PayPal offers a secure service through which funds can be transferred from one PayPal account to another. Technically no funds are actually transferred, because PayPal is just a running total of how much one account was given from another. When some one “cashes out” that money is actually moved. PayPal is not a bank. Thus, their accounts are not federally insured in the same way as a traditional bank account; however they do offer their own private insurance.
Money transfer from PayPal is immediate. Buyer has to prove that he has a credit line or an amount in his bank account to make the transfer, otherwise PayPal won’t transfer funds. Usually the money is transferred from one PayPal account to another, rather than right to the user.
When you set up an online merchant account, you have to get and pay for an SSL certificate from Verisign. This will help you to set up a secure server, and have a shopping cart. People find even this process more cumbersome. Now PayPal has acquired Verisign and functions as a one entity.
With PayPal you do not have to go through all those steps. You just can sign up free using three steps. When you sign up and start the process, this is how it goes. Buyer sends an e-mail requesting to buy an item. The Seller approves the sale. The buyer then goes to PayPal and makes a secure transfer of funds. An e-mail is sent to the seller with the text “You’ve Got Money!” The e-mail provides a link. The seller clicks on the link to make sure the correct amount of money has been transferred from one account to another. If all is correct, the seller can download the payment into a credit card, into a bank account, or request a check. The transaction is finished and the product is sent to the buyer.
Pay pal charges not from buyers, but from you. That is PayPal charges you a percentage from each sale you make and a fixed amount. Amounts and percentages may vary. According to their policy, if your sale is under a certain amount, say your sale is under $15, you pay only a quarter. When you cash out the money it is transferred and put to a credit card, bank account, or sent to you in the form of a check. If you cash your money immediately from PayPal for each sale, you may be spending a lot of money for transactions. Most merchants opt for a fixed amount to cash. Until then, PayPal holds your money. While the money is in their account they gain interest. It is a process called “float”. Because of this the transfer is not immediate. Even after you ask for your money, there is still a waiting period. So for merchants, the transfer of their money is not immediate if you allow PayPal to hold your money.
Disadvantages of PayPal
With a Real Merchant Account, your funds are directly deposited into your personal or business bank account, which you control and which is also protected by Federal Banking Regulations. With PayPal, your money is deposited into a PayPal Account, which PayPal Fully Controls. Since PayPal is NOT a bank, they do not need to follow federal banking regulations.
Paypal routinely freezes its customers’ accounts for almost anything and without warning. Once an account is frozen, the funds are often held by PayPal for months leaving the merchant with No Means to Fill Orders. Those orders are then disputed by customers, creating more chargeback and the illusion of fraudulent activity on the part of the merchant.
If you run an e-business and you only accept PayPal. You are shutting yourself from all the other prospective buyers that prefer credit cards more than PayPal. Most people prefer to pay via credit than PayPal. One reason is they have to reveal all their bank accounts to PayPal before signing up. To do good business you have to have lot of payment options than PayPal to deal with customers. PayPal is only one alternative method of payment. Sometimes people will not feel comfortable with your site if you only offer PayPal as payment option.
There are other possible payment options similar to PayPal but compared to them, PayPal is a lot way ahead of them with its low charging rate and popularity. My advice is to use credit cards with a real merchant account.