PayPal vs. VISA (Part 2)
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Though I adore Harry for referring to me as "young", a call to a local merchant bank that is also a VISA "acquirer" two weeks ago demonstrated part of the problem here.
The bank generally dislikes entering an arrangement with any company that has been in business less than two years (pretty much eliminating the start-up entrepreneur) though might make exceptions for great customers of 20 years or more (pretty much eliminating the "young" entrepreneurs Harry is worried about because they're always using PayPal.)
I was further told that those wishing to accept VISA must meet lofty credit requirements and face service charges if not processing more than $1000 in orders per month.
A business checking account is also necessary with either a flat fee or service charges depending on the number of transactions processed.
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May 15th, 2007 at 10:38 am
First off, let me start by saying that I can’t believe having a business checking account is such a big deal. To NOT separate your personal assets from your business assets makes no sense what-so-ever. Paypal requires you to have a bank account in order for them to process funds…so it’s your intention that start-ups ONLY use Paypal AND have that Paypal account attached to their personal banking account? I’m not even going to bother addressing why this is an issue, because I feel it would only fall on deaf ears.
Now, as for Paypal. the fees are NOT the same and in the long run, it’s pretty much equal–if not more. I know because I HAVE a personal business, I don’t just tell people how to run businesses with no prior experience. And I don’t appreciate being spoken down to.
Let your readers decide if Paypal INSTEAD of handling credit cards is worth it:
1. Credit cards allow you the ability to accept credit cards in real time on your website, but you can also process face to face or offline transactions. You can’t do that with PayPal.
2. They tend to have better rates than PayPals standard program
3. You get your money in 48 hours directly into your Business Checking Account. There are no volume limits like Paypal.
Benefits to having your own merchant account and not a PayPal account:
4. There is no chance of PayPal freezing funds or holding money because they don’t understand your business.
5. As a business, you have the ability to take both online and offline orders at their home, store, office, tradeshow, etc. You can’t do that with PayPal. With PayPal you can only take orders from your website.
6. With credit cards, customers aren’t required to open up a PayPal account just to do business with you. (It doesn’t matter that Paypal allows people to use credit cards. They STILL have to be a Paypal member…try getting grandma to do that! This is a huge inconvenience to put your customers through just to make a one time purchase from you.)
7. Pay Pal does not make their phone number available to its customers. Call a credit card service with a problem and you’ll get a live person during business hours.
May 15th, 2007 at 4:10 pm
Harry,
Once again, I don’t think anyone is suggesting that in a perfect world it would not be great to have multiple methods of accepting payment. I think it would be great to drive a Mercedes too, but in the absense of being able to afford one I’d still drive a beater to work. All I am suggesting is that being turned down by VISA, which definitely could happen if you’re starting a business from scratch and have never managed one before, is not the end of the world and does not mean you cannot start a business. If you would like to suggest otherwise, just say so. I cannot imagine how suggesting that someone can start a business with little or no cash, a positive message in these cash strapped times, constitutes bad advice. If your message is “Don’t bother trying because you don’t have enough money,” I can assure you there are plenty of people already spreading that message around. I don’t think anyone would argue that expanding your options and investing in your business as it grows is a bad idea. I certainly would not. But simply lacking the track record or financial clout to be approved to offer VISA is not a good reason to decide to chuck your dreams of owning your own business. I certainly do not intend to speak down to anyone. As I’ve said many times on this site, I consider myself a student of business as well. But I am passionate about presenting options for those who have had “experts” tell them for far too long what they cannot do. On the issue of a bank account, I have started businesses that have failed or failed to produce the result I would have liked and the cost of setting up a bank account with every experiment is not worth the money you will spend. In other cases, when an endeavor proved effective to the point where I could justify the cost, I have begun setting up business bank accounts and other necessary structures using the revenue from the business. You may want to stay tuned as we will be running a guest post from a European entrepreneur who takes a very different view of seperating your finances from day one. I think you’ll enjoy it. Cheers.
May 16th, 2007 at 9:13 am
@Harry & Shawn,
You both raise some good points about the challenges faced by small companies that take credit cards as a form of payment. I wanted to provide my two cents.
I own a payment processing company which does quite a lot of business with early stage, high growth companies. Just as the two of you noted, there is a huge unmet need in the industry for merchant service providers that can underwrite new companies and allow them to take credit cards. We’ve been very successful in this space because we take the time to understand the business and put the proper safeguards in place. The vast majority of providers don’t take that approach which forces companies to take the PayPal route which has a lot of limitations. The cost of an account for PayPal and having your own merchant account is fairly comparable, so if possible, unless you’re only selling on eBay, having your own merchant account is always the best option.
May 16th, 2007 at 11:01 pm
I have a membership website ($10 a year). I expect it to have many members after 2 years. But before that, it just doesn’t make sense for me to open an merchant account. My site takes credit cards via 2Checkout and PayPal (without the need to open a PayPal account). I will add Google CheckOut soon. With 2Checkout and PayPal, there is no monthly fee, statement fee, etc. I know exact fee that is charged. I am not too worried about PayPal’s locking my money because I know that my business is totally legit with a great refund policy. The money sitting in PayPal also collects 5%+ interest! It is my business bank account for now.
May 17th, 2007 at 10:29 pm
And what exactly is the name of your website, T? It strikes me odd that in your defense of using Paypal, you neglected to mention the name of your website. Certainly THAT wouldn’t be considered the smartest bootstraping technique… so please, I’m sure all of the readers here are wondering what your business is.
May 21st, 2007 at 4:31 pm
Please let’s keep the tone civil here. We’re commenting to share helpful information not to attack one another.