PayPal has been around since 1998 - way before many of the other payment gateways we’re using these days. They’ve got over 100 million users and work more like a bank account than a credit card. But why are people still using it? And should you be offering it as an online merchant?
What’s so different about PayPal?
PayPal has over 100 million users globally and is used by 7 million businesses. It’s been around for 20 years, and is the primary way that online giant Ebay accepts payments. Unlike most credit card payment gateways, PayPal essentially acts as a third party bank that connects directly with your credit cards and bank accounts. When you make a payment with PayPal, money is transferred from your checking or savings account, or a credit card, into your PayPal account, and then through to the other side. Similarly, if someone pays you through PayPal, the money goes into your PayPal account and you have to transfer it over.
The idea behind this is that with money in this third party account, you can make transactions to other PayPal accounts quickly. Their advantage comes from sheer numbers and access - PayPal is used all over the world and is therefore likely to be more accessible to international customers who use different banks and credit cards than those commonly accepted in your country. Payments happen through the PayPal website, rather than through your servers.
They’re buying out the competition
PayPal is doing their best to keep up with the times by cracking into the direct payments market for individuals. When you and your mates go out for drinks, or split a cab, PayPal steps in so you can easily send the $4.52 you owe them, rather than digging for change or getting awkward about it. There are a couple of services in different countries that have been doing this for younger users, like Venmo and Circle Pay, but PayPal is used globally and by people of all ages, so it’s becoming a fairly popular choice. It’s also gotten so big that it’s buying out the competition, including its acquisition of Venmo last year.
For merchants, this means that as PayPal gets more users sending money to their friends, they might prefer to use it in your store as well.
Remind me what the deal is with payment gateways?
PayPal is a very popular payment gateway all across the internet. Payment gateway is the term for the actual mechanism you can use to accept someone else’s money. Gateways are what you use to accept credit cards, bank transfers, etc. With Shopify, you have over 70 payment gateways to choose from, and you can accept payment through multiple gateways to make sure your customers have access to your store.
The easiest one to set up is Shopify Payments; an in-house gateway that has lower rates than most. You can also accept gateways like Apple Pay and even virtual gateways like BitCoin. Gateways vary in their costs to join with a business account, credit card transaction fees, security features for customer identity theft and merchant chargebacks, and number of users.
How does PayPal stack up?
PayPal has relatively no or low fees to join (though if you do a lot of transactions, you’ll need a Pro account which costs around $30 a month). Their transaction fees are a liiiiittle bit lower for domestic charges, and a liiiittle bit higher for international ones, compared to Shopify Payments. They’ve got a huge number of users that are used to them, which is a big plus, but their biggest drawback is that they don’t have chargeback protection for merchants. This means that when a customer says they didn’t make a purchase, you have an extra headache in proving that they actually did. PayPal is also known for being hacked, as people like to steal customers’ identities through PayPal as much as through credit card theft.
Should I accept PayPal as a payment gateway or not?
It all depends on what your customers are expecting. Having their preferred payment gateway available or not can be what determines a sale, at the end of the day. If many of your customers prefer PayPal, you should be offering it.
How do I find out what gateways my customers want?
The easiest way to find out how your customers are paying is to offer a bunch of gateways (including PayPal and Shopify Payments), then check your payments finance reports from your Shopify admin. If you’re finding that quite a few people are using PayPal, you should definitely be offering it.
However, if you’re finding that only a few are, it might not be worth keeping the fees and lower merchant protection that come along with PayPal.
Want to know more about payment gateways?
We’re here to help you grow your online business and make decisions about things like payments. If you’d like help figuring out what kinds of gateways are best for your ecommerce store, get in touch today.