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A guide to SMEs avoiding PayPal merchant account pitfalls

PayPal is the go-to payment gateway provider for millions of businesses – with over 20 million active merchant accounts. However, despite its attractive familiarity and ease-of-use, PayPal is holding many of these businesses back, who ultimately miss out on the rewards available to those who switch providers. But what exactly are the pitfalls of PayPal merchant accounts and how can businesses benefit by switching providers?


Comparing provider fees 

Like any money transfer platform, PayPal charges fees when receiving money through merchant accounts. These are typically calculated as a percentage of the transfer amount but can often include additional fixed fee sums, for example when customers pay with a non-domestic card or when businesses need to convert a foreign currency back into their base currency. So, it’s important for businesses to shop around to make sure they’re working with a provider which makes sense for them. For example, if they trade in 3 specific regions, they should look for a provider which offers the most affordable fees in those countries.

For some businesses, accepting PayPal’s often steep fees is a reflection of their willingness to pay for simplicity. However, in these tough times, many businesses are looking to cut costs and switching providers is an effective solution. One reason for this is that PayPal merchant accounts do not lend themselves to lower-value transactions. The fixed fee of £0.30 for domestic transactions represents a significant margin of low-cost transactions. And while PayPal does offer a specialised ‘Micropayments’ rate for those who typically raise these types of transfers, it’s often more cost-effective to switch providers – with many of PayPal’s competitors offering lower gateway fees across both domestic and international payments.

Chargeback fees should also be considered, especially among businesses whose services have a high churn-rate with limited-time guarantees.


Currency conversion

A challenge for international sellers is accepting payment in local currencies, as these ultimately need to be converted back to the business’ base currency. PayPal lets users accept these payments but charges relatively hefty fees for converting the currency, compared with its competitors. Businesses are advised to compare providers and their currency conversion fees. For example, PayPal UK charges businesses 4.9 percent of the transaction fee to accept payment from a non-UK card, plus 2.5 percent to convert the non-domestic currency. Stripe, on the other hand, charges just 2 percent for conversion back to the business’ base currency.

Another hurdle for businesses is adding an international bank account – outside of the business’ registration country – to their PayPal merchant account when it operates in a foreign currency. PayPal UK is aware of businesses adding international bank accounts as a way of avoiding currency conversion fees and now charges the same 3 percent fee to pay out to an international account, to block this tactic. However, not all providers have taken this step yet. For example, Stripe UK supports multiple payout currencies when a local currency account for each foreign settlement currency is added. Although it does admit that paying out to virtual – but local – multi-currency accounts can have a higher failure rate.


Integrating your solution

Modern businesses demand more and more from their payment gateway provider. Integration is now a desired functionality, with those who can, opting to link their PayPal merchant account to multi-currency specialised accounts like WorldFirst’s ‘World Account’. However, depending on the terms of their regional PayPal Business Unit, some businesses face fees to withdraw funds to these international accounts. And while many competing providers are also taking steps to prevent these withdrawals, they still make it simpler to avoid steep charges. For example, with Stripe and 2Checkout allowing businesses to pay out in USD to Singapore registered businesses, a Singaporean e-commerce business can operate in the US market and enjoy USD payouts to their Singapore-located USD accounts. These businesses can then use specialist money transfer companies to convert USD to SGD at a preferable rate compared with built-in conversion fees offered by payment gateway providers.

Many businesses also value integration with other digital platforms, like Zapier, which keep their workflow content conveniently together. However, this can prove equally tricky with PayPal. Services like Stripe are developed with more Zapier triggers, allowing them to integrate easily with third-party apps, whereas PayPal requires additional development.



Swift support

For SMEs, even minor delays or payment issues can cause significant problems, so access to quick and reliable service support is key. While customer service is inherently subjective, businesses can gain insight through verified review sites. UK PayPal currently boasts just a 1.2 rating out of 5 on TrustPilot, compared with competitors like Stripe and 2Checkout which both boast 3.6-star ratings. Users can filter specific reviews by keywords like ‘customer service’ for in-depth accounts of other business’ experiences.

PayPal also has a track record of suspending accounts when disputes are raised, even without evidence. These disputes can take months to be resolved, within which time, businesses cannot make or receive any payments and will ultimately pass this inconvenience on to the customer. PayPal is a widely popular platform – especially with consumers and small businesses – however, for large international traders, comparing providers is key in achieving the most cost-effective and efficient service.


About Gavan

Gavan started iCompareFX back in 2014 after discovering the easiest way to wire money internationally was through a specialist provider and not the big banks. Living an expat life across five countries, Gavan was feeling increasingly frustrated by the fees, length of time and bureaucracy of transferring money and thought there had to be a better way.

Working with global clients, he has become an expert in comparing money remittance companies. An ex-financial/IT nut turned entrepreneur, he reviews the best and cheapest providers available on the market.

Gavan’s expertise in comparing money remittance companies now lends him to being a leader in the industry driving new innovation and offering an enhanced service for all his customers.




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