Carefully weighing up the pro and cons of Paypal is really important for your eCommerce business before you even set it up.
If you are in a position where Paypal is your only option then you may not have a choice but knowing what is good and bad about it will help you better deal with potential issues.
Every online business needs a payment gateway; some way to accept money. Paypal was one of the first online payment gateways and it has since become one of the biggest. Paypal makes it incredibly easy to send and receive money online.
As an online business, your payment gateway is your lifeline. Without it you have no business. Understanding how it works, what the fees are and all the do’s and dont’s is incredibly important.
Payment gateways are a serious business and they are heavily regulated. When you use any payment gateway, including Paypal you need to be compliant otherwise they will kick you out and you can be out of business.
So, why choose Paypal for your Shopify store or any eCommerce store? Here’s a brief overview of the most important advantages and disadvantages of using Paypal.
The Pros of Paypal for eCommerce
There are many components to Paypal but we will focus on the pro and con’s of Paypal for Shopify and eCommerce in general.
1. Easy to set up
To use Paypal for business purposes you need to set up a Paypal business account. This is incredibly simple and all you really need is to be a “real person”. You will need to verify your identity and this is pretty much standard stuff.
You can get your Paypal account set up and in most countries, it will be available to be used immediately. The verification process may take some time but in the meantime, you can continue by plugging your Paypal details into Shopify and you are ready to go.
In Shopify it could not be easier. You simply select Paypal as a payment option and log into your Paypal account from within the Shopify dashboard when you are prompted.
2. Instant trust
As I’ve already mentioned, Paypal has been around since forever. They have done a great job in building trust with consumers. When someone buys with Paypal there is instant trust.
With a lot of online shopping, there is a lack of trust which can really hurt your store’s conversion rates.
People are nervous when handing over their credit card details because most people have been scammed or know someone who has. When you allow shoppers on your store to pay with Paypal it largely removes this objection.
Offering Paypal as a payment option can help build trust on your store.
When you integrate Paypal on your Shopify store it makes the checkout process very efficient. One of the big criticisms of Shopify is its lengthy and cumbersome checkout process.
If you offer Paypal and a customer has a Paypal account, then they can check out incredibly fast as there is no need for them to go through all the steps of the typical Shopify checkout. Most of their details will be pre-populated by Paypal.
The more steps there are in the checkout process, the bigger the chances that customers will drop off.
4. Low fees
Paypal’s fees for Shopify is exactly the same as Stripe, the leading payment gateway for Shopify stores.
While the fee structure for using a third-part payment gateway like Paypal is different for Shopify it is still won’t cost you more than what it would cost you to use Stripe.
If you use Shopify Payments, the fees are 2.9% plus $.30 per transaction (slightly lower fees on the higher Shopify Plans). If you use Paypal or Stripe, Shopify charges an extra 1% to 2% depending on your plan.
While this might sound like a high fee it really is quite competitive and unless you use Shopify’s own payment gateway you probably won’t get it any cheaper.
5. Money available immediately
One of the main reasons why I love Paypal is the fact that you have access to your money at all times. As soon as an order comes in and the transaction goes through, the money is in your Paypal account and you can withdraw it if you want.
With other payment gateways, you rely on them making your weekly or bi-weekly payouts to you.
6. Use of reference transactions
When you use Paypal Business it gives you access to their API. This allows you to do some really cool things if you are geeky about Shopify and eCommerce tech.
One of the best things you can do with reference transactions is something called one-click post-purchase upsells.
With apps like Carthook, Smarketly or Candy Rack, you can upsell a customer after they made a purchase by simply letting them click one button. No need for them to go through the checkout process again.
This can greatly increase your AOV.
7. Easy to integrate in Shopify
Setting up Paypal in Shopify is super simple. The same goes for setting up Paypal in other eCommerce platforms like WooCommerce.
Shopify has made it incredibly simple to connect Paypal.
Paypal is the most widely used payment gateway in the world. They are available in almost every country in the world. If you are running an online store and you are not based in a majour country then it can be tough to find a decent payment gateway.
Shopify Payments is only available in 17 countries and Stripe in 37 countries. If you fall outside of these geo’s then Paypal comes to the rescue.
Apart from that, Paypal enables you to offer Paypal as a payment option to customers in more than 200 countries.
This gives you peace of mind knowing that customers can buy from you in any of those countries without having issues of declined credit cards as is often the case when using credit card based gateways like Stripe.
The Cons of Paypal for eCommerce
Using Paypal for your online store can have a lot of implications and many stores now shy away from using Paypal for many reasons. Here are some of the reasons to not use Paypal.
1. Buyer Protection
Paypal offers buyer protection which means that they give buyers peace of mind in the sense that any online order can be disputed and they can get a refund if they are not satisfied with their purchase.
Buyer protection is mainly aimed at ensuring that buyers actually get the goods that they ordered. If someone orders from your store and you do not deliver the products to them in a timely fashion, they can open a dispute and eventually Paypal can reverse the transaction.
Buyer protection can be a real pain for online stores. If you are running a dropshipping store and you are dropshipping from China then dealing with Paypal disputes will be part of your everyday life.
Most of the time, Paypal will side with the buyer and you will be forced to refund the customer.
What happens with slow shipping times is that many customers will open a Paypal dispute while the parcel is in-transit – which can take up to 4 weeks from China.
As a store owner, you will be in a position where you have to refund your customer only to see them receive the parcel two weeks late.
There’s not much you can do about this and it is part and parcel of using Paypal as a payment gateway for your Shopify store.
2. Sandboxing and Account Freezes
Paypal disputes and chargebacks have further repercussions for online stores – especially for dropshippers.
If your Paypal account sees a significant amount of disputes then Paypal will step in. In most cases, Paypal will place a hold on your funds. They do this to ensure that there is enough money in your Paypal account to cover potential chargebacks and refunds.
It is not exactly known when Paypal imposes any holds but it is usually when your dispute rate goes over a certain threshold in relation to your orders.
Having your funds frozen or limited by Paypal can be crippling to any online store as it greatly limits your cash flow. Many dropshippers simply can not continue doing business if their funds are frozen or on hold.
In general, Paypal does not like dropshipping simply because they have so many issues with dropshipping stores and late deliveries.
If you are dropshipping and you use Paypal you need to make sure that you keep your disputes to a minimum by offering fast shipping, shipping from the USA or just communicating shipping expectations with your customers.
You need to also make sure that you upload tracking numbers to Paypal. Most drop shippers do not do that. This is really important when it comes to disputes and when Paypal gets involved.
Uploading tracking numbers is a real pain but you can automate it by using a service like Trackipay. It automatically syncs your Shopify tracking numbers with Paypal.
3. Checkout off-site
Another reason why many online stores dislike Paypal is the fact that when a buyer checks out through Paypal they effectively have to leave your store and get directed to Paypal to complete the checkout.
Most of the time this happens seamlessly but anytime someone gets taken away from your store there is a risk that they drop off.
This can lead to lower conversions as the drop-offs will be lost customers. Some customers also get confused by the redirects and they get scared and simply bailout.
When someone buys something from your store using their Paypal account, they have 2 options within Paypal. They can either use their Paypal balance or they can use the bank account or card that they have connected to their Paypal account.
If they have sufficient money ion their Paypal account, then the transaction proceeds smoothly and they quickly complete the checkout.
If they do not have sufficient funds in their account, then Paypal has to transfer the money from their bank to Paypal first.
In many cases this happens through what Paypal calls an eCheck. The transaction goes through but the funds is not released until the eCheck clears.
This causes all sorts of issues with an online store and Shopify recognizes this as it does any other transaction. If you do not have the right settings, you could be fulfilling these orders – even if the money has not cleared yet.
Worst-case scenario, you could fulfill an order from an eCheck, and eventually, the payment does not clear. You then have no way to reverse the order and the charge.
If you are dropshipping and you use Shopify and Oberlo or Woocommerce and AliDropship then you can change your settings to ensure that these eCheck orders won’t get fulfilled until the payment clears.
You can also now change this in your Paypal business account to not accept eChecks.
Paypal is a huge multi-national company. Like all the big companies their customer support is crap. If you run onto any issues you will have a real tough time finding anyone to talk top or get the help you really need.
The worse part is if you get your Paypal account sandboxed or suspended then there is no one to talk to or to appeal the ban.
This can be very frustrating and once you have to go through this it can be a real nightmare.
The Pro and Cons of Paypal – Conclusion
If you are running an eCommerce business then Paypal is a great payment gateway to use. It s easy to set up with all major platforms like Shopify or Woocopmmerce.
Their fees are reasonable and Paypal instantly gives your store that trust factor. People know and like Paypal because they trust Paypal. By offering Paypal payments on your store you get to “borrow” that trust.
Paypal gives you instant access to your money and they are available in almost every country you can think of.
This gives you a reliable way to reach a global audience and have certainty that customers can buy from your store without any issues.
The flip side is that Paypal tends to side with buyers and their buyer protection can be a real nightmare for store owners. They make it easy for customers to file disputes and most of the time, you will have to offer customers a refund.
Paypal is also known for not being very kind to dropshippers and many Shopify stores that do big numbers.
They can freeze a percentage of your funds, limit your account or even ban you completely (and keep your money) WITHOUT A WARNING. Read more about it here.
My general advice is to always offer Paypal as a payment option alongside Shopify Payments or Stripe. That way you are never at the mercy of Paypal to keep your business alive.