We have discussed whether to accept credit cards online. Not to mention the case study providing strong proofs, a merchant account allows you to add many options for express checkout. 3 of the major ones are Google Wallet, Visa Checkout, and MasterPass. To use these options, you need to have a merchant account. Here we take a look at Paypal and merchant account comparison.

There used to be 3 major methods to accept money online for your e-commerce websites: Paypal, credit card (merchant account), and Google Checkout. Google Checkout was retired in Nov, 2013. It looks like Google did not want to manage the risk of transaction, and moved their focus to Google Wallet. Google Wallet is just a way for people to store their credit card information. It’s pretty much the same way Visa Checkout and MasterPass work. Visa Checkout calls itself ‘online credit card.’ Since these services are free, the transaction fees you need to pay will go to the payment processor behind them. The payment processor will be the merchant services you choose.

It took me a long time before I started using merchant services. They appeared intimidating because they seemed to be quite a bit more expensive than Paypal and seemed to charge a lot of fees. It took me a while to find the best merchant services that I have been using. See the table below for Paypal and merchant account comparison, in terms of fees and customer support, etc. You will see the merchant account I use is actually significantly cheaper than Paypal.

Fee Structure

Some terminologies are slightly different for Paypal and for merchant services. For example, for merchant account, the fee percentage per transaction is called ‘discount rate’ and the surcharge is called ‘transaction fee.’ The discount rate is generally lower when a physical terminal is used (as opposed to online transactions). The main differences are summarized as follows.

	My Merchant account	Merchant Account Industry Average	Paypal
Transaction Surcharge	as low as $0.15	$0.25 – $0.35	$0.30
Fee Percentage/Discount Rate (depending on volume)	as low as 0.25%	1.9% to 2.9%	2.2% to 2.9%
Pay by phone/fax	Yes!	N/A	N/A
Merchant Account Application Fee	$0.00	$95-$250 Non-Refundable	$0.00
Credit Card Processing Setup Fee	$0.00	$49 – $150	$0.00
Checks by Web, Phone, and Fax	$0.00	$300	$0.00
Web Shopping Cart	$0.00	$300	N/A
Discover Setup Fee	$0.00	$25-$50	N/A
American Express Setup Fee	$0.00	$25-$50	N/A
Typical Approval Time	Instant approvals	1 – 2 weeks	N/A
Customer Support Hours	24 x 7	8am-8pm Monday-Friday	7am-11pm E.T.

Note that the discount rate is usually higher for American Express and Discover Card, compared to Visa and Master Card. You can choose not to accept those cards. Many merchant services also charge a separate setup fee for each of the two, on top of the regular setup fees. If you are using zen cart like me, you do not need their shopping cart software. As I mentioned in the other article, the risk of the merchant services is low. So I am really not sure why they ask for so much money and time to process your application at all.

Payment Gateway

There are however extra charges from payment gateways. You need to have a payment gateway account for your merchant account to work. A merchant account is basically a bank. A payment gateway receives customer’s credit card information, confirms with his/her credit card bank, authorizes the amount of charge, transfers the money from the credit card bank into your merchant account. Your merchant account in turn transfers the money into your bank account.

I use Authorize.net as my payment gateway. Their fees are $20 monthly plus $0.10 per transaction. If you have 20 transactions for a total of $482 in a month using Paypal, the total Paypal fees will be about $20. (That’s an average of $24 per transaction.) In other words, if you have 1 transaction a day, you are paying about the same amount of fees to Paypal or to the payment gateway. If you have more transactions, the payment gateway is most likely cheaper than Paypal. Of course, the exact figures depend on the sizes of your transactions. If you are preparing to be successful in e-commerce, your goal is probably not 1 transaction a day.

Terminals and Virtual Terminals

Terminals are the devices merchants use to swipe customers’ credit cards. Paypal now can also give you a credit card reader (called Paypal Here) for free, which can be applied for here. Paypal Here is equivalent to a merchant account terminal.

A virtual terminal is a form interface that allows you to enter customer’s credit card information. This is useful when customer calls you by phone to place an order. When the customer does not have a Paypal account, is not on a computer, and/or does not want to use a smartphone to pay, you can take the order using the virtual terminal that comes with your merchant account.

Increase of Sale with Merchant Account

I have showed you evidences that merchant account increased sales by 100% for a retail site of mine in a previous article. My site was not even mobile friendly at that time. As the popularity of mobile devices rises, more and more transactions are completed on the smaller screens as well. The smaller screens, however, result in more cart abandonment. That is why the express checkout services (mentioned in the beginning of this article) become important.

The picture on the right shows the ‘Buy with Google’ button which sits next to ‘Continue Checkout’ button. It’s what they call ‘2-Click Instant Buy’ skipping through the lengthy checkout process. Customer practically does not have time to change mind. The express checkout (working with a merchant account) certainly increases sales.

Conclusion

I have done the due diligence in merchant account comparison for you. If you choose the right merchant services and a good payment gateway, you can actually end up paying less than Paypal. The merchant services I use also has better customer support (24×7).

We now know a merchant account increases sales. With the addition of express checkout buttons, it also increases sales on mobile devices. It is time for you get a merchant account for your e-commerce website.