To PayPal or not to PayPal: A Review of Online Credit Card Platforms
With transaction fees ranging from 2.2% - 2.9% plus $0.30 per transaction, PayPal can be a costly proposition--especially for small businesses. As I started digging into the technology side of The Mogul Mom, I felt certain there were better credit card processing options for small business like ours. I just needed to find them. "We can certainly do better than PayPal," I told Meg. Call it rookie hubris. Call it know-it-all-ism. My wife has affectionately titled me the "product manager" of our household because of my compulsive need to read reviews and run cost comparisons before purchasing--well, just about anything. This sort of due diligence has spared me countless financial losses and ultimately saved time, money, and frustration. (Well, that's what I tell myself anyway). The interesting thing is, as I dug into the world of online credit card platforms, I discovered that PayPal has charms that make it worth the extra money--at least while we are still fairly small.
To PayPal or Not To PayPal
To come to this decision I evaluated 4 basic criteria: cost, simplicity, brand recognition, and integration with our shopping cart software. There are other criteria like being able to accept payments from around the world and the ability to stay on your own site throughout the transaction, but they took a back seat in this analysis. The primary thing that made me seek out options beyond PayPal in the first place, was the cost. For any of us working in start-ups, definitely cost is a criterion. I had seen other companies advertise lower rates for credit card processing. After doing my research the fact remains: PayPal isn't the cheapest option. PayPal costs are broke down accordingly: Monthly Sales | Fee Per Transaction | Examples$0 to $3k | 2.9% + $0.30 | $3.20 fee on $100$3k+ to $10k | 2.5% + $0.30 | $2.80 fee on $100 $10k+ | 2.2% + $0.30 | $2.50 fee on $100 Since Megan and I are both new to the world of online business, simplicity was a factor. There is a lot of work to do, and we don't want to waste time on a part of the business that doesn't add value to our readers. Unlike cost, PayPal has simplicity on its side. As possibly the most widely recognized of the global credit card processing platforms out there, and the established platform of The Mogul Mom, there was a definite simplistic advantage to sticking with PayPal. The simplicity comes at a cost, for the most part, you have to let your customers leave your site to complete their purchase. Brand recognition is also important. Many online shoppers still have, justifiably, qualms about sending their credit card information, pins and personal IDs out into the great cyber unknown. Because we aren't Amazon, we want to make sure our customers know that they can shop with confidence. Finally, unless you are prepared (we weren't) to switch up your shopping cart software as well, you need to select a platform that is compatible with the shopping cart software you use. We currently use SendOwl which is compatible with 6 different platforms: PayPal, Google Checkout, Authorize.net, SagePay, PayMill, and Stripe. Now equipped with my four-pronged company evaluation matrix I was prepared to have a look at the contenders. When I told Meg I thought we could do better than PayPal she thought a moment and then said, "But who else is there?" Turns out there are a number of services to choose from. They call me the product manager ;)
Review of Online Credit Card Platforms
The first option I considered was Google Checkout. I made the assumption that Google had the size to provide the same brand recognition of PayPal and I was hoping that it would be simple and more cost effective. Just one problem, as of November 20th 2013, Google Checkout is shutting down and transitioning its services to Google Wallet. That means that if you ship a physical product, Google isn't the solution for you. If you ship a digital product, like an app or an e-book, you can still use Google wallet. Google wallet charges 5% or 1.9% + $0.30, whichever is better for the seller. So if you sell an item for $1, Google wallet (5 cents) is much cheaper than PayPal (33 cents). I like this option, but Google's big shift in policy worried me. Plus I wasn't sure if it integrated with our shopping cart software, you have to use their API (Application Programming Interface). Overall the Google Wallet option is:
- Cost = Lower than PayPal
- Brand recognition = Same as PayPal
- Setup = More complex than PayPal (you have to use an API to integrate, although they swear it's easy)
The second option we looked into were the more traditional credit card payment processors, the largest of which seems to be Authorize.net. When you read articles about them, they say authorize.net charges $20 a month and 10 cents a transaction - once you start selling in volume, you can save a lot of money! What the articles don't say is that authorize.net is only half the solution. They are a payment gateway - they provide the mechanics of the transaction. You also need a merchant account - which is the authority to accept credit cards. They charge 2-3% + 20-30 cents per transaction. You have to apply for the account and wait until they accept you. Many merchant account providers (like merchantplus) bundle the services of the gateway to save you some money over buying them separately. Overall the Authorize.net Option is:
- Cost = comparable, although you can save $ at high volumes
- Brand recognition = Less recognizable
- Setup = Much more complex to set up
Stripe offers services and prices comparable to PayPal, but they make a point of promoting themselves on the basis of their simple pricing structures. With Stripe there are no monthly fees, no hidden costs, and no refund costs. PayPal retains the fixed transaction fee when you disperse a refund to a customer. What's more, Stripe will process payments without re-directing your customer to another site the way PayPal does. Finally, Stripe was designed with developers in mind and offers API's in multiple programming languages, including Java, PHP and curl. Overall the Stripe Option is:
- Cost = Comparable to PayPal but less expensive if you handle many refunds
- Brand recognition = not as good, and it's only available in the US and Canada for now
- Setup = probably similar to Google Wallet
Based on this brief analysis, I decided we will stay with PayPal for the time being. Though if we weren't already established with PayPal, Stripe would be a serious contender. As we grow and expand our services we may find we've outgrown PayPal and want to again consider the options. When we do, as a dutiful product manager, I will keep you posted.
If your business involves credit card processing, we'd love to hear about and learn from your experiences. Have you made a switch and regretted it? Conversely, have you made a switch and wondered why you didn't do it sooner? Tell us in the comments.