PayPal Payment System Review for Online Small Businesses
One of the best online payment systems you can use for a small business is PayPal. I’ve been using PayPal since 2001, so I have a lot of personal experience with them to share in this review.
Any kind of online business needs a way to receive payments from customers. Automation and ease of use are both important. However, you also need to use a payment system that your customers actually use to make to easier to land sales. PayPal gets used more than any other payment platform, so you can be confident that your clients likely use it.
Since PayPal can be the backbone of an online small business or side hustle, I wanted to review this payment system and provide you with some of my personal tips for using it.
Why Use PayPal?
Paypal has almost 400 million active users, making it the world’s largest payment system. Less than 10% of those accounts are merchant accounts, so there more than 350 million potential customers already using this payment platform. This is important for a small business considering opening a merchant account with PayPal. It means that a large percentage of your website traffic will likely already have a PayPal account, so it simply makes good business sense to use them for an online business.
Most people that buy products online are concerned about fraud and scams. PayPal offers them protection on their purchases and even allows them to hide their credit card or bank information from merchants. That’s one of the biggest reasons why they’ve become so popular. It can make a customer nervous to input their credit card number on a website they don’t know and trust. However, when they pay with PayPal they don’t have to disclose that information, which makes them more appealing to use. When you accept payments through the system that customers prefer, you give your business a big advantage.
Customers that don’t have a PayPal account can actually still shop with you. Some may be tempted to open a new account if they don’t already use it. However, PayPal also allows you to accept debit / credit card payments from customers, even if they don’t have an account. The credit card information is entered on PayPal’s website, so the customer feels more at ease.
PayPal is the primary payment system that I use for all of my online businesses. I do still use other platforms, such as a Stripe merchant account, but I find that 80% or more of the payments that I receive will come through PayPal when the customer gets to choose.
The first thing you’ll need to do to accept PayPal payments on your website or other marketplace website is to create a business account: Create a PayPal Account.
You will need to connect a credit card and a bank account to your business account to verify it and allow normal usage. The bank you connect also ends up being the best method to use for withdrawals too. Personally, I’ve always had a debit card for that bank account as the credit card on file, so both of these items can come from the same bank account.
It’s been a very long time since I’ve personally been through the account creation process, so it’s likely changed. The important information that you need to know is basic and timeless though. PayPal will ask you for various information and to go through a variety of verification steps for your personal information and even your mailing address. Make sure you complete all of the requested steps in a timely manner to ensure complete access to your account.
Initial Account Limitations
A brand new PayPal account will be severely limited in a number of ways to help prevent fraudulent usage. To lift most of these limitations you will need to complete all of the verification steps they request. However, even once you complete everything they ask you to do, you’ll find that there are still some limitations on your account.
In the past, these limitations would lock up your received funds for 21 days before allowing you to spend or withdraw them. It’s quite likely this may have changed or change in the future though. No matter what limits may be on your account, just know that they’re temporary. Just do a good job fulfilling your sales and keeping customers happy to avoid refunds, disputes and/or chargebacks. Once you have a few months of sales records without problems on your account, these limitations should get removed.
Other PayPal account limitations aren’t shown to you or will only come into play if you have problems such as high refund or dispute rates. There is an unpublished limit on the amount of money you can receive in a single month. I hit this limit a few times a couple of years ago and yet to request special permission to receive more money for the rest of the money. I broke the limit a couple of successive times one month and had to keep raising the limit, so I don’t recall the exact initial limit, but I believe it was somewhere in the $50,000 per month neighborhood.
I’ve always been a fan of PayPal for their withdrawal options, which have just continued to get better over the years. They now have an instant withdrawal option for bank accounts. They do charge a fee for those instant withdrawals, but you can also transfer money from PayPal to your bank account for free if you don’t mind waiting 2-3 business days.
Traditional options like having a check mailed to you are still available. My personal favorite is simply using the PayPal Debit Card though. I’ll often use it for business expenses, so I don’t even have to worry about moving some of the business income. In an emergency, I can even use their debit card to withdraw cash directly from my PayPal account.
Once you have an established PayPal account history, your received payments will be available to you instantly. With my Stripe merchant account, it takes 2-3 business days before I have access to new funds.
PayPal Debit Card
With a fully verified PayPal business account, you’ll be able to request a debit card. I believe they may require an account to be six months old before they’ll allow you to request a card though, so if you don’t see this option right away just be patient and keep your eyes open for it to appear.
Using the debit card, you’ll have instant access to your PayPal account balance. Spend your balance directly by using your card anywhere in person or online that accepts Mastercard. You can even take the card to an ATM and withdraw cash.
When you’re first starting an online business, money can be tight. If you sell an item that needs to be shipped to the customer, you’ll need to be able to pay for the shipping costs. Using PayPal and their debit card, you can have a new sale come in and instantly use that money to pay for shipping expenses.
Refunds, Disputes & Chargebacks
One of the main things you need to be careful about as a PayPal merchant is an unhappy customer. When a customer is unable to get a resolution with you that satisfies them, they can go to PayPal to file a dispute on the transaction. When the dispute is escalated to a claim, PayPal will step in to make a decision on what should happen with the transaction.
Both refund and dispute rates are tracked for your account. If they get too high, certain limitations could be placed on your account. When someone files a dispute, you’ll get charged a $15 fee by PayPal, even if the purchase was only for $1. However, if your dispute rates get too high, they’ll increase that fee to $30.
A chargeback is similar to a dispute and results in the same fees. When a customer pays with a credit card, they can go to their card merchant to dispute the transaction, which results in a chargeback. The PayPal dispute process then fights the chargeback for you with the information you provide.
Keep all of this in mind when you’re dealing with an unhappy customer. You don’t want them to feel like they’re not getting anywhere with you and have to get help from PayPal instead. When necessary, offer partial or even full refunds to keep them happy. Remember that if they file a dispute and win, you’ll not only refund the full purchase but also lose the $15-$30 dispute fee on top of it.
PayPal Policies & Terms of Service
When you sign up for PayPal, you’ll be presented with numerous pages of policies and various terms of service that you have to agree to in order to join. You can also find these pages later on through links on their site, usually found at the bottom of the page.
Make sure you thoroughly read through their policies. You may be able to skim through some of the parts that are heavy with legal jargon. However, you really need to pay attention to the parts that outline what they will allow and not allow you to do with your account.
Violating their policies can bring swift and long-lasting consequences. I’ve known of shady merchants that had their accounts permanently locked and tens of thousands of dollars in funds frozen. Simply put: you only want to use PayPal for your business if your business activities are allowed on their network.
My PayPal Review
Even though the PayPal online payment system isn’t perfect, I still highly recommend them for any online business or side hustle. Their fees to receive payments are reasonable compared to the industry standard. The ease of use for both merchants and customers makes it the ideal choice for a payment platform.
I have found their customer support on the phone to be extremely reasonable to help out with special circumstance problems. For example, I once opened a PayPal dispute on a very large transaction that didn’t end well. They sided with the seller and closed the dispute, so I called them. After explaining the situation, I was able to provide some documentation and get the dispute overturned so the funds were put back into my account. I would like to think that their support is that good for all customers and wasn’t just because I have a long running account that processes a lot of sales.
My journey with using PayPal began over 20 years ago in 2001 when a potential customer asked me “Do you accept PayPal?”. I’m glad they asked that question all those years ago because it has consistently been my best performing revenue source ever since.