James Boyle
Elemental Services
June 2006
PayPal is the Internet’s biggest online payment processor with over 100 million accounts worldwide. It provides a variety of tools and services that allow small businesses to accept payments on the Internet.
This article gives a quick overview of the services PayPal has to offer for a small business wanting to accept credit card payments online.
At its most basic, PayPal allows you to receive online payments from a Visa Card, MasterCard or from another PayPal account. An important thing to note here is that your customers do not have to have a PayPal account in order to pay you, they can pay directly with their credit card without having to sign up for PayPal.
Once signed up to the PayPal Business Account, businesses can accept payments using a number of services. The most interesting of these services to the small business are Website Payments, and Email Payments. These are described in more detail here.
PayPal allows you to accept credit card payments on your website. This can be part of an online store if you have one, or you may have one-off links (often referred to as “Buy Now” buttons) on your website to allow customers to purchase single items/products or services. Either way the payment process is the same.
This service allows you to email customers a request for payment or an invoice via the PayPal system. The email contains a link that your customer can follow in order to pay a particular amount via PayPal. The email payment process operates as follows.
PayPal cannot replace a credit card machine at your business. Ie. You cannot simply process a payment yourself if your customer has given you their credit card number. This is because the customer is required to drive (and thereby implicitly approve) the transaction. If you do want to process a customer credit card payment the best way is to use the Payments via email system and send them a payment request.
PayPal allows you to accept payments from Visa and MasterCard as well as from a PayPal account. Your customers do not have to sign up with PayPal in order to pay you.
In order to get access to PayPal you must sign up for a Business Account. Signing up is free and only takes a few minutes. You will be asked for some basic business and contact information and after verifying your email address your account will be set up.
We would also advise verifying your account – as this improves your credibility with online buyers. Verifying your account involves
PayPal charges you per transaction, and deducts this fee before placing the balance in your PayPal account. The fee charged works on a sliding scale and is based on your turnover in the previous calendar month. Here is fee structure at the time of writing this article (all amounts are in Australian Dollars).
| Payment received in previous month | Fee |
|---|---|
| $0.00 - $5,000.00 | 2.4% + $0.30 |
| $5,000.01 - $15,000.00 | 2.0% + $0.30 |
| $15,000.01 - $150,000.00 | 1.5% + $0.30 |
| $150,000.00 + | 1.1% + $0.30 |
There are no set up or monthly fees, which is what makes PayPal great for small businesses who are just starting out in online payments. You only get charged when you receive funds.
When you receive a payment, the amount (minus transaction feeds) goes into your PayPal account. PayPal allows you to register a bank account with your PayPal account and at any time, you can transfer funds from your PayPal account into your bank account. Transfers of $150 and over are free of charge. Amounts under $150 incur a $1.00 transaction fee.
PayPal is as secure as any online payment system. Typically online systems are safer than giving phone numbers over the phone, or via fax. However breaches in security on the Internet always make good news headlines and so are publicised when they happen.
The biggest challenge is convincing your customers that PayPal is secure, because they are the ones entering their credit card and personal details into the system. The best way to do this is to give your customers information either prominently on your website or via email before you send a payment request. Some things to mention are that:
If you intend to receive payments online your other solution is to establish an Internet merchant account with a bank. From our experience this can be a fairly extended and painful process though there are good things being said about St George and Westpac banks.
Some banks offer a hosted payments page, which allows them to accept payments on your behalf, in a similar way to PayPal. An alternative is to use a 3rd party payment gateway to actually process your payment.
Typically when using a bank merchant account some or all of the following fees will be involved.
The biggest drawback in using PayPal over a more traditional bank Internet Merchant Account is the same thing that makes it so appealing to small businesses – the fact that it is so easy to set up.
Public confidence is less in using PayPal than traditional banks simply because it is so easy to accept payments using their service. Also – PayPal’s strong association with eBay means many Internet users think that if you only accept PayPal you must not be a “real business” because otherwise you would be using a “real payment system”. That said, the more people get used to paying via PayPal (thanks to eBay), the more trusting people will be of it.
Keep in mind that support may be more difficult to get if you need a problem resolved. While a bank is local and you can always go around to your local branch to get some real answers, PayPal is a US company and you can only talk to them over the phone or email. This coupled with the fact that PayPal does not pay any interest on a positive balance means that you should transfer your money into your regular bank account regularly.
For small businesses just starting out using online payments, PayPal is ideal. The fees are quite competitive to Internet Merchant Accounts with banks with the biggest benefit of no minimum monthly fee. Remember however that it is no replacement for your standard credit card agreement with a bank that allows you to process credit cards yourself.
The payment by email system allows you to accept credit card payments from customers, and easily transfer them into your Australian bank account. By transferring your money out regularly and getting onto support anytime you have a problem or a question you should minimise the risk of having your money tied up in the US somewhere.
Once you get big enough and your turnover becomes significant then it is worth talking to a bank about what they can do for you with an Internet Merchant account, but until then, enjoy the flexibility that PayPal gives you and welcome to the work of online payments.
