PayPal Credit Card Processing Review

Pricing and Terms

If your business doesn’t accept many credit card payments each month, you may find it expensive to work with a full-service processor that has a monthly minimum processing requirement and a handful of regular fees, such as monthly statement and gateway fees, and an annual PCI compliance fee. Choosing a processor like PayPal that has flat-rate pricing and pay-as-you-go terms can save you money since you only pay for the processing you use.

PayPal is very transparent with its pricing, and you can find all of its rates and fees posted on its website. Here’s what you’ll pay when you accept credit cards using PayPal.

Accepting credit card payments in-person using PayPal Here:

• 2.7% of each transaction for credit cards, debit cards and contactless payments you accept in-person using the PayPal Here app and a card reader. The rate is the same, no matter what type of credit or debit card your customer uses – including mobile wallets like Apple Pay, Google Pay and Samsung Pay.

• 3.5% + $0.15 of each transaction for the credit and debit cards you manually key or scan in using the PayPal Here app. If you don’t yet have a card reader and need to accept credit card payments, you’ll pay a higher rate.

Accepting payments online or by invoice:

• 2.9% + $0.30 of each online transaction for credit and debit cards you accept through your website or digital invoice.

Accepting credit and debit card payments using a virtual terminal:

• 3.1% + $0.30 of each transaction for the Visa, Mastercard and Discover payment cards you accept using PayPal’s virtual terminal (such as payments you accept over the phone, by fax or by mail).

• 3.5% of each transaction for the American Express cards you accept using PayPal’s virtual terminal, PayPal Payments Advanced or PayPal Payments Pro.

You’ll notice that PayPal’s transaction fees are somewhat higher than those of full-service processors. However, it’s still more cost-effective if your monthly processing volume is low, because you aren’t paying account fees.

If you use a full-service processor, you pay around $20 per month in account maintenance fees and have a monthly minimum of $25, which can be difficult to meet if you process less than $2,500 per month.

Here are the fees you won’t pay using PayPal:

• No application fee or setup fee
• No monthly fee for statements and customer support
• No monthly minimum processing requirement
• No gateway setup fee
• No monthly gateway fee
• No annual fee
• No annual or monthly PCI-compliance fee
• No early termination or account closure fee

Incidental and optional fees. Some of PayPal’s additional services cost extra. For example, if you need the money from your transactions immediately, you can pay 1% for an instant transfer from your PayPal balance to your bank account. Regular bank transfers are free and usually take one business day.

Here are some more examples of optional services that carry fees:

• Chargebacks: $20 per incidence
• Recurring billing service: $10 per month
• Advanced fraud protection services: $10 per month plus $0.05 per transaction
• PayPal Payments Pro: $30 per month. This option allows you to accept payments directly on your website and includes a virtual terminal
• Cross-border fee: 1.5% is added to the transaction fee when you accept payments from customers outside the U.S. If your cross-border payments require currency conversion, it costs an additional 2.5%

Special pricing is available for certain business types:

• Registered charities pay 2.2% + $0.30 for online donations; in-person donations cost the same as regular business accounts, at 2.7%.
• Businesses with transactions less than $10 may qualify for PayPal’s micropayment fees, which cost 5% + $0.05 per transaction.

Terms. There’s no long-term contract requirement with PayPal, as you accept a user agreement instead of signing a contract. As your business grows and your processing volume increases to the point where the savings from lower rates would surpass account fees and you want to close your PayPal account and switch to a full-service processor, you can do so at any time without penalty.

Features

One of the best things about PayPal is that you can accept various payment methods simultaneously – on the go, at a brick-and-mortar location and online, via invoice and website – and the money from all of your transactions goes into one PayPal account, making it easier to manage your finances.

Here are more features PayPal offers

Free basic POS software. To accept payments in person at your business or on the go, you install the PayPal Here app on your phone or tablet and attach a credit card reader. This mobile credit card processing app includes point of sale features that help you run your business.

Here’s what it can do:

• Accept credit and debit card payments
• Record checks and cash payments
• Create an inventory list and add photos of items
• Add multiple users to your account and manage their access
• Set taxes, suggest tip amounts, apply discounts at checkout
• Email, text or print receipts
• Refund sales
• Generate sales reports
• Transfer funds from your PayPal balance to your bank account or your PayPal Business Debit Mastercard

Card reader options. PayPal has several card readers for you to choose from. The basic Mobile Card Reader costs just $19.99, but it isn’t EMV compliant as it only reads magstripe cards.

Because there’s a greater risk of counterfeit fraud when you use this card reader, PayPal will hold your funds in a reserve account if you use it to process more than $500 of sales in a seven-day period. You can avoid this problem by choosing one of PayPal’s other three card readers.

The following credit card readers are EMV compliant and connect to your phone or tablet via Bluetooth. PayPal also sells receipt printers, cash drawers, stands and cases.

• PayPal Chip and Swipe Reader: Free. Until December 31, 2019, new PayPal Here merchants will receive this card reader at no cost. If you need additional readers or you already have an account, it costs $24.99. With it, you can accept magstripe and chip cards.

• PayPal Chip and Tap Card Reader: $59.99 (or $79.99 with charging stand). Accepts magstripe, chip and contactless cards. This model also accepts mobile payments from Apple Pay and Google Pay as well as contactless credit and debit cards.

• PayPal Chip Card Reader: $99.99. Accepts magstripe, chip and contactless cards as well as mobile wallets. This is the only model that has a screen and a built-in PIN pad.

PayPal integrations. One of PayPal’s strengths is that it integrates with many business systems and applications. Here’s a small sampling of the business solutions PayPal integrates with:

• POS systems like Revel Systems, TouchBistro and Vend
• E-commerce platforms, such as 3dcart, BigCommerce and Shopify
• Accounting software, including QuickBooks, Xero and Zoho Books [Read our review of QuickBooks for more information.]

Online payments. PayPal makes it easy to accept credit, debit and PayPal payments online. It offers two plans for this payment method as well as a payment gateway option:

• PayPal Payments Standard. There’s no monthly fee for this plan; all you pay are the processing fees for your online transactions. With it, you place buy buttons on your website that redirect your customer to a checkout page hosted by PayPal.

• PayPal Payments Pro. This plan costs $30 per month. With it, you can design and host the checkout pages yourself. It includes a virtual terminal that you can use to key in credit card information for sales made over the phone or by fax or mail.

• Payflow payment gateway. If you already have a merchant account through another processor and need a payment gateway for your website, this may be a good option for you. With it, you can accept credit and debit card payments on your website as well as PayPal payments. You can also offer your customers PayPal Credit as a payment option. It costs $0.10 per transaction (above the processing rates you pay your other processor), and there are no setup or monthly fees.

Online invoicing. You can create and send invoices by logging into PayPal’s website using your business account credentials or using the PayPal Business app on your phone or tablet. Your customer receives an email with a link, clicks the link to open the invoice and can then choose to pay the invoice using their credit or debit card or their PayPal account. There’s no cost to send invoices; when receiving payments from your customers, you pay 2.9% + $0.30 for each transaction.

• Invoicing with Messenger. If you and your customers use Facebook, you can create invoices in Messenger to send to your customers. Your customers can click on the invoice in your message to pay it using their PayPal account.

Accept payments from international customers. If your small business sells to customers in other countries, PayPal is a good processor for you. It accepts payments made in over 100 currencies around the world.

PayPal Commerce platform. Startups with online marketplaces, crowdfunding platforms and other e-commerce solutions can use this advanced payment platform to allow their sellers to accept payments from buyers around the globe.

Additional Considerations

Here’s additional information about PayPal to keep in mind as you decide which payment processing company is best for your company’s growth and expansion. 

Customer service. If you run into an issue using PayPal, you can call or email the company 24/7 or use the self-help resources on its website, which include live chat, FAQs, a searchable knowledgebase, how-to guides, a community forum and its Resolution Center that assists with customer disputes. Although the company lists extended phone hours on its website, a company rep noted that you can actually reach a customer service representative 24/7, though if you call after hours, your call may be routed to one of its international offices.

Security. PayPal uses multiple security measures to keep your customers’ payment data safe, including end-to-end encryption and 24/7 transaction monitoring. It complies with the data security standards established by the Payment Card Industry, and most of its card readers are EMV compliant, which deters counterfeit fraud. Your account is password-protected, and you can add a second authentication factor using PayPal Security Key, which sends a unique one-time PIN code to your phone via text.

PayPal Business Debit Mastercard. Using this card, you can spend your PayPal funds at any store and receive 1% cash back on qualified purchases. You can also withdraw cash from in-network ATMs. There’s no annual fee for this business debit card.

PayPal Business Loan and PayPal Working Capital. Eligible merchants can receive small business loans and working capital through PayPal. You can also offer your customers financing options on purchases over $99 through PayPal Credit.

Drawbacks

PayPal is a great solution for low-volume businesses as it allows you to accept credit, debit, and PayPal payments in-person and online on a pay-as-you-go basis with no monthly or annual account maintenance fees and no long-term contract. However, if you go beyond the basic credit card processing services, there are a lot of little fees to keep track of, and they could add up quickly. This could be a detriment to business owners who are looking to scale up. 

Another issue to be aware of is held funds and frozen accounts, which is the cause of many online complaints. This problem isn’t exclusive to PayPal – you’ll find similar complaints about other payment facilitators online as well – as this type of payment processor tends to be more wary of fraud than traditional processors, and irregular patterns in your processing, such as spikes in transaction amounts or frequency, can raise red flags.

Following PayPal’s seller best practices can reduce the likelihood of having your money held in a reserve account. You also want to make sure that the products or services your business provides are within PayPal’s acceptable use policy; otherwise, your funds may be frozen or your account may be closed without notice.