PayPal is a global e-commerce business allowing payments and money transfers to be made through the Internet. It was founded in 1998 by Peter Thiel, Elon Musk, Luke Nosek, Ken Howery and Max Levchin. PayPal had its IPO on February 15, 2002 and was once owned by eBay until 2015 when it became a separate company again.
PayPal has two primary sources of revenue: one from companies selling goods or services online; the other being fees for receiving funds into your account (either personal or business) that are then transferred out as a wire transfer, an electronic payment or sending money on behalf of someone else using their email address.
The company also offers subscription services where customers can pay a myriad of companies for monthly subscriptions for services that include online file storage, ad-free music and the like.
PayPal’s services allow people to make financial transactions through several international currencies using accounts that can be funded via credit cards, transfer from other users’ accounts, bank accounts or PayPal gift certificates.
PayPal for small business – the pros and cons
The pros of using PayPal is that it’s easy to setup and use. Your clients/customers may already be familiar with PayPal. You don’t need a merchant account to use it for business purposes. Your clients/customers also don’t need a PayPal account to pay you.
You can create and send invoices right through your account. You can set up recurring payments. You can integrate PayPal with a number of shopping cart systems which makes it easier for people who would like to buy from you.
PayPal also charge reasonable payment processing fees that are about average for the industry at around 3% of total transaction value. You can easily find cheaper payment service providers, such as Stripe, but most require some kind of integration or checkout on your website. For the convenience and the ease with which your customers can pay you, PayPal is essentially unrivaled in the US.
PayPal also offers money-back guarantees on purchases made through it Payment Protection Program, which is likely to boost conversion rates as customers have reassurance they can’t be scammed.
The cons of using PayPal include sizable fees in the event of chargebacks. Plus, there are limits as to what you can do with your account and there’s always the risk that your account can be suspended. There’s also a possibility that your clients/customers will refuse to use it, so it’s not ideal to use as your exclusive payment gateway.
It can be difficult to contact PayPal’s customer service department, both due to a language barrier and due to long wait times on the phone and over e-mail.
Is PayPal a good choice for my business?
To decide if PayPal is the right fit for your business, you need to weigh the pros and cons. On the one hand, you can quickly and conveniently allow your customers to pay you in a way they most probably already know how to do. You don’t need any additional services in order to use PayPal that may add substantial costs (such as a website with a secure checkout), but you can use PayPal for that as well should you want to.
On the other hand, PayPal doesn’t have the best track record when it comes to business accounts. It’s not uncommon to have an account frozen without prior warning for whatever suspicious activity their automated systems think you’re up to, and it may take time to resolve. There are also much cheaper alternatives available, especially if you’ve already got a website for e-commerce up and running.
All in all, PayPal is a good all-round choice to get started, and a good complement for most businesses. It is, however, no longer the king of the throne that it once was, and it’s best used to scale a business or as one of multiple payment methods rather than the single way that your customers can pay you.