17 June 2009

Difference Between a Merchant Account and Paypal

Merchant account is a special type of bank account that allows businesses to accept and process payments through your chosen bank account while, Paypal whose purpose is basically the same as that of the merchant account; however, it uses someone else's account to process your transactions.

In general, both the Merchant account and the Paypal differ in several aspects like the type of business, number of transaction, speed of approval and cost. To help you decide, pros and cons must be carefully evaluated before acquiring an account.

Merchant account

A merchant account is an agreement between a merchant bank and the merchant for settlement of online transactions, which is also known as payment processing or credit card processing. When a merchant makes a sale, sales will be deposited to his chosen account. The same thing applies when a refund transaction is made, funds will be withdrawn from the merchant's account. Although merchant account is difficult to acquire, it has some advantages that proved to be useful for your business namely:

* Handles transfer of funds from the customer to the merchant's bank account faster and safer
* All transactions are secured by the Federal banking regulations

Type of business

The type of business a merchant account accepts is a real business that has established physical stores, which have lower risk and lesser chances of fraud.

Number of transaction

Merchant account prefers higher volume transactions and on a regular basis.

Speed of approval

Most merchant accounts are difficult to acquire. Several supporting documents are needed and verified before one can successfully get an account. It is an advantage if you get a merchant account with a bank that you have an existing transaction with.


A regular monthly fee will be charged to the merchant's account whether or not a transaction has been completed.


As a third party processor, Paypal allows you to send and receive online payments. Getting a Paypal account is easier compared to a merchant account. One can also leave or discontinue the account anytime without any obligation. Like the merchant account, Paypal also has some advantages such as:

* Allows you to send money without revealing your credit card details and bank account information
* Does not have limit on volume of transaction

Type of business

Those businesses that don't qualify for merchant account application like high risk business, bad credit record, or small and newly opened business are readily accepted at Paypal.

Number of transaction

Paypal does not require a minimum volume of transaction; however, it would be cheaper to have it in bulk per transaction.

Speed of approval

A Paypal account allows easy application and approval for any type of business including those considered high risk. All you need to do is apply online by supplying your personal information as well as your credit card details.


You don't have to worry about the costs and fees since Paypal charges on a per transaction basis only. Clients are not obliged to pay monthly dues and other charges when there is no transaction conducted.

Before deciding what type of account you will get for you business, first you need to weigh things including the advantages and disadvantages. You can also research more about the types of accounts to help you understand better about their differences.

If you are just trying out or starting an online store, better get a PayPal account. But if you are really serious with your online business and monthly sales are dramatically increasing, then merchant account might just be the best option. It will cost you less in the long run.

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