Difference Between a PayPal Account and a Merchant Account

PayPal Setup
PayPal has two separate programs. The Website Payments Standard has several attractive features. First, it has no upfront fees and no application process that requires a credit check to get started. Further, with this program there is no cancellation fee and no minimum monthly payment. PayPal's Website Payment Pro Account carries a $30 minimum monthly fee plus the usual transaction fees. The Pro account has no downgrade fees, gateway fee, early-termination penalty, monthly minimum or statement fees. Just one $30 fee per month covers it all.
Traditional Merchant Account Setup
Setting up the typical merchant account costs between $100 and $250 upfront, according to the Accept by Phone website. But the Merchant Express website says, 'This fee used to be charged for all new merchant account applications, but it is not as common anymore and most providers do not charge it.' So the setup costs vary from $0 to $250, depending on the situation. Ask for a complete disclosure of setup fees before you choose your merchant services company.
PayPal Monthly Fees
PayPal's fees are based on the volume of transactions. Its sliding scale charges 2.9 percent on each transaction plus a 30 cents per transaction fee in any month where transactions total less than $3,000. Once your monthly sales exceed $3,000 per month, PayPal asks you to complete a one-time application for approval to qualify for the next lower tier, which is 2.5 percent plus 30 cents per transaction. With a monthly transaction volume of over $10,000, costs drop to 2.2 percent of each sale plus 30 cents for each transaction processed. For monthly sales over $100,000, call for special pricing.
Merchant Account Monthly Fees
In addition to the typical upfront fees, a minimum monthly fee of $25, plus a $5 per month fee for monthly statements, can be expected with merchant accounts, says Accept by Phone. When you process a credit card transaction through your merchant account, it will charge between 1 and 4 percent of the transaction plus a per-transaction fee of 5 to 25 cents.
Comparing Alternatives
According to Accept by Phone, if you compare PayPal to a traditional merchant account service, you would have to be doing more than $50,000 per month in sales to justify switching to a merchant account. But do not take their word for it. Take your credit card volume for the past few months and see how much it would have cost your business under each merchant services scenario. Then you will know which credit card processing system is most advantageous for your business.