As a business owner, you’ve surely endured the torture of waiting for important checks to arrive in the mail. You’ve got supplies to buy and employees to pay, and when you open your mailbox, it’s filled with nothing but broken promises. “It’s in the mail,” they all say.

internet payment processingToday, thanks to the efforts of Benjamin Franklin and Al Gore, it is possible for your customers to pay you electronically through the internet. With a merchant account and a payment gateway, you can sell physical products, digital downloads, recurring subscriptions, or anything else you want; right from the comfort of your own ecommerce website. The funds can be deposited in your bank account in a couple days.

With the wide variety of payment gateways and merchant accounts out there, choosing the right provider can feel like a daunting task. To get you pointed in the right direction, we’ll compare some of the most popular solutions, but first:

What’s the Difference Between a Merchant Account and a Payment Gateway?

When a customer visits your website, adds something to their cart, and enters their billing information on your checkout page, that information is initially going to be handled by your payment gateway. The information is encrypted, and the gateway provides a secure path to the payment processor.

The payment processor communicates with the customer’s card issuer. When it confirms that there are sufficient funds to cover the purchase, the transaction is approved. Then the funds are transferred from the customer’s account to your merchant account. Depending on the type of merchant account you have, these funds can either stay in the merchant account or be transferred into your regular bank account.

In a nutshell, your online payment gateway is the equivalent of the card terminal at your brick and mortar store. It is simply the technology that securely takes the payment info and sends it where it needs to go to be processed.

Your merchant account is just like a bank account. It is where the funds go when successfully approved and captured.

Merchant accounts and payment gateways can be offered a la carte, or they can be combined in a single solution.

Today we are going to focus on a few of the most popular payment solutions: PayPal Payments Standard, PayPal Payments Pro, and Authorize.net.

PayPal Payments Standard

PayPal Payments Standard combines the functionality of a payment gateway and merchant account. It is an extremely popular choice for businesses that are first starting to sell online. There are no monthly fees, and it is incredibly easy to set up. There’s no credit check, no underwriting, and no long application process. Basically anyone with an email address can potentially start receiving payments in minutes.

If your site utilizes a popular ecommerce platform like WooCommerce, Magento, Shopify, 3d Cart, BigCommerce, or any other shopping cart you’ve ever heard of, you can bet there’s a plugin for PayPal Payments Standard. Just install with a few clicks and you’re good to go.

Even if you don’t have a shopping cart, and you just have a static HTML website, adding a “Pay Now” button to any page is as simple as copying and pasting a snippet of code.

Right out of the box, for no extra charge, PayPal Payments standard also comes with the option for your customers to pay with PayPal credit. For items over $99, customers can opt to pay in installments. This can help increase your sales by lowering the barrier for some of your bigger ticket items. You get paid in full upfront. PayPal handles the billing.

The main way that PayPal Payments Standard differs from other solutions is in the checkout experience. When your customer is ready to checkout, they are directed off of the site to a payment page that is hosted by PayPal. This page will look noticeably different from the rest of your site, but it is secure, and you don’t have to worry about getting an SSL certificate for payment card industry (PCI) compliance.

paypal payments standard checkout pagePayPal Payments Standard checkout page

Paying off of the site provides a less cohesive shopping experience than staying on your website, but PayPal is such a household name that most shoppers still feel comfortable with the off-site payment page. For an on-site checkout experience and additional options, you’ll need to upgrade to PayPal Payments Pro.

PayPal Payments Pro

For $30 a month, PayPal Payments Pro offers you the ability to customize your checkout experience and have customers complete the payment process on your own site. Staying on the site looks more professional, and provides a more cohesive shopping experience.

Another feature included with the pro plan is a virtual terminal. With a virtual terminal, you can manually process credit cards on any internet-connected computer, tablet, or smart phone. There’s no need for any additional hardware. You can take payments over the phone or in person by keying your customers’ credit card info into a secure portal. A virtual terminal is a very useful tool in your payment processing arsenal.

Merchants who sell subscriptions and want to automate recurring billing will need a Pro account. The recurring billing add-on is an additional $10 per month. You can’t add recurring billing to PayPal Payments Standard.

Like PayPal Payments Standard, the process for signing up for a pro plan is very painless. PayPal aggregates a huge portfolio of companies under one merchant account, so the risk they take on when signing up new accounts is spread out among a large group. This translates to relaxed underwriting guidelines and a quick and easy sign up process for you.

Additional Benefits of PayPal

In addition to payment processing, PayPal offers a variety of other business services that may streamline your day to day operations.

    1. PayPal debit card. When you receive a payment through PayPal, the funds generally become available in your PayPal account within a few minutes. Transferring that money to your bank account takes a few days. With a PayPal debit card, you have access to your PayPal funds immediately. Plus, if you choose to use your PayPal debit card for all your business purchases, all your income and expenses will be in one place come accounting time.
    2. Shipping labels and packing slips. You can print UPS and USPS labels right from your PayPal account. Shipping fees are deducted from your balance. You can track and confirm delivery of shipments, and easily void shipping labels for a full refund.
    3. PayPal Working Capital. If you’ve been a merchant for more than 90 days and have sold more than $15k over past 12 months, you can get a business loan in a matter of minutes. The loans have no periodic interest. You just pay a fixed fee, and pay back your loan using a percentage of your sales.
    4. Point-of-sale (POS) and mobile solutions. If you do business both online and offline, PayPal has a solution for you. They offer card readers for mobile phones and POS equipment for in-store use. Again, managing your online and offline sales in one central account is very convenient.
    5. Live support. Representatives are available by phone seven days a week. You might end up waiting on hold for quite a while, but it’s better than going back and forth by email and waiting a day or two for each response.

Authorize.net

Authorize.net differs from PayPal in a couple of ways. First of all, Authorize.net does not aggregate merchant accounts from multiple companies into one pool. When you sign up for a merchant account with Authorize.net, that account is for you and you alone. That means the responsibility of keeping the account in good standing lies solely on your shoulders, so there is a more stringent underwriting process. The application process may take a few days.

If you already have a merchant account, you have the option of keeping it and getting a gateway only from Authorize.net.

One benefit of having an individual merchant account instead of an aggregated account like PayPal’s is that you may be able to negotiate a better rate. For smaller businesses, a few tenths of a percentage may not add up to much savings. If you sell millions of dollars a year, the savings can be significant.

Another benefit of a dedicated merchant account is that they must adhere to industry-standard credit card processing rules should they want to freeze your account or issue refunds for chargebacks. Aggregated merchant account providers can make these decisions at will and change the terms of your contract whenever they want. This doesn’t happen a lot, but there are some horror stories out there of people’s PayPal account being frozen for months while a dispute was under investigation.

paypal account frozenWhen your PayPal account is frozen.

Either way, when disputes happen, it’s an uphill battle fighting against the customer. Merchant account providers want to instill trust in buyers, so they tend to immediately side with the customer. As a seller, you’re guilty until proven innocent.

The other main benefit of Authorize.net is the ability to tokenize credit card payments so returning customers can pay with a card on file without re-entering their credit card details. Sensitive info is saved on Authorize.net’s PCI compliant servers.

In a situation where speed is a high priority, this is a really nice feature. Typing out all your billing info is a pain, especially on mobile devices.

You can also manually bill your customer’s credit cards without having to physically or digitally store them at your place of business. Just login to Authorize.net’s customer information manager, find your customer, and bill their card on file. Their sensitive data isn’t even visible to you and your employees. It is encrypted and stored safely on Authorize.net’s servers. Many businesses today still have file cabinets full of paper credit card authorization forms, posing a potential security risk.

Authorize.net vs PayPal Price Comparison

For starters, PayPal Payments Standard, PayPal Payments Pro, and Authorize.net all carry the same exact per-transaction fees. This is going to 2.9% of the sale plus 30 cents.

If you sell a high quantity of items under $10, you might be able to save a lot with PayPal’s fee schedule for micro-payments. PayPal charges 5% plus five cents. Authorize.net does not have a separate fee schedule for small transactions. So if you sell $2 bumper stickers, you’ll pay 45 cents in fees with Authorize.net and only 30 cents with PayPal.

PayPal Standard PayPal Pro Authorize.net
Transaction Fees 2.9% + .30 2.9% + .30 2.9% + .30
Micro-Transaction Fees
(Under $10)
5% + .05 5% + .05 2.9% + .30
Monthly Fee $0 $30 $25
Recurring Billing N/A $10 $0
One-Time Setup Fee $0 $0 $49

So Who’s the Winner?

The answer is, of course…

It depends!

If you’re just starting out, there is no question that PayPal Payments standard is the easiest, cheapest solution for you.

If you have an established business and you want the professional look of accepting payments on your site plus the convenience of managing everything in one place, then PayPal Payments Pro is for you.

If you have a larger business and don’t mind jumping over the initial hurdles to get your own merchant account, Authorize.net is for you. While you’re at it, add PayPal Payments Standard on top of your current checkout. Adding PayPal as an additional payment option will help you grab those customers that don’t want to give you their credit card.

Take your online sales to new heights. Call TheeDesign’s ecommerce web design and digital marketing experts today at 919-341-8901.