Pros and Cons of PayPal for Small Businesses

PayPal is a payment solutions provider that offers a variety of features for its clients. Because of its popularity, online business owners offer it as an alternative payment option to encourage sales. There are pros and cons of PayPal you should consider before using it, like will you deal with poor customer service for financing options?

Here’s a list of the pros and cons of PayPal for small businesses:

Pros and Cons of Using PayPal

Pros of Using PayPal

1. Secure Means of Payment

In a recent study, 63% of online shoppers recognize the PayPal trust seal as the most trustworthy security seal among those you’ll find on websites. This makes PayPal a good alternative payment solution for online stores. Because PayPal is known for its security, business owners who offer it as a payment option lower their rate of sales cart abandonment and increase conversion.

PayPal has established the following security measures to protect customers who opt to pay with its service:

• Doesn’t share sensitive, payment details to sellers
• Round-the-clock monitoring of transactions to constantly monitor unusual events
• Latest encryption technology to secure transactions from the beginning
• Fraud prevention by enforcing PayPal’s policy of not asking for sensitive information via email
• Dispute resolution for any customer who wants to complain of unauthorized or incorrect transactions
• Purchase protection for customers

PayPal offers purchase protection for purchases in which PayPal is used, as well as for payments made on its website. With purchase protection, PayPal offers to reimburse clients the full purchase price they paid plus any original shipping costs, as long as they fall within the appropriate terms and limitations.

2. Offers Diverse Financing Options

Cash flow is an important factor in business operations and makes PayPal’s financing options attractive to small business owners. It offers loans to its business clients to ensure that 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 to 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 $300,000 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 Working Capital is a loan amount you can apply for based on your PayPal account history, and it only takes minutes to complete application, approval, and funding process. PayPal automatically debits fixed repayment amounts through a share of your PayPal sales.

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 who get customers that avail of 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.

Business owners can offer PayPal Credit to their customers as long as they have an eligible PayPal payment solution integrated into their website. PayPal also assists in making sure customers know that this option is available for them early in their buying journey.

3. Integrates Seamlessly With Most Business Software

PayPal integrates seamlessly with most business software solutions—everything from online store builders and web design to marketing solutions. This gives small business owners a wider variety of business solutions to choose from regardless of budget, and they can still take advantage of PayPal’s payment processing features.

You can visit the PayPal website to find a directory of providers that work with PayPal. Use its search function to help filter through their list of preferred partners. You can even get special discounts if you sign up with their partners using PayPal’s special coupon codes. Also, you can check out the extensive list of software development kits it has for small business owners and their web developers.

4. Offers an 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 offline 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 offline brick-and-mortar stores and vice versa.

PayPal Online Payment Solutions

Small online businesses can use PayPal Checkout to offer a variety of payment methods. It gives their customers the freedom to pay the way they want, whether with credit or debit cards and even funds from their bank. It uses intuitive Smart Payment Buttons^TM, so it always presents the payment methods that are most relevant to each customer.

PayPal Offline Payment Solutions

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 provides point-of-sale (POS) equipment like lockable tablets, receipt printers, card reader docks, and even cash drawers.

5. Mobile-friendly Payment Solutions

While it’s true that more and more customers are exploring online stores using their smartphones, 56% prefer to complete their purchases using a desktop device. Additionally, while fashion websites are seeing better conversions in their mobile sales, industries like airlines and other retail stores are still experiencing at least an 87% cart abandonment rate from a mobile device standpoint. Security of personal and financial information are major concerns for customers.

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 they can complete their purchase.

6. Offers Added Merchant Support Features

PayPal is expanding its services beyond payment solutions. It is also offering services that can help small businesses streamline their business processes—everything from invoicing to record-keeping, tax computations, marketing, and even shipping. These services give small business owners an opportunity to build their online business from the ground up fully supported by a strong and secure system.

Here are PayPal services beyond payment solutions that you might find useful:

• Shipping: Business account users get discounts on USPS^® and UPS^® shipping while PayPal helps track and confirm arrival of packages for both sellers and buyers.
• Marketing: PayPal business accounts include tools to gather unique shopper insights so it can create customized incentives at no extra cost.
• Record keeping: PayPal keeps extensive records of business transactions and also offers e-invoicing features.
• Tax computations: You can set up PayPal to calculate taxes for every transaction. It can also track the payment volume of your business account and send a Form 1099-K to its user if it crosses the IRS thresholds in a given calendar year

Small business owners will find that these features are easily scalable, so they should always fit within their budget. PayPal’s website offers a resource center for its business account holders who would like to integrate its full range of business services.

7. PayPal Fees Are Cheaper Than Alternative Providers

Because PayPal offers a wide range of services, its pricing structure is diverse. But this also means small business owners only have to pay for services they want to use and at a level that they need them. When analyzing the big picture, the cost of doing business with PayPal translates to a lower overall cost that’s worth the value of the service quality that it offers.

Selected PayPal Merchant Fees with Comparisons

Cons of Using PayPal

Here are the disadvantages of using PayPal in your small business:

1. Popular Target For Phishing And Other Scams

PayPal is the second most popular target for phishing scams. According to a cybersecurity report by VadeSecure, PayPal phishing increases 111.9% year over year. The sensitive information inherent to a PayPal account makes it attractive to phishers. While PayPal has installed the most updated security measures in place, business account owners will need to know how to identify the most common and latest strategies of scammers. There’s information about this on the PayPal website.

2. Customer Service Needs Improvement

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.

3. Seller Protection Policy Doesn’t Cover Digital Goods

PayPal’s seller protection policy shields small business owners from costs related to unauthorized transactions and for undelivered merchandise. However, this is only for physical goods. For business owners willing to pay extra, PayPal does have an extended purchase protection plan for buyers that covers digital products; if there were ever any issues, sellers would have an opportunity to provide proof of transactions including delivery receipts and transcripts of conversations.

4. Disputes Can Lead to Delayed Refunds

Regardless of who’s at fault, any dispute raised by either the buyer or seller can result in limiting a small business owner’s account. Their accounts may be frozen and refunds or returns delayed until the issue is resolved. What small businesses can do to avoid this hassle is to maintain constant communication with their customers. This will ensure that customers feel more comfortable reaching out to the seller directly to solve any misunderstandings instead of going straight to PayPal to file a complaint.

5. Considerable Chargeback Fees

Merchant transactions have fees, which is normal, but PayPal’s rates are considered more expensive than the convenience and security the company offers. However, chargebacks can be costly, and this should be taken into account when trying to decide whether to use PayPal or an alternative. A chargeback is a reversal of charges after a purchase. With PayPal, a chargeback results in a $20 penalty per transaction on top of returning the customer’s payment and losing the costs invested into shipping, documentation, and transaction fees.

PayPal Features for Small Business

PayPal offers a full suite of business solutions that can help any small business build its structure from the ground up. It gives businesses an inexpensive means of expanding their operations and allows them to cross platforms easily to compete with larger names in their industry.

Here are some ways PayPal can help your small business:

• Financing solutions to help with expansion of small business owners
• Point-of-sale equipment and accessories to reach offline customers
• Professional ecommerce setup for new online business owners
• Software integration with top merchant platforms
• Social media selling on platforms like Facebook and Instagram

In this day and age where innovation is a crucial factor to keeping up with large competitors, PayPal’s solutions for small businesses can be a game changer. However, after you review the pros and cons of PayPal, it’s important to note that there are alternative providers offering similar services.

Alternatives to PayPal

Bottom Line

There are 286 million active PayPal accounts as of the second quarter of 2019, which means there’s more potential business for small business owners that use the platform. When managed effectively, the benefits of PayPal business accounts can quickly outweigh the negatives. Aspiring entrepreneurs can utilize its financing and tax reporting features to build a profitable business that grows into a successful venture.

Want to share more pros and cons of PayPal business accounts? Let us know in the comments.