How Do I ... Use PayPal?

There's more to e-commerce than assembling a flashy Web site. If a business wants to sell products or services online, it has to figure out how to accept electronic payments.

For small firms working on a tight budget, a customized e-payment system may be out of reach. Enter PayPal, the online payment service owned by auction giant eBay.

PayPal lets a company engaged in e-commerce accept payments from customers who are not already PayPal members but want to pay with American Express, Discover, MasterCard or Visa. For customers who are already PayPal users, the service offers an additional payment option -- PayPal's own virtual credit card system. Another attraction is that PayPal manages the entire transaction, so a business doesn't have to handle or retain sensitive customer data like credit card numbers.

There are three account options available to vendors: Personal, Premier and Business. Personal account transactions are free. A Premier or Business account is required to accept debit or credit card payments, and that will cost the merchant a small fee. Here's a full list of PayPal's pricing for businesses.

Personal accounts are designed for individuals. They allow a consumer to send and receive money at no charge, but don't allow for the receipt of payments funded by debit or credit cards. A PayPal member located outside of the United States pays a one-time fee before he or she can send money.

Premier and Business accounts allow a business to accept debit or credit card payments through its Web site.

Spokeswoman Sara Gorman said PayPal works with many small businesses that have a variety of needs. Firms that have less than $200,000 a year in sales typically choose the firm's standard products, while larger firms find the Payments Pro option better tailored to their requirements.

Both the Business and Premier accounts include similar features allowing the merchant to accept debit and credit card payments for a nominal fee per transaction. The fee generally ranges from 1.9 percent to 2.9 percent plus 30 cents for each transaction, according to Gorman. The percentage is based on the merchant's monthly transactions - the higher the volume, the lower the percentage. PayPal fees apply to completed transactions. The company does not charge fees to set up its system.

More Sophisticated Accounts

The Payments Pro option is very popular with small- to medium-sized enterprises that reap annual sales up to $5 million, said Gorman. It allows the business to get a traditional merchant account -- like the Premier or Business -- and to accept credit card payments on the merchant's site rather than PayPal's page. There is a $30 monthly fee for this service.

PayPal Express Checkout provides a more sophisticated integration with a vendor's Web site. The main difference is that a retailer's customer doesn't finish a transaction on the PayPal site -- he or she is sent back to the original site that is selling the goods.

Gorman noted that PayPal works with airline site and book retailer and is able to serve firms' of any size and complexity.

Todd Sanders, owner of Web-design firm Locus Graphic in Pittsburgh, works with small businesses across the country and has been recommending PayPal to clients.

He likes the service for companies selling a couple of items, tickets to events or for fundraisers.

"It doesn't work for all solutions ... like if you're selling a lot of things or a large inventory," he said.

But PayPal is a great tool for many small businesses "because they generally are protected from transaction liability issues because PayPal stores the credit card info, not the client," said Sanders.

If a small business wants to develop a Web site with an online shopping cart and does not use PayPal, Sanders said a micro enterprise could spend up to $400 on security certificates from secure transaction companies VeriSign or Thawte.

Lastly, "if I was going to build a shopping cart for someone, I'd have to get the bank involved," said Sanders. "Each bank has a different system and [as the Web designer] I'd have to find out how the bank wanted the money passed to them."

A customized shopping cart may cost somewhere around $2,000 for a small firm while a simple Web script Sanders said he'd write for a PayPal cart might cost his client as low as $100.

PayPal makes it very easy for a designer to create a simple programming script to create pull-down menus that pass information onto PayPal, according to Sanders.

Sanders designed the Web site for a local music group that sells tickets to its concerts via PayPal. "In that case it made sense, but I'm working with a jewelry store right now that wants to sell some 50 items online and we're not going with PayPal. We're going to have to do a custom shopping cart."

PayPal had a poor reputation for several years and the consumer backlash largely was because the San Jose, Calif.-based company forced a user to sign up for its PayPal payment system if the user also wanted to use credit card payments as well. It no longer requires that.

However, Sanders notes that there is some advantage to using PayPal's own system rather than payments to the four credit card companies that it accepts. "Many people don't want to put their credit card numbers online and PayPal's virtual credit card system allows a more cautious user to get around that."

"What's important in working with a Web designer and programmer in setting up your PayPal system is being clear upfront how items are going to be sold and how you want them listed," said Sanders.

Gorman recommends that a small business work with a designer or shopping cart provider, especially if they already have an established relationship. She also noted that PayPal offers a toll-free number, 1-888-847-2747, and an online developer center with comprehensive documentation and guides.

"Our aim is to get people up and running with PayPal within a couple of hours," said Gorman. "A lot of small businesses like to use our services because we have 153 million accounts worldwide and that really opens up a global market for really small merchants like sole proprietors."

By Sharon McLoone |  October 9, 2007; 8:00 AM ET How Do I...
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PayPal is excellent and has opened e-commerce to millions of small business operators.
However, there are dozens of non credit card, no bank account required, online payment systems gaining in popularity around the globe. Webmoney ( is just such a service which offers the ability to make local cash payment for online purchases across Europe, UK, Africa and this list is growing each month.
No CC or bank needed to get started accepting online payments as a merchant. WMtransfer is a company with 150,000 automated walk up kiosks across Russia, where anyone can step up, feed cash into the machine and fund their online digital money account. (its a shame that is not available in the US)
Very low fees, 4mil+ accounts and approx $1.5 Billion in transactions last year, with convenient systems like this growing in popularity, its easy to see that legacy payments and online credit card systems have some stiff competition.

Mark Herpel

Posted by: Mark Herpel | October 9, 2007 12:19 PM

Can you accept a business banking account to a personal paypal account? Is that OK from the tax standpoint?

What is the advantage of "invoicing" someone via paypal versus just using the "request money" option?


Veggie Plaza - Cruelty-free shopping

Posted by: Veggieplaza - Online cruelty free shopping for | November 12, 2007 2:29 PM

Hello Sharon. I too would like to set up some kind of billing system and will consider paypal. However it is difficult to move forward knowing how awful the credit card industry can be at setting up programs for consumers that I believe are basically rip offs. A credit card insurance program such as Credit Protector is one that has an unbelievably low pay out on claims versus what is paid into the system.

We may be talking about less than 10 dollars "paid out" for every 100 dollars collected for this "insurance" program, the payout might be as low as ONE DOLLAR for every hundred dollars collected! Are credit card insurance programs allowed to legally have such ridiculously bad intake to outtake financial ratios?

Would you please check out my website Pages two and three show the problems and solutions to two of the biggest credit problems that I think currently exist.

I took two weeks off writing and rewriting this website. I'm even willing to change my profession to fight what I believe are two huge credit card industry scams.

Posted by: Alessandro Machi | November 28, 2007 4:36 AM

Just for your knowledge! in recomending paypal anymore!

Plus we were a victim ourselves
of them after we made 27,000.
they locked our funds, and ran credit checks to try to protectthemselves, but they did it illegaly withoutnour permision.

Just look at all the vistims on the left side, we are not alone!
Thank you cool deals 2 go, host it planet

Posted by: cool deals 2 go | December 25, 2007 4:52 PM

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