Today's guest blog is written by Derek Bogard and Mike Seidle from Virtual Payment Systems.

If you want to take credit cards (we'll call them payment cards from here on because Visa, MasterCard and Discover all offer debit, gift, payroll and many other kinds of cards now) on your website, the first answer is usually PayPal. It's easy for your web developer to integrate and has no up-front or recurring cost, so it appeals to everyone's inner cheapskate. Unfortunately, PayPal isn't the best choice if your goal is to maximize sales.  

I'll explain that in a bit more detail, but first let's take a look at PayPal's two options for your website:

PayPal – Standard PayPal is an escrow account that you can deposit money into (or hook up to a checking account) and pay merchants that accept PayPal payments. There is no monthly charge to merchants, and it is very easy to add to your website. Unfortunately Merchants do pay processing fees (at higher rates than usual) – meaning that merchants don't get off the hook on the most expensive part of taking credit cards. On top of that, PayPal Standard requires buyers register or have an account to make a purchase. Unfortunately, setting up an account to make a payment takes a bit of time, and requires that you give PayPal access to your bank account and/or make a deposit from your credit card.  

PayPal Pro – This is a traditional “merchant account” set up that allows people to enter their credit card number and make a payment. PayPal for Not for Profits is the same product as PayPal Pro, except with better rates. There is nothing special about it, and more often than not, PayPal Pro's rates and features can be beat by other processors. Most importantly, PayPal Pro allows people to pay with a credit card without registering for an account.

In short, PayPal standard is easy to add to your website, but makes paying difficult. PayPal Pro has little to offer over any other traditional merchant processing gateway, and you can often save hundreds or thousands in processing fees by doing a little shopping.

Here are a few reasons PayPal Standard isn't good for business:

Bad checkout process for credit card payers. Unless someone already has PayPal and the payment card they want to use is hooked up to PayPal, the checkout process leaves a lot to be desired. On most sites that accept PayPal and also offer a “Pay with Credit Card” option, buyers will use “Pay with Credit Card” by a five to one margin.

Tough terms for merchants. PayPal's terms and conditions are tough, and leave the company incredibly broad discretion to cancel sales and give refunds to your customers compared to most merchant processors. All it takes is a quick Google search to get an idea what is wrong.

Glacially slow payouts. PayPal takes four to five days to pay merchants after a merchant manually requests money be moved to their account.

Limited Payouts. Merchants are limited in how much money they can move out of their escrow account to their bank or have money sent via check. Merchants are initially limited to $500 per month, so if you accept a payment of $1,500 it may take as long as three months to get your money.

Professional Alternatives to PayPal

Fortunately, there are two very good professional options, and SpinWeb is uniquely positioned to help you with both:

Merchant Account + Internet Payment Gateway (Traditional Internet Processing). If you've purchased at a website and entered your billing information on that website, you've used a payment gateway. Payment gateways allow a website to securely send in transactions for approval. Customers never need to leave your website, check out funnels (the web pages you have to fill in to make a payment) can be shortened and your website is able to immediately account for payments.

The chief disadvantage of traditional internet processing is that it requires your website to communicate server to server, which in turn requires either your software have built in support for a gateway or have a programmer write the software needed to communicate with the gateway. Most established web development firms like SpinWeb have off-the-shelf software that supports one or more gateways.

Third Party Portals. A new type of payment option has sprung up over the past few years that lets merchants shift the cost of accepting a payment card to the payer. Third party portal systems like VPS charge a portal courtesy fee to payers, and charge merchants a fixed price per month. The result is that the merchant does not have to pay 75-95% of the cost of accepting payment cards.

Third party portals are not for everyone as the courtesy fee must be acceptable to your customer base. Typically, that means if your business is accepting payments for services, subscriptions, taxes, utilities, court mandated payments, legal settlements, tuition or donations, third party portals like VPS are a great fit. If you sell products or are in a highly price sensitive market where free shipping is expected, customers will balk at being asked to pay any fees on top of the product price.

About the Authors

Derek Bogard is an expert on credit card processing with over 20 years of experience. Derek works with multiple processors to help clients find the best processing option for their unique needs. Derek is the Senior Vice President of Virtual Payment Systems. Connect with Derek on LinkeIn – Twitter - YouNoodle.

Mike Seidle is a software developer, e-Commerce expert and entrepreneur. Mike is the Chief Technology Officer of VPS, a leading third party portal service provider. Connect with Mike on LinkedIn – Twitter – YouNoodle.

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