Why You Should Use PayPal for Credit Card Transactions

I first heard of PayPal years ago when my husband’s fantasy football league members were using it to send money to each other. It seemed like a consumer tool, like something you might use for sending money to faraway relatives. EBay was the only Web site I knew of that accepted PayPal, but at the time eBay wasn’t a “regular” e-commerce site.

Later, when I started my own business, I only needed to bill a handful of clients at one time, but I wanted a way to accept credit card payments. I looked into merchant accounts, but they were complicated with way more features than I needed, and they had hefty fees to boot. PayPal won me over with its no annual fees and the ability to take all types of credit cards for the same flat percentage of sales. With PayPal I was able to invoice clients and they could pay directly through a link in my e-mails or the payment button on my Web site.

Today, PayPal competes with traditional merchant accounts for small and medium businesses, offering sophisticated merchant and gateway solutions:

• Their Web site Payments Pro solution processes payment through PayPal, but can be integrated with many popular shopping carts, so you control the buyer’s experience through checkout. Your cart will look and feel like the rest of your Web site rather than the familiar PayPal template checkout page.
• If you also accept orders by phone, fax, or mail, the "virtual terminal" allows sales staff to process the purchase directly into the system.
• Automatic recurring billing can be set up for subscriptions or other repeat payments.
• Offering buyers the option to pay by their PayPal account -- by entering their username and password to complete the sale -- can complement your existing merchant account. There’s even an express “pay by PayPal” checkout button, similar to Amazon.com’s one-click checkout feature.

Beyond fees, the look and functionality of your shopping cart, and the customer experience, your biggest concern will likely be security and whether you're complying with PCI-DSS guidelines* for handling customer credit card information.

The standard hosted version is PCI compliant because the information is entered directly into PayPal’s secure system. But if you’re integrating the Web site Payments Pro solution with your own shopping cart, you’ll be responsible for PCI compliance.

If you already have a relationship with a bank and aren't looking to change merchant accounts, PayPal’s PayFlow Link might be a better option. With PayFlow, PayPal is the gateway so it handles the payment card information but transmits it to your own (non-PayPal) merchant account. You still avoid handling or storing customer credit information but get to keep your existing banking and merchant accounts in place.

One major drawback of PayPal is that it’s still better suited for Internet and mail-order businesses rather than brick-and-mortar retailers. For point-of-sale transactions that require a physical card swiper, sellers still need a regular merchant account because PayPal doesn’t offer an integrated POS solution.

*PCI-DSS (Payment Card Industry Data Security Standards) protect a customer’s payment card information and is required for merchants that store, transmit, or process payment card information. In a future post I’ll be exploring these requirements and the potentially devastating results of ignoring them.