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

By Caron Beesley

Contributor to the Small Business Administration Blog

February 11 – Credit cards offer a few payment options for small businesses, but other services like PayPal, and Google Wallet, Square and CashApp are gaining in popularity.  These tools make it easier than ever 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, Square, and CashApp 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 are 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 smartphones, 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.
  • 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.

The Pros and Cons

One of the biggest reasons for such services, is 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 mean 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 CashApp 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. Remember always ask a financial professional before committing.

Phyllis R. Varnon


Phyllis R. Varnon
Extension Agent
Community Economic Development
Zavala, Dimmit and Uvalde Counties
(830) 374-2883

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