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Today's trends for tomorrow's business
Pros and Cons of PayPal for Small Business

Pros and Cons of PayPal for Small Business

Tom Gerencer
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There’s a reason 22 million merchants and 305 million consumers use PayPal: it’s convenient. But as the payments processing game heats up, options are growing, and PayPal is far from your only choice.
Choose the wrong payments partner, and you’ll face the hassle of getting stuck extracting your business from messy accounts and tangled code. So is PayPal good for business? What’s a small business owner to do?
Leave the online research and headaches to us, and use our guide to weigh the pros and cons of PayPal business. We’ll break them down, then call out some alternative payment methods for you to consider.

Pros of PayPal for small business

Benefits for you

Startup is a breeze
  • Simple to register and configure your account
  • Less expensive card readers than competitors
  • Take payments by phone or email
  • No need for a special merchant account with your bank
Easy online tools
  • Integrates with non-PayPal shopping cart systems like Shopify and BigCommerce
  • Seamless digital invoicing
  • Online or in person payments accepted
  • Quick button installation on websites
  • Solid financial reporting in the app
Plenty of extras
  • With PayPal Shipping, buy and print labels at discounted rates
  • PayPal debit and credit cards available
  • Business financing available

Benefits for your customers

  • History of trustworthiness
  • Instant payment for goods and services
  • Multiple currencies accepted
  • No PayPal account needed
  • Easy to set up recurring payments
  • Customers can pay over time with PayPal credit

Cons of using PayPal for small business

Drawbacks to using PayPal

  • High chargeback fees
  • Higher fees than a typical merchant (credit card processing) account
  • Account suspension for terms and conditions (T&C) violations that can freeze your funds for months
  • May take 2 business days to get your money
  • Customer service can be hard to reach

Other considerations

  • PayPal’s seller protection doesn’t cover digital goods
  • Some customers won’t pay with PayPal, which can mean lost business for you
  • Small transactions can have high fees (see number 6 below for details)
  • Slightly higher fees than Square in some areas
Just getting your feet wet with online payments? See our guide to setting up small business payment options.

1. Ease of use

PayPal is easy whether you pay vendors and contractors or take payments from customers, so much so that you may not even mind the 2.9% processing fee on outgoing transfers. Some of PayPal’s competitors have lower transfer fees, but PayPal’s ease of use makes it easy to stay put.
As the online payments processor battle intensifies, with vendors like Google Pay and Venmo joining the fray, your options are growing. Google Pay, Square, and Stripe are just as user-friendly, so don’t go with PayPal for its ease of use alone.
Pros:
  • Easy for customers
  • Easy for businesses
  • Quick to integrate with your website
  • Works great with most plug-ins, shopping platforms, and apps
Cons:
  • Lackluster customer service if something does go wrong (rare)
  • Website interface user experience is less than perfect (minor)

2. PayPal’s card readers

If you make in-person sales, you need card readers. The last thing you want is an unreliable reader and weeks of frustration, ultimately requiring a mid-stream change of vendors. PayPal’s card readers are top notch, averaging 90%+ ratings from thousands of users and reviewers on Amazon, TrustRadius, and more.
What’s so good about their card readers? They have cheaper low-end models starting at $24.99 for chip and swipe, and their most expensive reader at $99.99 does it all. Stack that up to Square’s high-end readers at three times the price, and there’s no contest.
With PayPal, you’ll do chip, magnetic swipe, and contactless transactions for a super-low price per unit. However, PayPal can hit you with more fees if you do a lot of refunds and chargebacks, or if you accept foreign credit cards and debit cards.
Pros:
  • More features at lower price points than most competitors
  • Lower-priced high-end models than the competition
Cons:
  • More fees
  • Higher chargeback fees

3. PayPal’s integration

PayPal is the king of integration, with smart payment buttons that plug in to any website with a simple snippet of JavaScript. When a customer clicks a PayPal button, the service does the rest in a secure window. It’s even fast and easy for shoppers who don’t have accounts, while PayPal account holders can buy in just a couple of clicks.
PayPal’s business integrates seamlessly with existing shopping carts and buttons. You can also set up custom integrations if you want a tailored user experience.
Plus, PayPal plays nice with popular platforms like BigCommerce, Shopify, and the WordPress WooCommerce plugin. If you use an app that PayPal doesn’t work with, Zapier has integration automation that can plug your PayPal into over 1,000 apps like Google Sheets, MailChimp, Gmail, Zoom, and more for record-keeping, scheduling, and other needs.

PayPal API

The API code that drives PayPal’s buttons is clean, simple, and editable. Test one of the buttons on this link to see what we mean. The windows pop up fast, They’re clean and presentable. Plus, it’s easy to fill out the forms to buy now, pay later, pay with a PayPal balance, or use a bank balance or a credit card. PayPal handles the transaction, so security and trust are baked in and transparent.
Pros:
  • Fast and easy
  • Integrates well with small business websites and WordPress plugins
  • Works great with Shopify, BigCommerce, and other ecommerce platforms
  • Integration code is short and sweet
Cons:
  • Some developers claim Stripe and Braintree (also owned by PayPal) integrate in a less-buggy way
  • Live support for the API is lacking
  • A minority of developers say the documentation is confusing

4. PayPal small business loans

Every business needs capital to smooth over rough spots or cash in on opportunities. PayPal lays out a business loan structure that may not feel like a loan at all. With their working capital loans, the company offers advances from $1,000 to $125,000, with amounts based on your history of regular PayPal sales.
As sales grow, your allowed loan amounts can grow, too. Then, instead of making monthly payments, the payback comes out of a percentage of each PayPal sale you make.
They have a small business loan with a more traditional setup, too. The PayPal business loan can lend you amounts ranging from $5,000 to $500,000. Repayments come as weekly automatic bank account deductions, with terms from 13 to 52 weeks. Interest rates depend on your sales amounts and aren’t made public. Loan terms are comparable to other good small business loans.
Either way, you get fast funding, and you don’t need collateral or strong credit. But a PayPal loan won’t help your credit, either.
Pros:
  • Easy approval
  • Smooth repayment methods
  • Great credit score not required
  • APR depends on your PayPal sales per month
Cons:
  • Low maximum balances vs other lenders
  • APR not made public
  • Doesn’t help build your credit rating

5. Payment speeds

Money from customer transactions drops into your PayPal account instantly. From there, you can transfer the funds to your small business bank account in minutes, though it costs an extra 1% for that instant transfer. Standard PayPal transfers to a bank account can take as long as 2 business days.
PayPal Instant Transfer is an add-on service that will ding you with a $10 fee and a 1% transaction fee. That extra cost will put the money in your account in 30 minutes or less on business days, though weekends and holidays may delay the transfer. To set up instant transfers, log in to your account and click Transfer Money > Instant Transfer.
Pros:
  • Customer transactions hit small business accounts in minutes
  • Max transfer time to business bank account is 2 days
  • Can pay extra for instant transfer
Cons:
  • Instant transfer fee is 1% plus $10
  • Some customers are frustrated by the delayed standard transfers

6. Fee structure

When it comes to small business, the merchant fee structure is one of the downsides of PayPal. The service charges similar fees to Square, and its transaction processing fees of 2.9% are on par with many credit cards. You’ll pay 2.7% on in-store purchases and a 1.9% fixed fee on QR code transactions. If you link PayPal to Venmo, you’ll also pay fees of 1.9% for purchases.
Then there are the fees to pay vendors and contractors. If you regularly pay suppliers online, PayPal will charge you 2.9% for each transaction. Google Pay cuts that in half with a 1.5% payment fee for debit cards, and no fee for other transfers, though that may be in flux. You’ll also run into added fees for different situations, including an up to 5% fee for chargebacks if you have a lot of them.
Pros:
  • Similar rates to many competitors for commercial transactions and transfers
  • Lower rates for in-store transactions and QR code transactions
Cons:
  • Fee structure may be hard to understand
  • Higher fees for certain situations than the competition

7. Customer service

PayPal’s customer service for small business clients is lacking, according to reviewers. On TrustPilot, the payments processor’s support has a 1.2-star average review score based on 14,391 reviews. ConsumerAffairs.com gives PayPal an only slightly-higher 1.4-star rating.
With that out in the open, PayPal has done everything possible to make sure you won’t need to contact their support. Their API, interface, website, and small business workflows are all set up to run seamlessly and without issues. Just keep in mind that if you do get into trouble, you may have a hard time getting help.
Pros:
  • Most small business owners rarely need to use customer service
  • Can contact by phone, live chat, or work with the user community
  • Can contact on Twitter or Facebook for a faster response
Cons:
  • Very low support ratings from tens of thousands of users
  • Can be tough to get connected to the right person

Alternatives to PayPal for small business

There are several good alternatives to PayPal business. More vendors are jumping in with competing solutions, and that’s good for your bottom line. What mobile wallet platform should you use? See our guide to smart payment technology for a deeper dive.
Here’s a list of PayPal alternatives and the fastest-growing ways to pay:
  • Square: Accept payments quickly on any device, with easy app integrations.
  • Stripe: Fast setup, no monthly fees, and payments happen right on your site.
  • Google Pay: Fast and convenient, but consumers need a Google account to use it. Doesn’t have its own card readers but can use near-field communication (NFC) readers.
  • Amazon Pay: Fast processing with a trusted brand and comparable fees.

Summary

When you weigh the pros and cons of PayPal business, the most important notches on the plus side are ease of use, trust, and security. As for the cons, you’re looking at higher fees and the potential of a long, hard-to-fix account suspension if you violate their terms and conditions.
Overall, there’s a reason 22 million merchants use PayPal, but with more options opening up, it’s smart to compare the payments processor to upstarts like Square, Stripe, and Google Pay.

About the Author

Tom Gerencer is a contributing writer for HP® Tech@Work. Tom is an ASJA journalist, career expert at Zety.com, and a regular contributor to Boys' Life and Scouting magazines. His work is featured in Costco Connection, FastCompany, and many more.

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