How to use Paypal for instant creditability online

When starting a new online business, there are many questions that must be addressed. None is more important than: How will customers pay you? As a store owner, you have several options. You can use traditional merchant services, a "free" processor like Google Checkout, or Paypal. A word about each.

Traditional merchant services refer to the same type of credit card processing you likely use whenever you pull out your credit card at your corner store or the dry-cleaners. These services were designed for brick and mortar businesses and they're wary of online businesses. In fact,they often charge higher transaction fees for online businesses because they feel they are riskier in terms of fraud and charge backs. I personally do not favor partnering with companies who see my online operation as a liability.

Free processors sounds great, but sometimes you get what you pay for. If you're just starting out and only processing five or ten transactions a month, then perhaps this will work for you. This "free" service also assumes that you are using Google's adwords for advertising in order to get the processing free. In another article, I offer my thoughts as to why paying for clicks is a waste of money.

Most online shoppers believe that Paypal is simply how you pay for something on eBay. It has evolved into a full service online transaction company. People who do not have Paypal accounts can now use it to pay with their credit card. Online businesses can now easily accept credit cards and Paypal using the same account. It has simply become the standard for online payments. So much so that even Dell Computers and iTunes uses them for online transactions.

Paypal may appear to cost a bit more than other merchant services, but the credibility and ease of use far surpass the upfront cost differences. Also, prior to receiving approval on a merchant services account you have to set up a checking account through a bank that is in the name of your business. In most cases, the bank requires you to be incorporated as well. This can be time consuming and delay what you are trying to do.

Paypal can allow you to process credit cards and be up and running within a few days. In fact, if you manage your Paypal account properly you can minimize or even profit from using their service. Here is how: Paypal charges a fee for receiving payments of any kind. However, Paypal pays an interest rate (about 4.5 percent at the time of writing). Finally, if you link your Paypal account to the Paypal Mastercard (separate qualifications and waiting periods apply) and only use it as a credit card (as opposed to debit), you will earn an additional 1.5 percent rebate on purchases that are directly put back into your Paypal account.

For example: Sell a $100 item via your store and have Paypal as the processor. Fees are 2.9 percent plus $.30 equals $3.20. Paypal shows a deposit for $96.80. You buy the item for $70 and use your Paypal Mastercard to buy it from the drop ship supplier. Your charge for $70 earns you a rebate of $1.05 that is put into your Paypal account. Your net profit on the transaction is $27.85 and total net fees are $2.15 or 2.15 percent.

Unless you are Dell Computer with a billion dollars in credit card transactions, you will not find any merchant services company willing to give you as low as 2.15 percent for an online transaction, so this is the way to go. And this example does not even include the 4.5 percent money market that you will earn if you can leave your profits in the account for a while.

The author of this article is in no way affiliated with Paypal or any of the other services referenced in this article.