On-Site vs Off-Site Payment

In the previous article, Payment Gateways, we discussed what is involved in accepting credit cards on your e-commerce site. Included were the ongoing expenses of a payment gateway and the difference between a regular merchant account for a walk-in store and the payment gateway for a web store.

In this article, we will let you in on a popular and trusted payment processor that has no monthly minimum fee and does not require the merchant to purchase a secure socket layer (SSL) certificate every year.

PayPal has been around almost as long as e-commerce. What people typically know about PayPal is that you can sign up for account with them, put your credit card or bank account number on file, then when you want to buy something on the internet, use PayPal. This way, only PayPal has your credit card number - not an online merchant with whom you may never shop again. PayPal then pays the merchant and everybody is happy.

In the past, the shopper had to have an account with PayPal in order to shop. If he or she came to a website that only accepted PayPal and he or she did not want to open a PayPal account, then the shopper could not purchase anything at that site.

All of this has changed. PayPal has pushed out its borders to become a payment processor for the four major credit cards: Visa, MasterCard, American Express and Discover. The free payment processor is called PayPal Payments Standard. Their other payment processor, PayPal Payments Pro has a monthly fee, just like the other merchant services providers.

The merchant can choose PayPal Payments Standard as the Payment Gateway to accept credit card payments. In this way, the shopper does not need to have a PayPal account in order to make a web purchase and can use a credit card just like with any other payment gateway service.

This is how it works: When the shopper is ready to make a purchase, the purchase site becomes PayPal. The shopper enters credit card information using any of the four major credit cards. PayPal Payments Standard then logs the purchase and sends both you and your customer an email notification.

This is called off-site purchasing since your customer left your site to make the purchase on the secure PayPal site. Your customer is then free to return to your site or continue browsing on the internet.

What this means to you as an online merchant

The Advantages:
1) The merchant does not need an SSL certificate because the purchase does not happen on the merchant's website. This saves you the recurring fees of an annual SSL certification and a dedicated IP.

2) There is no sensitive credit card information to store.

3) There are no additional merchant fees or statements.
Compare this to a traditional merchant account: When you set up a merchant account in a traditional store, the base plan allows you to accept only Visa and MasterCard. Because American Express and Discover are separate companies, in order to accept either or both, you must make special arrangements. To add another layer of complexity, you also get separate monthly statements from each of them, and they each have their own monthly minimums that are not included with the base provider. It triples your paperwork and increases your fees.

By using PayPal as a payment gateway on your e-commerce site, you avoid the monthly minimum charges from the three providers. PayPal does not charge a monthly fee, but only discount and transaction fees. Yes, these may be slightly higher than a walk-in store merchant fee, but the simplicity of the process coupled with no monthly minimums more than makes up for it.

4) Another advantage to using PayPal Standard as a payment processor is that you can have several e-commerce sites with either one PayPal account for all, or a separate PayPal account for each. With a traditional payment gateway account you cannot use the same account for multiple websites. You must have a separate merchant account for each site. This translates into multiple monthly minimums and fees, one for each site. It rapidly becomes very expensive.

These are all the advantages of PayPal Payments Standard. Now what about the disadvantages?

The Disadvantages:
The only real disadvantage is that when a customer pays through PayPal Payments Standard, he or she must leave your website. Once at PayPal.com, there may be distractions that lead the customer away from your site, such as offers to set up an account. When you have your own payment gateway and SSL, the customer never leaves your site.

So, you have to decide whether this disadvantage is worth the cost and hassle of having a payment gateway on your site.

PayPal also offers the traditional gateway with PayPal Payments Pro, where the SSL is on your site and there is a monthly fee. Even if you want to ultimately offer on-site payment, you might consider starting with PayPal Payments Standard, then when your sales rise, switch to a traditional payment gateway.