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When is a merchant account better than PayPal?

Posted by Alex Neir on Tue, September 14, 2010 @ 03:28 PM

When is a merchant account better than PayPal?

When is a merchant account better than PayPal
This is a common question that most businesses struggle with when deciding to add payment processing to a web site. When should a PayPal account be utilized and when does it make sense to move to a merchant account?

First we need to look at the typical charges associated with a PayPal account and merchant account. To accept payments over the internet you need a payment gateway and a payment processing account. The payment gateway’s job is to capture the cardholder information from the business website, encrypt it and send it to the payment processing account.  The payment processing account then authorizes, settles and deposits the funds into the business bank account. PayPal combines these services into one fee structure. The typical payment processor will split the two charges out. Both are represented below.


Set-Up Fee

Monthly Fee


Transaction Fee

Merchant Acct















Now when examining these costs they don’t have much relevance unless we look at the costs as a percentage of sales. I have calculated the cost (as a percentage of sales) at various monthly sales volumes with a sales price of $25.

When is a merchant account better than PayPal

After analysis the answer to our question “When is a merchant account better than PayPal?” becomes clear:

  • On paper, PayPal looks to be a very cost effective solution and certainly is if you’re monthly sales volume is below $2,000 a month.
  • A merchant account is better than PayPal when your monthly sales volume exceeds $2,000 a month

Now our analysis up to this point has been an examination of direct purchase costs.  We need to also look at the cost savings in terms of ease of use and time.


  • PayPal has a delay in depositing sales into the business bank account and can place a hold on the money at any time without notification
  • PayPal does not allow access to card holder information including the credit card number
  • PayPal’s shopping cart is vey basic and can not handle shipping charges with any sophistication and offers no tax calculation.

Merchant Account

  • The payment gateway allows integration with most commercially available shopping carts. This allows your business the freedom to select a shopping cart that has the right features and functionality for your check out process
  • Allows your business to tailor the ordering approach to your customers, therefor maximizing sales
  • Allows for taxes and shipping to be calculated based on business rules
  • Allows complete control of customer information for entry into a marketing and sales database
  • Disclosure of the card holder’s information including the ability to edit the credit card number for easier refunds and chargeback investigation
  • Offers more freedom to manage your business

In conclusion, a merchant account is better than PayPal if your business if transacting more than $2,000 a month in sales. In addition a merchant account is a better solution if you require more flexibility and freedom to tailor the shopping experience to your specific business needs.

Time to open a merchant account? Download our free guide to avoid costly mistakes.

Tags: Payment Gateway, Maxx Payment Gateway, PayPal Comparison, Payment Processing