- Pros: Easy to get started, simple online interface, fraud-protection
- Cons: Account holds, big bureaucracy, fees on high side, fee structure becoming less transparent.
If you weren’t already aware, PayPal is the industry leader when it comes to money transfer. With revenue of £2.2 billion and more than 179 million active accounts, it is easy to see why.
The UK is PayPal’s second biggest market outside of the U.S and a popular provider of small business phone payments.
No doubt PayPal has an easy to use and robust system. 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 phone payment 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 also got less transparent. 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 rate £20 per month fee in addition to the per transaction charge, regardless of how many payments you process. PayPal no longer advertise this fee openly. Businesses with high volumes might be able to avoid it, but it is for small businesses with few phone payments the fixed fee will hurt the mist.
Unfortunately the pricing structure is rather complex, and increasingly 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, and how much you pay will be dependent on the total amount of transactions you processed in the previous calendar month.
- If you process less than £1,500 in total payments in a calendar month you will not be entitled to merchant rate pricing the following month.
Let’s outline the telephone transaction charges that PayPal makes on their blended pricing scheme:
|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 – £55,000.00||1.9% + 20p|
|£55,000.01 or more||by negotiation|
N.B – It is important to note that if you also accept payments in person and have a PayPal Here card reader, online sales, or electronic invoices, your fees for those transactions will be different to those shown above.
The charges shown in the table above 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.
The table below shows additional cross border fees based on which country the payers’ card is issued.
|Payer’s country||Cross Border Fee|
|Northern Europe (Denmark, Finland, Iceland, Norway, Sweden).||0.4%|
|Europe I (Austria, Belgium, Estonia, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Montenegro, Slovakia, Slovenia, Spain)||0.5%|
|Europe II (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Liechtenstein, Lithuania, Macedonia, Moldova, Poland, Romania, Russian Federation, Serbia, Switzerland, Turkey, Ukraine)||1.3%|
|US and Canada||0.5%|
|Rest of the world||1.8%|
To take an example, if you run a Bed & Breakfast and you charge a deposit to a future guest from Switzerland, the fee is 3.4% (in case of non merchant rate, see above) + 20p + 1.3% cross border fee for Switzerland, ie. the total charge is 4.7% + 20p. This assumes the payment is done in UK Sterling.
To make matters more complex, PayPal has a second fee structure, the so called Interchange Plus rate for MasterCard and Visa payments (American Express payments do not qualify):
- The percentage charged by MasterCard or Visa (the so called interchange)
- The percentage charged by PayPal
- The fixed fee (such as 20 p) charged by PayPal.
Typically, the PayPal percentage will start at 2.9%. 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 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.
One of the biggest benefits of taking phone payments via PayPal is the simplicity with which you can get started. You literally need just two things:
- A computer, laptop, tablet or smart phone.
- An internet connection.
PayPal’s virtual terminal is a web page that you log on to, meaning that there is no need to download software on to your computer or mobile device.
To take phone payments for your business, you need a PayPal Business account.
Although on the surface the sign up process is simple, getting your account verified can be long-winded. PayPal often initially approves accounts based on the sign up information, but then places them on hold until the full verification process has been completed – and this usually involves sending proof of company registration and address, linking to your business bank account by way of fund transfer, proof of identity/address for the person the business is registered to… the list goes on! So while some account sign ups are straightforward, it’s not guaranteed!
- Log in to your virtual terminal online.
- Enter the order details following the on-screen prompts.
- Enter the card details, customer billing information and delivery information straight on to 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 into 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 on ‘disadvantages of PayPal’.
Once the transaction has been completed there is the option of creating a postage label for you to dispatch the goods, saving you considerable time and minimising errors in human 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 will 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 a fraud on a compromised card account. It also shows your customers that you take their data security very seriously. Therefore it is essential that your business becomes compliant to ensure that you protect both yourself and your customers.
Advantages of Paypal
Paypal is a bit like 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 chose Paypal to handle their telephone payments, which include:
- With a virtual terminal there is no need to invest in expensive equipment and if you do choose to add a card reader, you can do so for as little as £49.95 including delivery.
- No contract commitments, and 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 set-up or application fees.
- No need for your customer to have a Paypal account in order to pay you.
- All major credit and debit cards are supported.
- There is an extensive community forum and knowledge base online.
Disadvantages of PayPal
Aside from higher than average transaction fees, there is only really one major disadvantage of Paypal – the customer service, or lack thereof. There has been a lot of criticism given to 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 2.4 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 are a merchant selling an intangible service, as providing proof of delivery is virtually impossible.
Another regular criticism is of the contact process. After a cumbersome and longwinded 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 with many reports of slow or no response to emails, again customer service seems to be severely lacking.
However, 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 mid-way 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, with some cases reporting 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 to be at the forefront of the payment industry for the foreseeable future. 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.