Sometimes, I wonder why not all merchants use PayPal to process their payments. I believe the reason is that they think that PayPal’s discount rate is higher than other payment gateways. In fact it is lower – much lower. Here’s why:

The cheapest reliable merchant I know of charges a monthly fee of about $25 and a 3% discount fee as well as 25 cents transaction fee for US/Canadian transactions. The discount rate jumps to 3.9% for international transactions.

PayPal on the other hand, charges a monthly fee of nothing (yes – you heard that right, they charge nothing, zero, zilch, nada), a discount rate of 2.9% and a transaction fee of 30 cents for US/Canadian transactions. As for international transactions, the discount rate is 3.9%. Additionally, the discount rate is lower for volume merchants, so, for those processing transactions of more than $3000 per month, the discount rate is 2.5%, and, for those processing transactions of more than $10,000 per month, the discount rate is 2.2%.

Nothing is perfect, however, and PayPal has a huge issue for non-US accounts. PayPal restricts non-US clients to bank accounts in their local currency, which means they’ll incur hefty exchange rates every time they transfer money to their bank account. For example, if you live in Canada, then PayPal will only accept a Canadian dollar bank account to be linked to your PayPal account, and will only transfer money to your account in Canadian funds. So, if you have $10,000 USD in your account, and the current USD/CAD exchange rate is 1.05, then expect to receive only CAD 10,250 in your account (they usually take about 250 points). This is bad – but what makes up for it (besides the low discount rate) is that PayPal will never charge you a chargeback fee.

In any case, PayPal is ideal for US based clients, so I suggest you use them if you live in the US. They also have an easy to use API (for $30/month) that will allow you to integrate payment processing seamlessly on your website.

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