When should I upgrade to a merchant account?

Tejan Ausland's picture

If we are using PayPal right now, when should we upgrade to our own merchant account?

I''ve noticed that PayPal, while convenient, typically takes a higher percentage than a merchant account, but PayPal has no monthly fees and merchant accounts usually do. At some point, the percentage charged by PayPal would cost more than the monthly fee banks charge because they have a lower percentage.

When is it economical to switch to a merchant account (or add one)? 

WisTex's picture

Are you a Hobby or a Business?

In my opinion, PayPal is great for self-employed people, or people who are looking to make a couple extra bucks online. It is even great as an additional payment option. 

But if you are or want to be a real business, making real money, then you will want to have your own merchant account and be able to accept credit cards and payment cards directly, without forcing people to go to PayPal to pay you.

If you look around, all established companies, online or off, accept credit cards directly. It is hard to find an established company that only accepts PayPal. 99% of the time, merchants that only accept PayPal are self-employed, or just starting out. There is nothing wrong with that, but it does tell you something about a person's business, namely its size.

As far as the numbers go, you will have to do the calculations based on the quote(s) the payment processing company has given you vs. what PayPal charges. In most cases, if you are selling more than $1000 to $2000 a month, then a merchant account would be cheaper than PayPal. And if you are making more than that, you have negotiating power to get an even better rate.

Scott M. Stolz
Complete Hosting Guide, Editor-in-Chief
WisTex, Director & CEO

Don't Jump The Gun

I have to agree. The more sales you can show a payment processor the better the rate you will get. You want to be pretty established as well. I would say no earlier than six months, but a year would be better. You don't want to jump the gun too soon because you have to sign a contract and you don't want to pay for something you aren't using if you don't have the sales.