Carts / Transactions

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For years PayPal has offered merchants a way to receive credit card payments, but to do that, the purchaser was transferred to PayPal's site to complete the transaction and then transferred back to the merchant's site.

As of June 20, 2005, PayPal is now offering upgraded services to offer a payment gateway (much like Authorize.net and others) titled PayPal Website Payments Pro. For merchants who choose this service, the transaction will take place on the merchant's site for credit card payments using the Direct Payment API feature, or in three clicks for shoppers who decide to pay directly from their PayPal accounts using the Express Checkout Feature. The third element in this suite of products is the Virtual Terminal, which allows merchants to enter into this web-based interface credit card information obtained via fax, phone, or mail order.

The cost is quite reasonable: $20 per month plus a transaction fee of 30? and a discount rate of 2.2% to 2.9% (though PayPal is reportedly waiving the monthly fee for an introductory period). In effect, with this system PayPal is not only serving as the payment gateway but the credit card processor as well.

Looking at prices, a lack of set-up fees saves about $100 to $200 typical charge, since we need to compare set-up charges for both a merchant account and a payment gateway. A 30? transaction fee is a bit on the high side. 20? to 25? is more typical of other merchant accounts and payment gateways in my experience. 2.9% is a pretty high discount rate for Internet sales. A number of banks offer discount rates of 2.2% to 2.5%. However, PayPal's discount rate goes down the more sales you have.

PayPal illustrates their "low costs" using a diagram that I think over-inflates the costs of PayPal's competitors.

Nevertheless, for the smallest merchants, getting what is effectively a payment gateway and merchant credit card account for no set-up fees -- fully integrated into their shopping carts -- is wonderful. Nor is there any one- to three-year obligation.

Compatibility is already available with the following carts: StoreFront, 1ShoppingCart, Cart32, CoolCart, Mal's E-Commerce, eMartCart, CityMax, MyEbiz, and Internet Speedway. It may take several months until all shopping cart vendors set up their systems to take PayPal's new API. Wait until your cart does before moving to PayPal Website Payments Pro unless you can reprogram your ordering system yourself. But cart vendors are sure to offer compatibility soon due to strong customer demand. The Website Payments Pro SDK was released on June 21, which includes the Direct Payment API as well as PayPal IPN (used for Express Checkout).

If you are using PayPal's order buttons or shopping cart (now renamed as "Website Payments Standard"), you don't need to change anything at all unless you want to upgrade to the Pro service. Confused? You can see a comparison of PayPal's various plans on their website. https://www.paypal.com/cgi-bin/webscr?cmd=_profile-comparison

At present PayPal Website Payments Pro is only available to US merchants. If it does become widely available in countries where PayPal members can withdraw funds to a local bank account -- even if the discount rates are somewhat higher --  it should be a great boon, especially when compared with current merchant account costs and requirements outside the US.

What's the bottom line? PayPal has earned my respect as a payments transfer company. That's a plus. The lack of application and set-up fees should make this very attractive to small, beginning online merchants, and may force down application fees industry-wide. The $20 monthly fee is a good value while the discount rates and transaction fees are a bit higher than ideal, except for merchants with more than $10,000 monthly revenue. Overall, PayPal Website Payments Pro will provide solid value for many merchants.

Finally, be aware that Google is rumored to be considering its own Internet payments serviceto rival eBay's PayPal. Let the games begin! Increased competition should be good for both merchants and shoppers.

More info on PayPal Website Payment Pro is available in their press release. http://www.shareholder.com/paypal/releaseDetail.cfm?ReleaseID=166510&Category=US