The Cost of PayPal (Read 512 times)

eric :)

    Years ago, when users asked for a way to support RA, I picked PayPal because it was simple and quick.  I knew nothing about online credit processing other than a merchant account is required (whatever that is).  I switched to use Google Checkout because they offered lower fees.  A few months later, Google suspended my account because I labeled the transactions as “donations”.   Apparently, I violated their Terms of Service because there was no exchange of physical goods.  Google seemed to be excluding itself from the service based segment of the internet.  I went back to PayPal since they had no such restrictions.


    In the past year, I’ve been looking for an online credit card processor to provide an integrated payment service so that users would not be redirected to PayPal to enter their payment information.  My experience was very similar to Paul Down’s so I won’t describe it.  However, if you are considering processing credit cards for your business, or curious about what happens when you pay by credit or debit card, you should read his New York Times blog.


    As a side note, if the politicians want to help small business as they all claimed, a good place to start would be to clean up the complexity, predatory terms, and shady practices of the credit card processing industry.  In reality, nothing will change because the banking industry has powerful lobbyists.


    I switched to an online credit card processor two months ago so you will no longer be redirected to PayPal to complete the payment.  Thus far, I’m quite happy with the switch, more so after I crunched some numbers.


    While working on the database for a new component on RA, I saw the payment history from about 6 months ago.  Each order has an associated state that indicates where it is in the purchase process.  When you purchase an Ad-Free subscription, the order starts at “new order”, and progresses to “completed” when you confirm the payment.  I noticed there are many orders that never went to completion (abandoned).  They were at the authorizing stage, meaning the users were redirected to PayPal but never completed the payment form on PayPal.


    I tallied all the orders made from November 2012 to beginning of March of this year, when I stopped using PayPal.  I divided the orders into either completed or abandoned.  I counted multiple abandoned orders from the same user as one order.  I also deleted abandoned orders where there’s a completed order from the same user (multiple attempts leading to eventual completion).   What I have left should be the number of users that abandoned their orders from November to March.  It turned out the order abandon rate is 36%.


    The 36% number by itself doesn’t mean much.  Amazon.com might have a higher abandon rate.  Who knows?  I can, however, compare it against the orders made using the new credit card processor since March, when I made the switch.  The percent of abandoned orders with the new processor is 1.6%!  The only conclusion I can draw from this is that PayPal deterred users from completing the transactions.  I’m guessing these users think a PayPal account is required, even though it’s not.


    Credit card processing is expensive.  Merchants are charged literally a dozen fees (or more) for the privilege of accepting credit cards.  The fees are paid as a percentage of the transaction and as a fixed amount per transaction.  There are also fees that merchants pay once a day and fees every month.  There are quarterly and annual compliance fees to prove that the server is secure.  If a website does not collect enough money per month, the fees may end up being more than the transactions.  Services such as PayPal are attractive to small business owners because they’re simple to set up with simple fee structures.  On the flipside, is PayPal losing sales?  I needed more data points.


    As some of you may have guessed, I created the Running Wizard website for Nobby because I saw the secret sauce and it is the most customizable plan that I’ve seen.  It is a smart training system that is specific to each runner.  Running Wizard also uses PayPal to collect money.  I did a quick search and found that 48% of the orders were abandoned!  I did not eliminate multiple attempts so the actual percentage is probably somewhere between 36% and 48%.


    These two website data points are statistically insignificant, but both of them have a direct impact on their respective owner’s bottom line.  If you use PayPal, perhaps you can share your experience here.  Direct credit card processing is still king.  While PayPal provides a good service, it should not be the primary method of money collection.   Lesson learned.


      I remember donating via paypal in 2010. For a while, I had no ads and did not pay much attention to my subscription status, as I was already 'paid up' for some period of time when the ads first went online.

      Recently, I noticed that ads came back, so I went looking for the paypal donate button, even to the extent of searching forum posts where I remembered people linking it. I could not find the donate button, nor any announcement that it had gone away. I let the whole thing drop and figured I would address it at some later date. I guess you could count that as an order 'abandoned' because it was not clear to me what happened. Does paypal take a bigger cut from you than a direct credit card transaction?

      Thanks for explaining.

      A Saucy Wench

        Thank you!!!!


        I am one of the multiple abandons.


        I've run in to several problems with Paypal freezing up during the credit card stage.  And twice it indicated to me that it was complete, but the payment never went through the other end, once for a donation here, once here for Monkey registration.


        We've also run into several security issues with Paypal.  I loathe Paypal.  Which is why I do not have an account, but as mentioned above, they were very very spotty in actually accepting my credit card.

        I have become Death, the destroyer of electronic gadgets


        "When I got too tired to run anymore I just pretended I wasnt tired and kept running anyway" - dd, age 7


          As someone who shops online a fair bit, I know that Paypal accounts are not required.  I'm no computer guru, but is there a way during registration to make is clear that a Paypal account is not required?

          p.s.  that reminds me I keep meaning to donate.  Keep up the great work, Eric : )  Smile


            Doesn't paypal take extra steps compared to direct credit card processing? That may be the reason for the extra abandons. Either that, or people inherently trust the direct card processing more than paypal.

            Not dead. Yet.

              PayPal makes it hard to complete orders at times.  I had problems on more than one occasion using my account.  I don't remember exactly, but it seems there was no way to log in and change out my old credit card.  I tried calling during business hours but could not get through, and there was no way to do it online.  In fact, I think there was supposed to be a way to complete it online but it was not working properly.  It made me mad at the time and I vowed never to use it again.  I think they are a poorly run company.


              I have seen people take credit card payment with a small attachment to an iPhone where you can actually slide the card.  If thats possible, how hard can it be to do your own online billing?  I guess the key is just to make sure it is secure.

              How can we know our limits if we don't test them?


              One day at a time

                I guess I'm the exception.  I have never had a problem with PayPal, either giving or taking funds.  Our church is linked to it, and I record the donations.  I haven't heard any complaints from church members.

                Not dead. Yet.

                  Can I get an LOL?!  These two ads were showing while looking at this thread.  Gotta love Google.



                  How can we know our limits if we don't test them?

                  Feeling the growl again

                    I don't recall the exact issue, but I do know that the last time I donated here it took more than one attempt to go through.


                    I loathe Paypal for a number of reasons.  I'm glad you switched.


                    I agree with you whole heartedly on the bad position small businesses are put in by credit card companies/banks.  When only 2-4 providers control the industry, you know the small guy is going to get screwed.

                    "If you want to be a bad a$s, then do what a bad a$s does.  There's your pep talk for today.  Go Run." -- Slo_Hand


                    I am spaniel - Crusher of Treadmills



                      I've had times (here, Run Wiz and others) where PayPal says it can't process my order, and that I should try later.  I've tried 5-6 times here before it went through...didn't re-try RWiz...may re-try later.


                      Connoisseur of Cookies

                        I gave up on PayPal years ago for the same reasons outlined previously; PayPal repeatedly froze, would not accept my card information or just outright wouldn't complete the transaction despite advising me that the transaction was complete.



                        "C" is for cookie.  That's good enough for me.

                        eric :)

                          PayPal does offer value in the market place.  For small organizations or companies with few monthly sales, direct credit card processing doesn't make sense due to the high cumulative fees and the unfavorable terms.  I purposefully did not mention some of these terms in my post to avoid going off in a tangent.


                          When you pay for a purchase by credit or debit card, the bank that processed the transaction sends the money to the merchant after a fixed number of days.  This bank in turn would get the money from the bank that issued the credit card to you.  You have up to a month to pay your credit card bill.  If you dispute the purchase, the banks then demand the money back from the merchant.  A fly by night operation would have been long gone by then.  Having the ability to process credit cards is the same as having a limitless loan, which is why banks have unfavorable terms to limit their loss.


                          One of the credit card processor's agreements that I skimmed through consists of 13 pages of single spaced 8 point font text.  Many banks require escrow accounts.  Even though the money belongs to the merchants, the banks have complete control of these accounts.  The merchants are at the whims of the banks.


                          Buried in the agreement is this little gem (legalese but quite readable):

                          Merchant and Guarantor each hereby grants to Servicers ... a security interest in all of Merchant’s and Guarantor’s personal assets and property... Servicers may enforce this security interest as applicable by ...  taking possession of any or all of Merchant’s or Guarantor’s personal assets or property.


                          In my case, I am both the merchant and guarantor.  The terms did not specify under what situations I would be liable.  Only the banks (servicers) can determine that.  Even if I do everything by the books, I am still at the mercy of the banks.  I don’t want to lose my home because someone made an unfounded allegation against me and the credit card processor sides with this person.  These agreements circumvent the reason for having a company, which is to protect the entrepreneur’s personal assets.


                          Going back to my point… PayPal doesn’t have these terms.  They take on some of these risks by charging higher fees, although direct credit card processing may actually have higher fees because they don’t reveal how much they charge for each transaction until you get the monthly statement.


                          PayPal has many shortcomings too.  It is not obvious to non-PayPal users, especially when they see it for the first time, that a PayPal account is not required.  It is suspicious to be redirected to another website to pay for the purchase.  PayPal also seems to be very strict when accepting credit cards.  Its credit card rejection rate seems to be higher than other credit card processors.


                          Their management page is even worse.  I have to wait multiple seconds for each report page that I load.  I am only list transactions in 60 day increments.  I cannot get a monthly total from their interface.  To do that, I had to download the data and use Excel to get my answer.  I also cannot download the data immediately.  Instead, I specify the date range of the transactions that I’m interested in.  PayPal notifies me via an email that the data is ready, which could take a minute to an hour.


                          Like I said in my original post, if the politicians want to help small businesses, they should clean up the mess that is credit card processing.


                          ymmv: if you click on the “disable ads” link next to each ad, you’ll get to the subscription/donation page.


                          Teresa: your church might get more donations from the members if the church has direct credit card processing.  PayPal will not disclose the number of abandon carts so you won’t know how many members never completed the payment process.


                          sdizazzo: the service you mentioned is call “Squares”.  They require physical access to the credit card itself, thus the swiping.  They have much lower rates than PayPal because having the credit card in hand is less risky than online payment.


                          not bad for mile 25

                            Eric, I'm sure you've done plenty of research.  I ran across this article a while ago, about Square and GoPayment. It says Square allows you to key in the credit card, though at a higher fee.  Does that mean the card doesn't have to be in your hand?  I don't know.  Anyway, no setup fee and no contract requiring your firstborn as collateral sounds good.  Maybe a good choice for some RAers with their own businesses, if not for a web service like yours.

                            Egotist (n.) A person of low taste, more interested in himself than in me.

                            -Ambrose Bierce

                            eric :)

                              I find it hard to compare credit card processing services.  Each one has its own set of rates, per transaction and per month fees.  To complicate the matter, the rates and fees change depending on how much money I'm processing.  I ended up running different scenarios.  Even then, it's not a clear picture.  It's more of an average, as in, I could save $30 a month with processor A under these circumstances, but if I process $100 more per month, processor B is cheaper.


                              On top of that, the internet works against any decision as there are plenty of irate customers for each processor.  They talked about the horrors they went through.  No processor has a perfect record, but there's no way for me to tell which is sleaziest.  In the end, it's like jumping off a cliff into uncharted waters and hope for the best.  The chance of things going wrong is slim, but if it does, it will go horribly bad quickly.


                                In the end, it's like jumping off a cliff into uncharted waters and hope for the best.  The chance of things going wrong is slim, but if it does, it will go horribly bad quickly.


                                ...find a lemming you trust and follow it over the cliff.  You're bound to succeed that way!