14 March 2021|Latest Posts, Money
PayPal is a dominant force in the money transfer market, attracting over 20 million active merchant accounts with its ease of use and strong user security.
However, its reputability and global recognition often mean businesses fail to consider the rewards on offer with other market players. Ultimately, they miss out on the advantages of other providers, like cost savings and exceptional customer service.
It is vital businesses understand the common pitfalls associated with PayPal merchant accounts, to make an informed decision when choosing payment gateway providers.
A cost comparison
Money transfer providers make their money by charging small fees for to merchant accounts when receiving payments. These charges are usually calculated as a percentage amount of the transaction fee and can quickly mount up when adding in fixed charges for additional services, like international currency conversion and processing non-domestic cards.
Market research is the best way to guarantee a chosen provider suits the business model. For example, if the business only operates in specific international countries, it’s best to source providers which offer the most competitive rates in these regions.
Many of PayPal’s competitors offer lower percentage gateway fees – both for domestic and international payments – so, businesses should cross-reference providers to see which makes sense for them and their markets.
Much of PayPal’s transactional traffic stems from merchant accounts dealing in high-volume, low-cost goods. For the bulk of these e-commerce retailers, PayPal’s fixed rate of £0.30 for domestic transactions represents a significant margin of their per-transaction revenue. Those willing to compare providers may receive more attractive rates for these lower-value transactions, from another provider.
Chargeback fees should also be taken into account, as exorbitant rates can potentially sink a business – especially one which specialises in goods with limited time guarantees or perishable goods. These charges should be a key consideration for merchants in these fields.
The hidden price of currency conversion
Businesses and e-commerce retailers operating worldwide face the additional challenge of converting regional currencies, used by international consumers, into the base currency of the merchant.
By simply unblocking international payments in their account settings, it’s easy for businesses to start receiving international payments into a PayPal merchant account. However, the pain point is the unavoidable currency conversion fees enforced by the payment gateway provider.
From competing money transfer providers to traditional banks, these fees for currency conversion are applied everywhere. However, by comparing providers, businesses can often access reduced fees or discounts on certain currency pairings.
For example, PayPal charges businesses a 4.9 percent fee for international transactions where the buyer pays with a non-UK card. It also attaches a 2.5 percent fee to convert the foreign payment currency into the business’ base currency – a price which is considerably higher than that offered by many of its competitors. In comparison, Stripe charges just 2 percent for the same conversion service.
Businesses are increasingly being forced into accepting these charges, with PayPal UK introducing a 3 percent fee for adding an international bank account registered outside of the business’ country of origin.
Previously, companies could avoid PayPal’s currency conversion fees by adding a multi-currency account to their merchant account and using a separate service – offering a more attractive rate – to convert foreign currencies. To combat this, PayPal introduced its new payout fees to foreign-denominated receiving bank accounts when the currency differs from that of the business.
This isn’t the case with all providers, though. Some are yet to take this step, including Stripe UK, which supports multiple payout currencies, as long as each foreign settlement currency has a local currency account added.
Despite admitting that pay-outs to multi-currency accounts have a higher payout-failure rate, Stripe’s users can still add these accounts – and this can have an instant positive impact on their bottom line when dealing in high-volume transactions.
Modern businesses demand more and more from their payment gateway provider, with integration often a key driver for investment.
For example, many businesses are able to integrate their PayPal merchant profile with specialist multi-currency accounts – like WorldFirst’s ‘World Account’ or OFX’s ‘Global Account’. This allows them to receive and hold multiple foreign currencies, without having to instantly convert them.
However, with PayPal, this depends on the terms and conditions of each regional Business Unit – with some charging fees to withdraw funds from merchant accounts into a multi-currency bank account. And while many competing providers are also taking steps to prevent these withdrawals, they currently 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 could operate in the US market and enjoy USD pay outs 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 fees offered by payment gateway providers.
Plus, when it comes to integrating productivity tools, like Zapier, PayPal proves much less fluid than its competitors, too.
With 11 triggers, compared to PayPal’s 4, Stripe lends itself to the business automation benefits that come with increased app integration. The same could be achieved with PayPal, however it would demand significantly greater development resources.
A helping hand
Customer service is crucial when it comes to money transfer providers, with even the slightest payment delay costing businesses in lost revenue and damaged reputation. They need to know any issues will be resolved swiftly.
While it can be unfair to simply compare user reviews of providers – because of individual bias and varying volumes of ratings – it can provide a helpful birds-eye view. For example, PayPal UK currently holds just a 1.2 rating out of a possible 5 on TrustPilot, with the site also letting users filter by keywords, like ‘customer service’, to find specific reviews.
With Stripe and 2checkout both boasting 3.6 ratings, PayPal falls short of the mark when pitted against its rivals.
Historically, PayPal has come under fire for suspending accounts when disputes arise – in some cases, even before any mistakes on the business’ behalf had been identified. With these suspensions often lasting several months, businesses can suffer the impact in both their revenue and reputation, with payment suspension typically having a knock-on effect for the customer as well as the business.
PayPal is a popular platform with benefits in usability and familiarity. However, for large international traders, shopping around for the most suitable provider is the best way to reap the rewards of switching to a cost-effective and responsive service.
About the Author:
Gavan Smythe 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.
iCompareFX is a global review and comparison service for the leading money transfer providers. iCompareFX delivers invaluable information to help individuals and businesses make the right decision with their money.