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Online Payment Services – Are They a Good Fit for Your Small Business?

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Online Payment Services – Are They a Good Fit for Your Small Business?

By Caron_Beesley, Contributor
Published: August 20, 2012 Updated: August 25, 2012

Credit cards are a common online payment option for small businesses, but what about other services like PayPal, Bill Me Later and Google Wallet?

These now ubiquitous tools make it easier than ever for anyone – not just e-tailers – to buy and sell goods online and via mobile devices. However, as with all business tools, they have their pros and cons. Here’s what you need to know.

What Are Online Payment Services?

Online payment services allow businesses to receive payment from any customer with an existing PayPal, Bill Me Later or Google Wallet account. As a seller, you set up a business or merchant account, follow a few steps to add code to your website – and off you go. Once you’re set up, customers’ payments can be directly deposited into your account. You can also issue invoices, swipe credit cards on mobile devices (with a special widget) and accept payments on the go.

Here’s a quick breakdown of how each service works:

PayPal – Still the world’s largest online payment option, PayPal offers numerous multi-channel options for business owners to accept payments. With a PayPal account, businesses can accept payments online without a merchant account, process major credit cards, scan checks via smart phones, and process payments via mobile devices by using a card swiper.

PayPal fees  are 2.9 percent plus 30 cents per transaction (2.7 percent for PayPal Here mobile services), and a basic PayPal account is free to set up, with no monthly fee. You can lower the cost per transaction with volume discounts - the more you transact the less you pay. Funds are credited to your PayPal account as soon as payments are processed.

Additional value-add services are available for a fee (such as payment processing without the customer leaving your website). 

Bill Me Later – Owned by PayPal, Bill Me Later offers instant credit to consumers for online purchases without using a credit card. Unlike PayPal, consumers aren’t required to set up an account in advance. Instead, a company called WebBank makes a real-time credit decision each time at the point of purchase. Here’s the crux for small businesses: Bill Me Later targets larger retailers with annual sales well into the millions. Read more in this article from MutliChannel Merchant: Alternative Payment Methods Gain Acceptance.

Google Wallet – Formerly Google Checkout, Google Wallet (like PayPal) serves both online and mobile payments. Registered Google Wallet users can pay for goods with their phone anywhere MasterCard PayPass is accepted. Customers can also make one-click online purchases on an enabled merchant website using credit card information stored in a secure cloud platform. Google hasn’t yet embarked on a targeted campaign for a share of the small business market and most merchants tend to be larger retailers and known brands.

Rates vary depending on your sales volume but can be as low as 1.9 percent plus 30 cents per transaction. Google is competitive too – there are no monthly, set-up or gateway fees. Google’s website doesn’t publicly state the cost of the in-store Mastercard PayPass reader, so it’s not clear what upfront investment business owners can expect.

Read more about whether Google Wallet is the right fit for small businesses in this article from SmallBizTrends.

The Pros and Cons

You might well ask, “Why would I opt for an online payment service?” One of the biggest reasons is, quite simply, your customers are using these services. There are more than 100 million active PayPal accounts in the U.S. and the proliferation of secure online technology and mobile apps means wallet-less transactions are here to stay.

Other pros to these services are ease of use and low cost. Opening an online payment services account is often faster, easier and less expensive than setting up a merchant account for credit and debit card transactions.

Cons?

For customers, one of the biggest drawbacks of online payment processing sites like PayPal and Bill Me Later is that they often have to leave your website to complete a transaction (although you can pay an additional fee to avoid this). Many customers might be familiar with this experience, while others may find it confusing and abandon the purchase.

Customer service is also cited on the web as a frequent issue. If transactions are questioned, service providers can contractually lock your account and even withdraw funds from your account – leaving merchants waiting for days for their accounts to be reinstated. Not something any small business owner can afford to risk.

The Bottom Line: Offering online payment options can help increase online sales. However, don’t put all your eggs in one basket. Online payment services should be an option for you and your customers, but not the only option. Find the right balance of options – something that differs for every business. Do your research, understand your customer needs and demographics and test the market with low-cost, low-risk entry-level solutions like the Standard offering from PayPal or Google Wallet’s online payment processing service.

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About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

This is one of great posts that clearly elaborates the pros and cons of online payment service. Frankly enough, I have been very skeptic in making online payments as I was never sure of the features and benefits. Furthermore, I never knew of Bill Me Later or Google Wallet.So, thank you for the insight.
10x, useful tip
Very good article and i have allready saved to my favorite. Also i have paypal to my website in Greece.

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