Is it better to use Paypal or get a 3rd party free merchant account if I have a high risk business?

5 comments

1. 

   Maria L on June 14, 2009 at 3:52 pm

   Many people are having trouble with using Paypal by the time their business grows, that's why they are forced into getting their own merchant accounts.

   I suggest you try third party merchant account providers if you feel you can't handle your own merchant account yet. It saves you the trouble of setting up infrastructure when you can have third party providers handle it for you.

   Moreover, third party merchant account providers are so numerous you will not run out of choices. You'll have to choose one that can support you regardless of the size of your high risk business.

2. 

   Joe C on June 14, 2009 at 3:52 pm

   Although I have used PayPal, I've heard a lot of unfavorable things about them.

3. 

   brian t on June 14, 2009 at 3:52 pm

   As your buisness grows I would start looking twords the merchant account provider but one thing I believe is if it aint broke dont fix it. If pay pal is working for now why take an unnessassary risk.

4. 

   hotsnakes2 on June 14, 2009 at 3:52 pm

   I use Pay Pal with my E-Bay account and find it so user friendly. Granted there is the possibility of disputes and it takes up to 4 days to have the money transferred to your financial institution but all in all, I find it quite handy.

5. 

   lhephner on June 14, 2009 at 3:52 pm

   There are several factors to consider when switching from PayPal to your own merchant account–particularly if you have a high risk business.

   1. Cost. Figure out exactly what you are paying PayPal for each credit card transaction, and also figure out how much you are paying per year in merchant fees. If it is not substantial, you are likely best staying with PayPal.

   Getting your own merchant account for a typical business is generally far less expensive than using PayPal. However, for high risk businesses, merchant accounts can be costly. In fact, most high risk merchant account providers won't even tell you how much it will cost you up front (just try searching Yahoo for "high-risk merchant account" and you'll see what I mean.)

   One site that does provide information up-front, Expert Merchant Services (www.expertmerchantservices.com), charges a $995 setup, 5.95% on transactions, and requires a 180 day rolling reserve of funds. That's likely way too expensive unless you have a high volume business.

   But, they do accept just about everyone (98% according to the site)–from those wtih little to no processing history to those in "high-risk" industries like adult sites , MLM sites, and travel agencies.

   2. Do you really need to take credit card payments?
   Another possibility for you is to start accepting payments via ACH processing instead of credit card processing. This lets you directly debit your customers' checking account for payments.

   Depending on your type of business, you may be able to significantly lower the discount rate you pay on transactions, and possibily eliminate it completely (replacing it with a flat transaction fee.) PayPal offers this service, but they charge a hefty percentage of the transaction by ACH industry standards.

   Try PaySimple (www.paysimple.com) for what may turn out to be a lower cost solution. They offer a standard flat-rate package for non high-risk merchants, and are very competitive on high-risk ACH.

   3. Do you do a lot of international business? If you do, then PayPal is likely your most cost effective choice–particularly if you are transferring money or doing ACH. They make it easy to deal with people from many different countries and handle currency conversion well. On the credit card side, any High-Risk Merchant Account will work well for International–again, it will all come down to cost.

   What ever option you choose–make sure you understand the details and the fine print. Lots of companies dangle low rates in front of you, but you have to read the fine print to understand what you are really paying.