I’m not surprised that many businesses opt to use PayPal to power payments on their website when they’re just starting out. It’s simple, it’s quick to install and it’s trusted by virtually everyone.
However, PayPal isn’t cheap, charging merchants between 3.4 percent and 1.9 percent plus a fixed 20p per transaction. The specific payment processing fee you pay depends on your monthly sales.
The specific breakpoints are:
|Monthly Sales||Transaction Fee|
|Up to £1,500||3.4% + 20p|
|£1,500.01 – £6,000.00||2.9% + 20p|
|£6,000.01 – £15,000.00||2.4% + 20p|
|£15,000.01 – £55,000.00||1.9% + 20p|
Even at the top end (£55,000 per month / £660,000 per year) PayPal’s processing fees are very high. While startups might be able to justify these fees, it’s much harder for established and growing businesses.
In this article, we’ll look at some alternatives to PayPal. These services do exactly the same thing as PayPal but at a much cheaper price.
PayPal’s Web Payments Standard is a pretty barebones affair, allowing little customisation and requiring users to complete the transaction in a pop-out window.
PayPal Pro is the next level up, allowing merchants to integrate payments within their websites and customise the look and feel of their checkout.
PayPal Pro charges merchants a £20 monthly subscription fee and 1.9 percent plus 20p on every transaction, which offers a reasonable saving over the standard service. However, as we’ll see later, merchants can get a much better deal if they look around.
Integrated Gateway and Account
PayPal is what we’d call an integrated payment service, meaning that it performs both the role of the payment gateway (processing the payment) and the merchant account (accepting the money).
There are a lot of other integrated payment options out there, all promising to provide a better service at a cheaper price.
Chief among them is Stripe, an integrated service launched in 2010. It’s a bit more techy than PayPal and is designed to be super flexible for developers.
|Transaction Fees||1.4% + 20p||1.9% + 20p|
|Example £10 Transaction||£0.34||£0.39|
|Example £100 Transaction||£1.60||£2.10|
As you can see, Stripe offers a pretty decent saving over PayPal, cutting the monthly payment entirely and reducing the percentage by half a percent.
If your business takes £1million a year, switching from PayPal to Stripe will save you £5,000 in payment processing fees.
And that £5,000 would make the perfect Christmas bonus for whoever suggested the switch, don’t you think?
For a full investigation into Stripe and its pricing, check out our blog post How Much Does Stripe Charge? And Is It Worth It?
Combination Gateway and Account
As we’ve already discussed, to accept money online you need a payment gateway to process the card payments and a merchant account to accept the money.
Merchants can — and do — buy payment gateways and merchant accounts separately and plug them together. Here’s a little bit of background about the two elements.
All payment gateways work in broadly the same way, charging a small monthly cost for a set number of transactions. If you process more transactions than your plan allows, you’re charged at a slightly higher per-transaction rate.
For example, one of the leading gateways charges £19.90 per month and that allows you to process up to 350 transactions.
If you have a super busy month and end up processing more than 350 transactions, you’re charged an extra 10p per transaction.
Once the payment gateway has processed the transaction, it needs to deposit the money somewhere. That somewhere is called a merchant account.
Merchant account providers will also levy a charge on the merchant, which is typically between 0.3 percent and 2 percent, depending on your provider and what type of card your customer is using.
Here is a comparison of an example combination system and Stripe.
|Payment Gateway Fee||Included||5.6p per transaction*|
|Merchant Account Fee||Included||0.3% for debit, 0.9% for credit†|
|Total Transaction Fees||1.4% + 20p||0.3%–0.9% + 5.6p|
|Example £100 Debit Card Transaction||£1.60||£0.36|
|Example £100 Credit Card Transaction||£1.60||£0.96|
* Based on a monthly charge of £19.90 for 350 transactions.
† Based on average merchant account fees.
As you can see, if you find a cheap merchant account, you can build a competitively priced payment system, potentially saving you tens or hundreds of thousands of pounds per year.
Find your perfect payment gateway
Finding the right payment gateway for your business can be a difficult process. The good news is that many of our partners also offer payment gateways.
Jump over to our payment gateway comparison page, plug in a few details about your business and we’ll show you what deals are available to you.
It only takes two minutes to get a quote and could save you up to 40 percent on your payment processing fees. So, what are you waiting for?