Our rating(3.5/5)
PayPal phone payments are convenient for existing users, but it’s not the cheapest solution.
If you already have a PayPal Business account, PayPal Virtual Terminal can be the easiest way to start making phone payments. Are account holds and poor customer reviews deal-breakers, or is there a compelling reason to use this service?
  • Highs: Simple interface. Fraud protection. Integrated with other PayPal services. Multi-currency support.
  • Lows: Account holds. Complicated bureaucracy. Costs on the high side. Fee structure not very transparent.
  • Best for: Existing PayPal Business users preferring the online PayPal account as the main business account.

The lowdown

PayPal is a popular provider of small-business phone payments in the UK, but is it justified given the competition?

Accepted cards

VisaMastercardMaestroAmerican Express

No doubt PayPal Virtual Terminal is easy enough to use. As with all virtual terminals, no equipment is needed except for your own computer or tablet.

That said, you can no longer just sign up online to use this service. After completing a website form, a PayPal representative will call you to set up the virtual terminal, which will thereafter be accessible in your PayPal account at all times.

The fee structure is also not so transparent. Charges continue to be on the high side, but PayPal is still a low-entry routes into phone payments, and thus still preferred by many new businesses.

Fees are high, but you can accept different currencies

Over-the-phone payments generally incur a higher-rate fee per transaction than card machine payments. Even considering this – and despite being incredibly popular – PayPal Virtual Terminal fees are still higher than many competitors’.

Regardless of how actively you accept phone payments, it costs a monthly fee of £20 to have the Virtual Terminal activated your PayPal account, and then you pay a per-transaction charge. Businesses with a high volume of sales might be able to avoid the ongoing cost, but small businesses with few phone payments will be hurt the most by the fixed monthly fee.

Unfortunately, the not-so-transparent pricing structure is rather complex, so let us start with the basics:

Pricing can vary month-to-month, depending on the total amount of money you processed in the previous month.

If you process less than £1,500 in a calendar month, you will not be entitled to a lower-than-maximum rate the following month.

Let’s outline the charges on the so-called Blended Pricing Fee Structure for card transactions.

Monthly card total*Card fee the following month
Up to £1,5003.4% + 20p
£1,500.01 – £6,000.002.9% + 20p
£6,000.01 – £15,000.002.4% + 20p
£15,000.01 or more1.9% + 20p

*In-person payments with the PayPal Here card reader, ecommerce sales or electronic invoicing through PayPal have different fees than those shown above.

Monthly
card total*
Card fee,
following
month
Up to £1,5003.4% + 20p
£1,500.01 – £6,000.002.9% + 20p
£6,000.01 – £15,000.002.4% + 20p
£15,000.01+1.9% + 20p

*In-person payments with the PayPal Here card reader, ecommerce sales or electronic invoicing through PayPal have different fees than those shown above.

The above charges are for domestic payments in UK Sterling only. Additional charges apply to currency conversions and cross-border payments, and these vary according to the country in question.

The table below shows additional cross-border fees applicable to the Blended pricing, based on which country the payer’s card is issued in.

Payer’s countryCross-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)1.3%
US, Canada1.0%
Rest of the world2.0%
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)1.3%
US, Canada1.0%
Rest of the world2.0%

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% + 20p + 1.3% cross-border fee for Switzerland, i.e. the total charge is 4.7% + 20p. This assumes the payment is done in GBP.

To complicate matters, PayPal has a second fee structure called Interchange Plus for Mastercard, Maestro and Visa payments (American Express does not qualify). Those charges 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 (EEA) will have an interchange fee of 0.2%-0.3%. However, a business credit card or corporate purchasing card will carry interchange fees of around 1.3%-2.0%.

If your corporate and business credit card customers are marginal, and you accept few cards issued outside Europe, the Interchange Plus Fee Structure might work out cheaper than the Blended rate. Keep in mind, though, that the Interchange model is less predictable, and funds will take longer to reach your account.

Regardless of the plan, chargebacks cost £14 each.

And lest not forget the currency conversion fee… If you agree to accept a payment converted from one currency into another, you pay an extra fee of 3-4% on top of all other charges. The exact rate depends on which currency is involved. However, the option to accept multiple currencies is not a given in virtual terminals, so cross-border sellers should take this into consideration.

Setting up

Although sign-up looks simple on the surface, getting your account verified can be long-winded. Firstly, you need a PayPal Business account. Then you fill in a sign-up form on the website specifically to activate the virtual terminal. Once submitted, PayPal will give you a call-back to finalise your application.

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PayPal initially approves accounts based on the sign-up information, but then may place yours on hold until the full verification process has 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

Taking payments is straightforward and can be completed in just a few, short steps. The two things you need are:

A computer, laptop, tablet or smartphone

An internet connection

The virtual terminal is a web page you log in to, meaning there is no need to download software on your computer or mobile device. How does PayPal Virtual Terminal work, then?

  1. Log in to your virtual terminal in any internet browser.
  2. Enter the order details following the on-screen prompts.
  3. Enter card details, billing information and delivery information on the form, again following the on-screen prompts.
  4. Review and submit the order.
Paypal dashboard showing Virtual Terminal option

PayPal then processes and confirms the order right away and your business should (if there is no account hold – see customer service section below) receive the funds in your PayPal account immediately. Bank account settlement can only be initiated manually by you. These usually takes a few hours to process to your bank account from the online PayPal account.

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 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 their strict security, when it comes to taking telephone payments, you as a merchant are responsible for setting up and maintaining compliance because you handle card details directly.

For most, 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 features.

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 data security seriously. Therefore, it’s important your business becomes compliant to protect both yourself and your customers.

shop worker accepting payment over the phone

With PayPal Virtual Terminal, you are responsible for PCI compliance.

PayPal customer service, reviews and complaints

Apart from higher-than-average card fees, a major disadvantage of Paypal is 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 complaints and negative reviews.

In fact, on TrustPilot UK, Paypal has an average rating of just 0.9 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.

PayPal Trustpilot UK rating

July 2019 rating on TrustPilot UK.

Another regular criticism is the contact process. After a cumbersome and long-winded account verification and lengthy holding time, heavily accented Irish staff who are difficult to understand for some English speakers, 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 responses 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 ‘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 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 and disputes.


Verdict

PayPal is the Marmite of the payment industry – some businesses love it, others hate it. Reasons to choose PayPal for phone payments:

No contractual commitment

No setup fees

Integration with other PayPal services

Internationally recognised brand

It is, however, also easy to see why some merchants don’t like PayPal:

Problematic customer service

High fees that are not easy to decipher in their user agreements

PCI compliance can get costly

Account holds

Whether you love it or hate it, PayPal will likely remain as one of the dominant contenders for some time – if not for its advantages, then for its brand recognition among both merchants and customers.

Name of Reviewed Item: PayPal Virtual Terminal UK Rating Value: 3.5 Image: https://www.mobiletransaction.org/wp-content/uploads/2018/03/paypal-virtual-terminal-review.jpg Review Author:Review Date: