Is PayPal Good for Small Businesses? Pros & Cons
Meaghan has provided content and guidance for indie retailers as the editor for a number of retail publications and a speaker at trade shows. She is Fit Small Business’s authority on retail and ecommerce.
Anna is a retail expert writer for Fit Small Business with over six years of evaluating dozens of software for small business. She holds a double degree in Accountancy and Financial Management and is currently pursuing further education in financial and payment technology.
This article is part of a larger series on Payments.
PayPal is one of the first and most trusted names in online payment solutions, offered by many businesses as a fast and easy payment method on their websites to encourage sales. Small business owners love PayPal because it offers easy setup and free software. In fact, PayPal often makes our list of best merchant services and leading mobile payment solutions.
We generally recommend PayPal as a good payment processor for small businesses, but its range of payment services may not be ideal for all. Consider the following pros and cons of PayPal for small businesses before signing up.
PayPal Business Overview
| PROS | CONS |
|---|---|
| Secure payment processing | Reports of frozen accounts and funds |
| Over 26 currencies plus cryptocurrencies | Confusing transaction fees |
| Strong invoicing features | Not compatible with high-risk merchants |
| Instant fund access via PayPal Balance | Popular target for phishing and scams |
| Offers Financing and BNPL solutions | Poor and hard-to-reach customer service |
Key Takeaways:
- PayPal Business is made for small merchants that accept payments online.
- It offers a wide range of online payment solutions, including methods exclusive to PayPal users such as Pay Later, Pay with Rewards, Crypto, and Venmo
- Payment processing fees are competitive but confusing, with so many rates for different payment methods.
- Ease of use is one of PayPal’s major advantages, and it’s even easier to set up. PayPal integrates seamlessly with most business software solutions.
Learn about PayPal’s detailed pricing and features for online payment processing with our PayPal Business review.
Pros of PayPal Business
Extensive Suite of Payment Solutions
For a long time, PayPal’s payment solutions were focused on online personal and business customers. However, the company has expanded its features to offer on-site and on-the-go payment services as well. This puts PayPal in a great position to work with small businesses that are native to the online world but are looking to expand into brick-and-mortar stores and vice versa.
Small online businesses can use PayPal Checkout to offer a variety of payment methods. It gives customers the freedom to pay however they want, whether with credit or debit cards and even funds from their bank. PayPal Checkout uses intuitive Smart Payment ButtonsTM, so it always presents the payment methods that are most relevant to each customer.
PayPal is recognized as one of the strongest pioneers of peer-to-peer and merchant online payment processing and has, since then, developed a wide range of exclusive PayPal checkout methods for its 435 million users. (Source: PayPal)
Brick-and-mortar shops can now manage their in-store transactions with PayPal’s mobile app and card reader. Businesses can accept chip or magstripe credit cards, debit cards, and even contactless payments with the same security feature they offer to online customers. PayPal also has Zettle as its point-of-sale (POS) software, and it includes POS equipment like lockable tablets, receipt printers, card reader docks, and even cash drawers.
PayPal’s expansion to in-person payment processing created opportunities for merchants with a storefront to offer the same convenient PayPal checkout options. It supports both card-present and contactless payment methods for customers who feel more secure making purchases through PayPal. (Source: PayPal)
Works With Multiple Currencies, Including Crypto
PayPal’s ability to make cross-border payments is among the reasons it has become one of the most popular online payment processing providers today. It supports 24 countries across the globe, allowing account holders to transact and convert their PayPal balance to any of these currencies for an additional 1.5% transaction fee.
The currency conversion is based on the current exchange rate, plus a 3%–4% currency conversion spread when:
- Paying for goods or services in a currency other than the currency the goods or services are listed in
- Sending money to a friend or family member such that they receive a different currency from the currency in which you pay
- Sending money using PayPal Payouts such that your recipients receive a different currency from the currency in which you pay
Another unique service of PayPal is its cryptocurrency management features. It supports its own cryptocurrency wallet and provides conversion to fiat currency at no extra cost. This allows account holders to use their cryptocurrency balance to make payments through PayPal. As long as customers have a PayPal cryptocurrency wallet, merchants with or without a cryptocurrency account can offer checkout with crypto without any add-on transaction cost.
Strong Invoicing Features
PayPal offers strong invoicing features for businesses that accept payments after billing their customers. There’s no extra monthly and setup cost, and PayPal is pre-loaded with small business tools for easy billing management—including accepting ACH and e-check payments.
PayPal invoicing includes tools for accepting one-time and recurring transactions. Subscription-based retailers get tools for creating and customizing invoice templates and setting up recurring billing subscription options that are automatically delivered and include payment reminders. For service-type businesses, PayPal lets you create customized quotes or estimates, make adjustments based on customer requests, and convert the same estimates into invoices once approved.
The PayPal for Business app allows you to create and send invoices from your mobile device. (Source: PayPal)
Instant Deposits to Your PayPal Account
For a small business, having quick access to funds helps continue its operations. What PayPal brings to the table is immediate access to your sales proceeds in the form of PayPal balance. And, because PayPal is a widely accepted payment method, you can use your balance to pay your vendors and contractors.
Also, if you sign up for a PayPal Debit Mastercard, you can immediately spend or withdraw your funds anywhere that accepts Mastercard and earn 1% cash back rewards for every eligible purchase. There’s no annual fee and no credit checks, and the card will be sent to you one or two days after your request.
Diverse Financing Options
PayPal offers loans to its business clients to ensure they always have access to cash needed to expand their operations. Aside from this, PayPal also gives its clients’ customers a credit line they can use to “buy now and pay later.” That option alone makes businesses more attractive and helps drive more sales.
There are two different types of loans available for business clients:
- PayPal Business Loan: Offers small business owners loans from $5,000 to $500,000 and is best suited for companies that are at least nine months in operation with at least $42,000 in annual revenue.
- PayPal Working Capital: Provides business loans from $1,000 to $125,000 and is best suited for customers with PayPal accounts that have been active for at least 90 days and have processed at least $15,000 in PayPal transactions within the last 12 months.
PayPal Business Loans are fixed-term debts and considered based on a full picture of your business. You can receive funds as fast as the next business day after you request them. PayPal requires you to make fixed payments on the loan and will deduct funds directly from your business bank account on a weekly basis.
PayPal Business Loans are available to any merchant with a PayPal Business account, even if they do not accept payments through PayPal. Approval will be based on the merchant’s overall creditworthiness and will not be affected by a lack of monthly transaction volume. (Source: PayPal)
Meanwhile, PayPal Working Capital is a loan you can apply for based on your PayPal account history, and it only takes minutes to complete the application, approval, and funding process. PayPal automatically debits fixed repayment amounts through a share of your PayPal sales.
According to PayPal’s recent working capital growth study, 60% of PayPal Working Capital borrowers reported a 24% growth in revenue, with 77% of these borrowers experiencing this increase within the first three months. (Source: PayPal)
Another advantage of PayPal is the way business owners can offer credit to their customers as long as they have an eligible PayPal payment solution integrated into their website. It also assists in making sure customers know this option is available for them early in their buying journey.
When offering PayPal Credit to your customers, you should know the following:
- PayPal Credit is a reusable credit line that customers can use to shop.
- PayPal Credit is already available to customers who checkout with PayPal.
- There is no additional cost to business owners with customers that use PayPal Credit.
- Business owners still get paid upfront like with any other PayPal transaction, even though their customers are paying for their purchases over time.
There are no extra steps to start offering PayPal Credit. It is automatically available as a payment option at checkout for your customers who have been approved for this payment service. (Source: PayPal)
Meanwhile, Buy Now Pay Later is PayPal’s latest customer financing payment option. By partnering with a long list of retail brands, merchants can provide customers with the option to pay for their purchases in four interest-free installments while merchants get the proceeds of their sale upfront. This payment method is compatible with popular ecommerce platforms, and setup at checkout is easy.
PayPal’s Q2 Quarterly Earnings report for 2021 noted a 39% increase in buyer’s cart sizes when using the buy now pay later checkout option. (Source: PayPal)
Cons of PayPal Business
Did you know?
PayPal is an aggregate payment processor, meaning it processes transactions in large batches with other merchants. Because of this, PayPal is quick to freeze business accounts to reduce PayPal’s own financial risk. This is typical of all aggregate processors (Square is another popular example).
Regardless of who’s at fault, any dispute raised by either the buyer or seller can result in PayPal limiting the merchant’s account. Accounts may be frozen, and refunds or returns may be delayed until the issue is resolved. To avoid this hassle, small businesses should maintain constant communication with their customers. This will ensure that customers feel more comfortable reaching out to the seller directly to solve misunderstandings instead of going straight to PayPal to file a complaint.
Verifying your account and being aware of account hacking strategies are just a couple of ways to prevent your PayPal account from being limited and your balance from being withheld. (Source: PayPal)
If this is a concern, consider applying for a dedicated merchant account, such as the ones offered through Helcim, Stax, Payment Depot, or banks like Chase Merchant Services. Or, if you prefer a PayPal affiliated service provider, consider Braintree.
PayPal’s transaction fees are widely varied, and rates differ per use case. For example, under PayPal’s commercial transaction category, rates range from 1.90% + 10 cents to 3.49% + 49 cents per transaction. Another category for online card payment services charges anywhere from 2.59% + 49 cents to 3.49% + 49 cents per transaction. There’s also a different set of rates when using PayPal Zettle and for accepting international payments.
Below is a list of PayPal’s current merchant fees:
PayPal US Merchant Fees
For an alternative payment solution with simple transaction rates, consider Shopify if you have an online business, and Square for its flat-rate fees if you have a storefront.
As an aggregate payment processor, PayPal is incompatible with high-risk businesses of any kind. Likewise, PayPal Zettle does not support age verification tools, making it incompatible for businesses selling age-restricted products. It also has limited integration features, meaning you can’t really upgrade or expand Zettle’s features.
If you need an online payment processor that’s compatible with high-risk businesses, consider Payment Cloud. It supports medium- and high-risk merchant accounts, and unlike PayPal, it is highly praised for its customer support and has only a few complaints of frozen funds. For a POS system that’s compatible with high-risk businesses, consider Lightspeed or Vend.
Learn more about high-risk merchant accounts.
Of the many disadvantages of PayPal in our list, this is what concerns potential customers the most. PayPal consistently ranks among the most popular targets for phishing scams. According to a cybersecurity report by VadeSecure, PayPal hit its peak in 2019, recording a phishing increase of 111.9% year over year. And while it has slid down to the 8th spot in rankings, the threat remains high, with PayPal experiencing a 305% increase in the first half of 2022. The sensitive information inherent to a PayPal account makes it attractive to phishers.
PayPal has installed the most updated security measures in place; however, business account owners will need to know how to identify the latest and most common scam strategies. More information about this is available and always updated on the PayPal website.
As an alternative, we recommend Stripe, a payment processor with advanced security features that includes customizable payment risk level scores, secure data migration, and online identity verification for over 33 countries.
Small business owners will find that the majority of negative feedback about PayPal is connected to its quality of customer service. Complaints vary from lack of support for fraudulent transactions to slow response times when resolving disputes. While PayPal’s customer service is available via phone, email, and social media platforms, users still report unresolved issues that directly relate to poor customer service.
As of this writing, PayPal received a score of 3.6 out of 5 from around 700 PayPal account holders rating their experience of PayPal’s customer service. Majority of complaints revolved around the poor service they received while asking for assistance over fund freezes and account holds.
Consider payment processors with better customer service, like Shopify, which has 24/7 customer service. PayPal’s Braintree is also among the highest rated payment processors by the Consumer Affairs website.
PayPal Zettle Overview
| PROS | CONS |
|---|---|
| Mobile-friendly | No add-on features available |
| Multichannel sales tools | Lacks offline payment processing |
| Free POS | Limited inventory features |
Key Takeaways:
- PayPal Zettle is PayPal’s in-person payment solution that rivals Square POS in terms of ease of use and setup. However, it’s not nearly as feature-rich.
- Multichannel features are available so you can also use Zettle to sell online even without a website.
- Overall, the free POS app and mobile card reader is easy to set up and use, but features are limited, and no add-ons are available.
- With PayPal Zettle, merchants have the ability to offer PayPal payment methods to in-store customers.
Find out PayPal’s detailed pricing and features for in-person payment processing with our in-depth PayPal Zettle review.
Pros of PayPal Zettle
Mobile-friendly Payment Solutions
PayPal offers mobile-friendly payment solutions for small businesses looking to increase their conversion rates on mobile devices. Whether the business has its own store app or a mobile-first/mobile-optimized website, customers can log in to their secure PayPal account to make payments without having to leave the seller’s website. This added security puts customers’ minds at ease so that they can complete their purchases.
More and more customers are exploring online stores using their smartphones. While mobile sales have seen a huge leap in its share of all ecommerce sales, stores experienced a 76.3% cart abandonment rate from a mobile device standpoint in the past 12 months. And from the list of reasons, the security of personal and financial information remains one of the major concerns for customers.
Link your PayPal Zettle card reader to any mobile device to start accepting payments anywhere with an internet connection. (Source: PayPal)
Includes Multichannel Sales Features
If you are an online business owner who wants to participate in occasional in-person sales, such as trade shows, fairs, and farmers’ markets, PayPal’s POS (PayPal Zettle) and competitive processing rates are a viable option. It provides you with inventory tracking, basic restaurant tools, and clock-in/out features to ensure that your sales run smoothly. The mobile app comes with a complete register that lets you ring up sales and manage your inventory.
Want to sell on social media? PayPal’s commerce platform can host your listings, so you can sell online even without a website. PayPal provides you with tools to create listings that generate links you can share on Facebook and Instagram and via email, text, and chats. All you need to do is connect the PayPal Commerce Platform to your social media, and your customers can start making purchases securely.
Add your product details, including shipping and tax rates, from the “Sell on Social Dashboard” page, then click the create button to produce a payment link. (Source: PayPal)
Free POS
PayPal now offers Zettle as its POS software, along with mobile card readers to help users start accepting payments in-store and on the go. There’s no monthly subscription fee or setup cost to use this product, and PayPal offers competitive transaction fees against most flat-rate payment processor alternatives like Square.
PayPal Zettle Pricing
Transaction Types | Rates |
|---|---|
Card-present transactions | 2.29% + 9 cents |
Keyed-in transactions | 3.49% + 9 cents |
QR code | 2.29% + 9 cents |
PayPal Zettle allows you to accept credit card, gift card, PayPal, and Venmo payments. And, while inventory management is basic, you can easily create variants, sell by specific units, upload and delete products in bulk, and set up low-stock alerts. It also lets you generate QR codes that your customers can scan and use to pay for their purchases.
Cons of PayPal Zettle
PayPal is an online payment processor first. Its point-of-sale (POS) service is meant to support business account holders who wish to process transactions through PayPal. Unfortunately, PayPal Zettle does not come with any available add-on POS features, nor does it have a range of compatible POS integrations. This makes it difficult for merchants with fast-growing companies that require other back-office tools such as shipping and vendor and employee management.
PayPal Zettle only has four integrations and, unlike Square, does not support any add-on tools for streamlining your point-of-sale processes. (Source: PayPal)
If you need a payment processing service with strong POS features, Square is your best option, particularly if you run a storefront. For ecommerce merchants, consider Shopify.
For a mobile POS, it’s crucial to be able to continue accepting payments even when the internet connection is interrupted. Unfortunately, while its mobile card reader is more feature-rich than most of its competitors, PayPal Zettle does not support offline payments. You will have to depend on your data or Wi-Fi when accepting on-the-go payments.
Consider an alternative like Square. Its POS can function offline, and it will store any offline payments to process and sync up once the internet connection is restored.
Inventory management tools in PayPal Zettle are limited and ideal only if you don’t have a large volume of products. You can perform bulk actions—such as uploading, updating, and deleting product listings, and even tracking your inventory level to set a low-stock alert. However, you can only add up to three variant options, and PayPal does not allow you to create kits, build menu items, or manage your vendor list.
PayPal Zettle does not have the features to support inventory kitting, menu building, and vendor management. (Source: PayPal)
Consider Shopify as an alternative. Not only is it capable of handling larger volumes of inventory, it also provides full integration with its mobile POS app, so your inventory levels are always updated for both website and in-person sales. This makes Shopify the best option for online businesses that require better inventory management.
Alternatives to PayPal for Small Business
There are many alternatives to PayPal, but did you know that PayPal offers some of the cheapest payment processing fees for small businesses?
 |  |  |  | |
Monthly Fees | Two free plans + Payments Pro: $30/month | $0–$60 | From $99/month | From $0 |
Online Payments | 2.59% + 49 cents–3.49% + 49 cents per transaction | 2.9% + 30 cents–3.5% + 15 cents | Interchange + 15 cents | 2.9% + 30 cents–3.4% + 30 cents |
Mobile Card Payments | 2.29% + 9 cents | 2.6% + 10 cents | Interchange + 8 cents | 2.7% + 5 cents–2.9% + 30 cents |
In-store POS Payments | 2.29% + 9 cents | 2.6% + 10 cents | Interchange + 8 cents | 2.7% + 5 cents–2.9% + 30 cents |
Virtual Terminal | 3.49% + 9 cents | 3.5% + 15 cents | Interchange + 18 cents | 3.4% + 30 cents |
Recurring Payments | 3.49% + 49 cents | 3.5% + 15 cents | Interchange + 18 cents | 2.9% + 30 cents–3.4% + 30 cents |
Peer-to-Peer | PayPal accounts: free 1.9% + 49 cents–3.49% + 49 cents | Debit cards: free (through Cash App) | Not supported | Not supported |
Funding Times | PayPal-to-PayPal: Instant Bank Transfer: 1–3 business days, or same-day for 1.5% fee | 1–2 business days, instant funding for 1%, minimum 50 cents | 1–2 business days | 1–2 business days, instant funding for 1.5% |
However, not all small businesses are the same, so consider other payment processors if you find PayPal’s disadvantages are a huge deal breaker for you. Other providers also support most of PayPal’s payment services features:
- Square: Best PayPal alternative for mobile payments
- Stripe: Popular PayPal alternative for accepting online payments
- Shopify: Best non-PayPal option for online stores
See our full list of recommended PayPal alternatives.
Pros & Cons of PayPal Frequently Asked Questions (FAQs)
Yes. Except for those classified as high-risk, most small businesses can use PayPal. We even recommend PayPal to occasional sellers and hobbyists because it offers a $0 monthly subscription and does not charge for inactivity. PayPal also now has a POS solution for merchants looking to accept payments in-person.
Read our PayPal Zettle review to learn more.
In general, PayPal business accounts are free. Merchants can use PayPal Business (online payment app) to accept payments online and PayPal Zettle (POS and in-person payment app) for free, so you only need to pay the transaction fees. However, some features, such as virtual terminals and recurring invoice management tools, are add-on services that include a separate monthly subscription.
PayPal’s popularity is in its ease of use and free payment app, but Paypal users also like the system because it is easy to set up, does not have an application process (you can start accepting payments in minutes), and lets you immediately access your funds through your PayPal Balance.
PayPal is also widely trusted and used by consumers. Adding PayPal to your online checkout can help reduce shopping cart abandonment.
Yes, like any other payment services provider, PayPal carries some disadvantages. While affordable, PayPal’s transaction fees vary widely so merchants may find it complicated to keep track of their payment processing costs. As a payment aggregator, PayPal is also quick to freeze merchant accounts to reduce its own financial risk. PayPal is also widely known for its poor customer support, which makes resolving frozen funds and accounts difficult to manage.
Bottom Line
There are 435 million active PayPal accounts as of the fourth quarter of 2022, which means there’s more potential business for small business owners who use the platform. When managed effectively, the benefits of owning a PayPal account can quickly outweigh the disadvantages of PayPal. Aspiring entrepreneurs can utilize its financing and tax reporting features to build a profitable business that grows into a successful venture.
