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Accepting Credit-Cart Payments on Your Site
(updated December, 2015)

When I first conceived of this article in early 2005, I intended to write at length about how to open a merchant account to accept credit-card payments on your site.  However, PayPal's various services are all you will need.  Those services are as follows:

* PayPal Payments Standard:  This service has no monthly fee, but it has some bugs.  Your customer, when she pays, will be taken to PayPal's site where she will be encouraged to open a PayPal account, but she will still have the option to use her credit or debit card.  In past years, PayPal Standard declined a significant number of payments, perhaps 5%.  But they have fixed their system in recent years, and payments are rarely declined.

* PayPal Payments Pro:  This service costs $30 a month and behaves like a merchant account.  The customer's credit-card information is taken on your site, and the information is passed through to PayPal, which processes the payment.  (You must pass a credit check to qualify for Pro.)

* PayPal Payments Advanced (new as of 2012):  This service costs $5 a month.  It behaves similarly to the Pro service except that it gives customers the option (on the final checkout page) to pay with PayPal or Bill Me Now.  My shopping cart did not come with a PayPal Advanced module, so PayPal agreed that I could use the module designed for PayPal Pro.  However, the merchant does not get PayPal's Buyer Protection service when using the wrong module.  (You must pass a credit check to qualify for PayPal Advanced.)

Note:  All three services charge you a 2.9% "discount fee" on all orders, as well as a 30 transaction fee.

Without a doubt, the Advanced service is the best one (it is less expensive than the Pro service, and it looks very professional).  However, for a small business, PayPal Standard works just fine.

What is a merchant account?

A merchant account allows a merchant to accept credit-card payments, either in the real world (with a card-swiper) or on the internet.  There are quite a few companies that process credit-card payments.  For purposes of this article, I will call these companies "payment networks" or simply "networks".  Two widely known networks are and Verisign.  A merchant who wants to accept credit-card payments doesn't open an account with one of the payment networks directly.  Rather, there are hundreds of smaller companies that act as resellers of the networks' services I will call these the "resellers".  Resellers give merchants a "gateway" to the network of their choice.  The cost of your merchant account depends mostly on the reseller that you sign up with, although the network determines many of the fees.  In other words, the networks have their basic fees; the resellers make their profit from how much more they can get you to pay on top of the networks' fees.  Internet merchants can expect to lose anywhere from 4.5% to 10% or more of their credit-card sales to the reseller.  In contrast, PayPal never takes more than about 4% or 5% in total.

Here are some of the fees you can expect to be charged as part of your merchant account (the amounts given were the amounts that were prevalent around 2005 when I switched to PayPal; the amounts charged by resellers may have changed):

- Discount fee (the percentage they take out of each payment 2.2% to 3%) (you will have to agree to a variable discount fee, meaning that they can raise it on you at any time)

- Monthly minimum for discount fee (if your monthly discount fees total less than this, you have to pay a minimum $20 to $25) (an occasional reseller does not require a monthly minimum, but may charge you more in other areas)

- Per-transaction fee charged by the reseller (usually 30)

- Per-transaction fee charged by the network (10 or 15)

- Monthly gateway fee (the fee you pay to access the network $10 to $20)

- Monthly statement fee (the fee you pay to get a monthly statement $5 to $15)

- Batch deposit fee (the fee you pay to have the money transferred to your checking account 25-30 per deposit) (you will not have any control over how often they make batch deposits; they may make more than one batch deposit a day if you have a lot of sales, and the fees can add up)

It is not generally possible to get a merchant account without paying all of the above fees, but you should not have to pay any of the fees below if you shop wisely:

- Application fee

- Setup fee

- Annual fee

- Other fees:  license fee, gateway setup fee, risk-assessment fee, address verification fee, programming fee, real-time fee

- Termination fee if you cancel the service

Generally, you will have to sign an agreement with a term of several years, but you should insist on having the right to terminate the contract early, and you should not agree to pay a termination fee if you do.

Be cautious

The reseller business is cut-throat, and you can expect to be lied to by many of the salesmen you talk to.  When I had a merchant account, here are the things that happened to me:

- I was not told about the network per-transaction fees.

- I was not told about the batch-deposit fees.

- The salesman agreed to waive the termination fee, and then sent me a copy of the contract with that clause reinstated (!).

Although I got the credit-card services I needed for about 16 months, I ended up losing more than 5% of my sales to the reseller instead of the 3.5% I expected to lose.  Not only did the reseller not tell me about all the fees, but he raised my discount rate from the 2.29% that we agreed to, to 2.44% by the time I cancelled I found that particularly outrageous.

PayPal's reputation
(the information in this section is from 2005)

Because of some of their aggressive practices, PayPal doesn't have the best reputation among merchants.  If PayPal believes that your account is being used for fraudulent activity, they may limit your access for up to six months, and that includes freezing your funds.  In fact, a lawsuit was brought against PayPal because of this practice, and, I believe, PayPal modified their behavior as a result (though I don't actually know the outcome of the lawsuit).

PayPal assured me on the phone that there was nothing that a customer could do to cause an account to be frozen, but that apparently isn't true.  If you ordinarily receive $2,000 in payments per month and someone sends you $10,000, that could judging from what I have read trigger PayPal to freeze your account.  In other words, any activity in your account involving sums that are out of the ordinary could supposedly trigger a freeze.  One story circulating the internet now is about someone who set up a PayPal account to receive donations to aid the victims of Katrina.  $27,000 came into the account in less than a day, and PayPal froze it.  However, the person collecting the money was apparently not associated with any relief organization, so PayPal in my view had reason to be suspicious.

One of the things that infuriates people about PayPal is their apparent arrogance.  In the past they have locked up the money of customers for long periods of time, something which no bank could do.  As long as you are the proven account-holder, you should have access to your funds after all, the money in your account does not belong to PayPal.  If PayPal is worried about fraudulent activity, contacting the authorities would seem to be the proper course of action.  For the most part, banks are supposed to be neutral organizations that provide a service, but PayPal doesn't take a neutral stance.

If you are concerned about protecting your money from PayPal, set up a special checking account to receive funds from your PayPal account.  Transfer funds out of your PayPal account at frequent intervals, and then transfer the funds out of your special checking account into another account at your bank.  PayPal won't be able to access the funds after that; and if your account is frozen, only a minimal amount of money will be lost.

However, in my experience, I have not had any problems with PayPal.  They can be annoying to deal with at times; but if you are not involved in fraudulent activity, you shouldn't have a problem.

Among customers, PayPal also doesn't have the best reputation, primarily because of PayPal's annoying requirements for setting up an account.  However, your customers will not know that PayPal is processing their payments until they get their credit-card statement, at which point PayPal's name is given as the credit-card processor.  So far, I have not had any complaints.

What about ProPay?
(the information in this section is from 2005)

ProPay ( is another way to accept credit-card payments from your customers.  It is more economical than PayPal for monthly sales volumes up to about $2,500, but the savings are not huge and are not, in my opinion, worth the increased inconvenience.  Here are some of the disadvantages of using ProPay versus Payments Pro:

- ProPay will not accept payments for you on your web site.  Rather, you must manually enter charges on ProPay's web site or over the phone.

- ProPay has four service levels.  With their Basic service, you cannot accept more than $1000 in monthly sales, and no transaction can be larger than $250 (although I have heard that ProPay may permit exceptions).  Their Premium service limits you to $3000 per month in sales, and $500 per transaction.  PayPal's services do not have service levels or limitations.

- With ProPay's Basic service, you cannot accept American Express or Discover Card payments.

- ProPay charges more "incidental fees" than PayPal does, and some of them are quite high.

There are pretty much no instances when I feel that ProPay is better than PayPal (unless you prefer, for some reason, to enter payments manually), so I obviously don't recommend it.