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Square Up and PayPal are Payment Aggregators | Benefits and Drawbacks

Posted by Alex Neir on Fri, October 19, 2012 @ 01:56 PM
Payment Aggregator
First let’s discuss what a payment aggregator is. A payment aggregator establishes a merchant account and then lets other businesses accept credit card payments and bank transfers on the aggregators account. The payment aggregator facilitates the credit card transaction or bank transfer on behalf of the business. The business is then paid by the aggregator for the completed transactions.

The benefit of using an aggregator’s account to facilitate electronic payments (Square Up or PayPal) include:

  1. Fewer requirements for establishing the account. Most aggregators require only simple contact information and rarely require any financial documentation or credit information.
  2. Simplicity of set up.  Most of the time the account can be applied for and set up immediately.
  3. Ease of use. Most aggregators have identified a niche market and have simplified their system to accommodate their target market. For example Square Up is ideal for low volume mobile merchants that want to achieve a swiped card rate. PayPal’s niche is low volume internet businesses that want a simplified payment processing solution for website stores.
  4. Cheap. Most aggregators pricing, for facilitating electronic payments, is less expensive than a traditional merchant account up to a certain volume level. At what volume should you switch off a Square Up account? At what volume should you switch off a PayPal account?

Drawback of using an aggregator’s account to facilitate electronic payments (Square Up or PayPal) include:

  1. Money is not your money. The business receives a payment from the aggregator. The funds collected from customer’s credit card transactions or bank transfers are the property of the aggregator. The aggregator then makes a payment, equal to the total received from all the transactions, back to the business. Less fees of course. Now these businesses would not be in business long if they withheld funds from businesses that use their account. But it is very important to know that if you violate your terms of agreement they can hold your funds indefinitely. You don’t own that money.
  2.  Expensive at higher volume levels. Once your monthly volume exceeds a predetermined level, the cost associated with using an payment aggregators service is more than a traditional merchant account. When using Square Up, once your volume exceeds $4,300 it is cheaper to establish your own merchant account. When using Paypal, once you exceed $2,000 a month you are better off with your own merchant account.
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Tags: Merchant Account, Payment Aggregator, PayPal Comparison, Merchant Account better than Square Up, Square Credit Card Reader

What’s Best - PayPal, Square Up or a Merchant Account?

Posted by Alex Neir on Fri, July 29, 2011 @ 10:56 AM
Credit Card Processing Solutions

What’s Best - PayPal, Square Up or a Merchant Account?

Based on analysis completed over the last few months we have developed an easy to follow guide which will help your business determine the best credit card processing solution given your specific needs. Each credit card processing solution has strengths for specific situations.

When considering which credit card processing solution is the best it is important to start by asking 2 questions:

  1. Is your business conducting sales face to face or over the internet?
  2. What is the average credit card volume on a monthly basis?

With answers to these 2 questions we are able to guide you to the perfect credit card processing solution for your business.

Is your business conducting sales face to face or over the internet?

If you are conducting face to face sales it makes more sense to consider the Square Up solution or a merchant account. The reason, Square Up and a merchant account offer your business the ability to swipe the customer’s credit card. This function lowers the credit card processing rates dramatically. PayPal does not offer a swipe solution so it is not a good fit for face to face sales.

If you are conducting sales over the internet, you should consider PayPal or a Merchant Account. The reason, PayPal and a Merchant Account offer a payment gateway that can be used to connect your businesses website to a credit card processing platform. Square Up does not offer a payment gateway so it is not a good fit for internet based sales.

What is the average credit card volume on a monthly basis?

Now that we have determined the best solutions given the manner in which the sale is conducted, we will now look at the total monthly volume to narrow our selection even further.

For face to face sales with an average monthly sales volume below $4,300 the best solution is Square Up. Square Up’s fee structure is set up to be very cost effective for face to face sales under $4,300 a month. When the sales volume exceeds $4,300 a month then an actual Merchant Account becomes more cost effective than Square Up.

For internet sales with an average monthly sales volume below $2,000 the best solution is PayPal. PayPal’s fee structure is set up to be very cost effective for internet or ecommerce sites with sales under $2,000 a month. When the sales volume exceeds $2,000 a month then an actual Merchant Account becomes more cost effective than PayPal

Credit Card Processing Solutions2

Tags: PayPal Comparison, Credit Card Processing Solutions, Merchant Account better than Square Up

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.

Type

Set-Up Fee

Monthly Fee

Percentage

Transaction Fee

Merchant Acct

None

$12.95

2.5%

$0.22

Gateway

None

$10.00

None

$0.10

PayPal

None

None

2.9%

$0.30

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

  • 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