- Pros: Simple online interface, fraud-protection, integrated with other PayPal services.
- Cons: Account holds, complicated bureaucracy, fees on the high side, fee structure not very transparent.
If you weren’t already aware, PayPal is the industry leader when it comes to money transfer. With an annual revenue of £9.2 billion in 2017 and more than 227 million active users, it is easy to see why.
The UK is PayPal’s second biggest market outside the US, and it’s a popular provider of small-business phone payments.
No doubt PayPal has an easy-to-use, robust system. As with all virtual terminals, no equipment is needed except for your own computer, laptop or tablet. In the last couple of years, PayPal changed its onboarding process for new virtual terminal customers. It is not longer possible to simply sign up for an account online – you need to talk to a PayPal representative.
The fee structure is also less transparent than before. Fees continue to be on the high side, but PayPal is still a low-threshold entry into phone payments, and thus still preferred by many new businesses.
For most accounts, there’s also a flat £20 fee per month in addition to the per-transaction charge, regardless of how many payments you process. PayPal no longer advertises this fee openly. Businesses with high-volume sales might be able to avoid it, but small businesses with few phone payments will be hurt the most by the fixed fee.
Unfortunately, the pricing structure is rather complex and becoming less transparent, so let’s try to break it down into easy-to-understand chunks for you here.
- PayPal pricing can vary month-to-month. How much you pay will depend on the total amount of transactions you processed in the previous calendar month.
- If you process less than £1,500 in a calendar month, you will not be entitled to the merchant rate pricing the following month.
Let’s outline the fees that PayPal makes on their blended pricing scheme for card transactions.
|Monthly card transactions||Transaction fee|
|Up to £1,500||3.4% + 20p|
|£1,500.01 – £6,000.00||2.9% + 20p|
|£6,000.01 – £15,000.00||2.4% + 20p|
|£15,000.01 or more||1.9% + 20p|
N.B. – It’s important to note that if you also accept payments in person and have a PayPal Here card reader, have online sales or use electronic invoices, your fees for those transactions will be different from those shown above.
The above charges in the table are based on domestic payments in UK Sterling only. There are additional charges for currency conversions and cross-border payments, and these vary depending on the country in question. Chargebacks incur a £14 fee.
The table below shows additional cross-border fees based on which country the payer’s card is issued in.
|Payer’s country||Cross-border fee|
|Northern Europe (Aland Islands, Denmark, Faroe Islands, Finland, Greenland, Iceland, Norway, Sweden).||0.4%|
|Europe I (Austria, Belgium, Channel Islands, Cyprus, Estonia, France, Germany, Gibraltar, Greece, Ireland, Isle of Man, Italy, Luxembourg, Malta, Monaco, Montenegro, Netherlands, Portugal, San Marino, Slovakia, Slovenia, Spain, Vatican City State)||0.5%|
|Europe II (Albania, Andorra, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Georgia, Hungary, Kosovo, Latvia, Liechtenstein, Lithuania, Macedonia, Moldova, Poland, Romania, Russian Federation, Serbia, Switzerland, Ukraine)||1.0%|
|Rest of the world||1.5%|
To take an example, if you run a bed and breakfast and charge a future guest from Switzerland a deposit, the fee is 3.4% (non-merchant rate, see above) + 20p + 1% cross-border fee for Switzerland, i.e. the total charge is 4.4% of the transaction amount + 20p. This assumes the payment is done in GBP.
To make matters more complex, PayPal has a second fee structure called Interchange Plus fees for Mastercard and Visa payments (American Express payments don’t qualify for this). Those fees include:
- A percentage charged by Mastercard or Visa (the so-called interchange)
- A percentage charged by PayPal
- A fixed fee (such as 20p) charged by PayPal
The PayPal percentage will start at 2.9% if your sales are less than £1,500 a month. A typical consumer debit or credit card from the UK or the European Economic Area will have an interchange fee of 0.20%-0.30%. However, a business credit card or corporate purchasing card will carry interchange fees of around 1.30%-1.50%.
If your corporate and business credit card customers are marginal, and you accept few cards issued outside Europe, the Interchange Plus rate might work out cheaper than the Blended rate. Keep in mind, though, that the Interchange model is less predictable, and the funds will take longer to reach your account.
Although the sign-up process is simple on the surface, getting your account verified can be long-winded. Firstly, you need a PayPal Business account to take phone payments with PayPal. Then you fill in a sign-up form on the website.
PayPal initially approves accounts based on the sign-up information, but then places them on hold until the full verification process has been completed. This usually involves sending proof of company registration and address, linking to your business bank account by way of fund transfer, proof of identity and address of the person the business is registered to… and the list goes on! So while some account sign-ups are straightforward, it’s not guaranteed.
Taking payments is straightforward and can be completed in just a few, short steps. All you need is:
- A computer, laptop, tablet or smartphone
- An internet connection
PayPal’s virtual terminal is a web page that you log in to, meaning that there is no need to download software on your computer or mobile device.
- Log in to your virtual terminal in any internet browser.
- Enter the order details following the on-screen prompts.
- Enter the card details, customer billing information and delivery information on the form, again following the on-screen prompts.
- Review and submit the order.
PayPal then processes and confirms the order right away and your business should* receive the funds in your PayPal account immediately. Transfer to your bank account from your PayPal account usually takes another 1-2 business days.
*Unfortunately, this isn’t always the case, but more on that later – see our section ‘Disadvantages of PayPal’.
Once the transaction has been completed, you get the option of creating a postage label for dispatching the goods, saving you considerable time and minimising human errors in labelling.
Security – you’re partly responsible
PCI DSS stands for Payment Card Industry Data Security Standard and is a global security standard for businesses and organisations that handle card payments. While Paypal is PCI DSS-compliant and well-known for having very strict security standards, when it comes to taking telephone payments, you as a merchant do have some responsibilities.
For most merchants, this means an Annual PCI Self-Assessment Questionnaire and a Quarterly Network Scan. PayPal recommends that you work with a partner to achieve this. With Trustwave, PCI compliance can cost around US$250 annually depending on what features you opt for.
Being PCI DSS-compliant reduces the risk of your liabilities such as the cost of fraud on a compromised card account. It also shows your customers that you take their data security very seriously. Therefore, it’s important that your business becomes compliant to ensure that you protect both yourself and your customers.
Advantages of PayPal
PayPal is the Marmite of the payment industry – some businesses love it, others hate it. However, there are many reasons that individuals, businesses and even large corporations choose PayPal to handle their phone payments, including:
- With a virtual terminal, there is no need to invest in expensive equipment, but if you choose to add a card reader, you can do so for as little as £75 including delivery.
- No contract commitments. If you decide to get a card reader, there are no additional monthly fees – just the £20 per month you already pay for your virtual terminal, plus the transaction charges for each type of payment.
- No need to store sensitive financial data.
- No setup or application fees.
- No need for your customer to have a PayPal account in order to pay you – however, it is also possible for customers to pay with PayPal (other fees apply).
- All major credit and debit cards are supported.
- There is an extensive community forum and knowledge base online.
Disadvantages of PayPal
Aspart from higher-than-average transaction fees, there is one other major disadvantage of Paypal – the customer service, or lack thereof. There has been a lot of criticism about PayPal with regards to customer service, so it’s not surprising that there are plenty of negative reviews.
In fact, on TrustPilot UK, Paypal has an average rating of just 1.3 out of 10.
One of the most common complaints refers to the lack of protection for both customers and merchants, citing a real lack of consistency in how they approach disputes, what processes and protocols they have in place, and how they respond. This is particularly the case if you’re a merchant selling intangible services, as providing proof of delivery is virtually impossible.
Another regular criticism is of the contact process. After a cumbersome and long-winded account verification process and lengthy holding time, heavily accented Irish staff who are difficult to understand and lack the knowledge to answer anything more than basic questions are your main point of contact. Alternatively, you can email PayPal, but many report slow or no response to emails – again, customer service seems to be lacking severely.
By far, one of the biggest concerns by customers and merchants alike is a frustrating delay known as an ‘account hold’. Account holds are where money that has been paid by a customer is suspended midway between customer and merchant – conveniently, in Paypal’s own account – in the name of security for reasons such as:
- The transaction is significantly larger than normal
- There are significantly more transactions than normal
- Any other reason that flags up a potential security issue
The main problem with account holds or disputes is that they can take time to resolve, even if there is no fraudulent activity. Some cases report delays of several months or more before their payments have been released. While this may not be so much of a problem for large organisations, some small business have got into serious financial difficulties or in rare cases collapsed completely as a result of account holds or disputes.
Whether you love it or hate it, PayPal looks set to continue being one of the payment industry’s leaders for the foreseeable future. While Worldpay competes with packages less transparent than PayPal’s, Square is a UK newcomer that offers a free virtual terminal with a far simpler, fixed transaction fee. Which option is best for you depends on your sales volume, business needs and whether you want to stick to a PayPal-centric system.
Now you have everything you need to know about taking phone payments with PayPal, we hope you can make an informed decision as to whether it is the right payment provider for your business.