, 2012
- Merchant Account: How to Accept Credit Card Payments Online
- When to Use Paypal to Accept Online Payments
- Operational Requirements of Setting Up a Website
- Accepting Credit Cards Online: 10 Red Flags For e-Fraud
- What You Need to Know About Merchant Accounts