Downside to using paypal?

[ctboss]

I'm currently developing an ecommerce website with one product, actually it will be 4 (different sizes.) This is my first ecommerce website and will probably be more of a crash course learning experience for me than anything. I've been researching methods to accept payment and going down the merchant account/payment gateway route is more expensive but seems like it will be better if I expand or have more sales than I plan at the moment. There are also setup and monthly fees.

But there aren't any setup or monthly fees with paypal and it seems that it would be relatively simple to set up and the overall fees per transaction are about $7 less than any other provider I can find. Is this a bad route to go down, or should I just pay the money and get a merchant account? Which I don't mind doing if it will be the better long term option.

How hard would it be to start off with PayPal and then switch to a merchant account/gateway system later on?

[Chris]

Reasonable hard to make the switch, you'll need to change your software.

Paypal is expensive, and they have really bad fraud features. Basically, they make it easier for someone to make a fraudulent purchase, and then screw you with it by freezing your account (and any money within it) as well as taking away the money from that individual transaction.

Credit card fraud is far less common than paypal fraud and your money is deposited directly into your bank account daily with a normal merchant account.

Typical rates will be 2-2.5% per transaction + 35 cents.

Paypal rates are I believe more like 5%.

[Kyle]

Chris is right about the fraud issues with PayPal.

However, their rates at the highest are 3.1% + $.30 and lower depending on your volume.

EDIT...

That's assuming you setup a premier/business account. If you go the route of selling things online, I would expect you to upgrade from the 'personal' level which does have the 5% fee. Another reason why I assume you'd upgrade is the personal account only allows 5 transactions per year!

[ctboss]

I'll look into merchant accounts further now thanks. This is my first website and I hope to have more(if this one is successful) down the road. So it makes sense to just jump in now so I don't have to make the switch later. Besides, I'm paying for someone to design the website which includes integrating a payment system so I might as well have them put in a payment gateway/merchant account since I'm paying them to already.

Paypal's rates aren't that bad and customers can pay without leaving my site or having a paypal account. No set up fees or monthly fees and rates of 2.9% + .30 cents for Premier/Business customers.

I've gotten the raw end of paypal fraud service before when I had several hundred dollars frozen because of suspected fraud activity. Of course, they couldn't tell me what the activity was and held my money hostage for 2 weeks until they completed their "investigation." I'm not going down that road again.

[cutiger95]

Try out Google Checkout if you are going to use PPC for any type of advertising. Also the rates are 2% on your transactions and they deposit directly into your bank account.

[allout]

I have always had luck with Paypal and like you said, it is easier to set up. I would write or contact them with your website information and make sure everything is in compliance with their rules. This will do two fold, it will prevent you doing something that violates their rules and they will know about your site and you will less likely be the loser on the disputes end.

Most disputes are done by charge backs where the person used a credit card to pay in Paypal, this can as bad with any other merchant account.

Most merchant accounts also have huge set up fees and their fees are higher unless you have huge amounts of business.

[scofield]

It all depends on the volume of sales you'd have every month, if you have enough then a merchant account is cheaper than the paypal charges you'd incur, too few and it wouldn't be worth signing up for a merchant account.