PayPal Vs Merchant Account: Which Is Better For Your Business

02 Dec 2021
6 min read

Post Highlight

One of the most crucial considerations to make when starting or increasing your business's online sales is how you will collect payments from clients. When it comes to payment processing, eCom merchants have a variety of alternatives. Here we talk about two types PayPal and Merchant account. This blog will help you have a clear margin of differences between the two and let you choose a suitable account for your business. #ThinkWithNiche


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PayPal's business model is fundamentally different from that of traditional merchant account providers. Thousands of entrepreneurs have lost their enterprises as a result of failing to see this distinction. We are first highlighting the differences between the two.

How the two differs from each other

Online payments received through a merchant account are analogous to face-to-face transactions. You have a bank or other financial institution account, and the payment processing business collects your clients' credit card details through the payment gateway on your website, securely handles it, and transfers the transaction proceeds straight into your bank account. These funds are normally ready for use within two business days.

Things operate a little differently in PayPal. When a consumer uses PayPal, they are transferred to PayPal's payment gateway (away from your website), where you have no control over the customer's checkout experience. The user may use their credit or debit card as well. The money is processed and entered into PayPal's system via their merchant account. The funds from the transaction shows in your company's PayPal account, but forwarding them to your bank account might take up to a week.

PayPal has ONE merchant account that millions of individuals may use, rather than granting a single merchant account to a particular firm. It essentially serves as a digital wallet, combining all of your company accounts – whether constituted of credit card transaction revenues or cash deposits for paying suppliers – into a single account. While it provides card processing functionalities similar to a merchant account, it is more costly than the majority of big credit card processors.

Pros of PayPal

• Setup is simple. 

• Flat-rate pricing is accessible. Many merchant accounts have tier pricing, however, PayPal is more straightforward and upfront.

• The digital wallet keeps track of your money.

• The digital wallet keeps track of your money. 

Cons of PayPal

• There are few in-person possibilities. 

• Other service providers are less expensive. PayPal's processing costs rose in August 2021, making it more expensive than many other big payment processing services.

• Chargebacks will incur a cost. There is a chargeback fee of $20 unless the transaction is protected by the seller protection policy.

• It is possible that your business accounts will be suspended.

Pros of Merchant

• Your company collects payments in a timely and effective manner. 

• Security is not a concern. Only the past day or two of a company's transaction receipts are retained in traditional merchant accounts, so there's less to lose. Only the past day or two of a company's transaction receipts are retained in traditional merchant accounts, so there's less to lose  

• Customers get strong support. If you experience issues, payment processors have resources ready to assist you.

• Using a specialized merchant service provider may allow you to take payment in dollars or other currencies.

Cons of Merchant

• Pricing is subject to change. It might make determining how much you'll spend in fees tricky.

• Fraudulent transactions are possible. 

• Transactions may be put on hold. 

• Accounting integrations are weaker. Conventional merchant accounts are only used to keep the proceeds of credit or debit card transactions momentarily. To manage cash transactions, you'll need a separate account.

How To Choose Between The Two

Can you afford shutting down of account

In any case, the chance of having a PayPal account closed is substantially higher than that of a Traditional Merchant Account (since they do not underwrite). If your world would come crashing down if your PayPal account is closed, you might reconsider relying only on PayPal.

Are you Busy in settling in market

If you have a company that you're still attempting to establish as a legitimate business, PayPal is a really fast and simple method to get started. You will almost certainly pay a little higher percentage and transaction cost, but the freedom of not having to pay a monthly fee may be worth it.

Save your Energy

If your monthly sales are less than $10,000, there is less motivation to invest the time and effort for adequately securing yourself with a standard merchant account. In contrast, if you have greater sales, a merchant account is preferable.

Is your Business in High-Risk Zone

If you have any refunds or chargebacks, or if you work in an area where this is widespread, you are labeled "High Risk." As a result, PayPal is not a viable alternative. The larger the risk of the firm, the more likely a chargeback.


So, in a nutshell, PayPal is an excellent entry-level alternative for accepting cards since it includes some flexibility, but it does not give much safety. PayPal is a good alternative if your company is tiny or if you wish to add a payment option. However, if you have a continuous stream of revenue, you should prioritize setting up Traditional Merchant Accounts.


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