Using PayPal in a small business

We covered the taking of online payments in the guide called Online Transactions. Due to the popularity of the PayPal system amongst small businesses this guide covers its use in more detail. 

Please note that the Business IT Guide does not endorse or promote any specific product or payment system. This guide is provided to assist small businesses decide on the best way of accepting online payments. Each business requirement will be different and may require a solution other than PayPal.

What is PayPal?

PayPal is an internet based money transfer business that enables online customers and retailers to buy and sell goods.

PayPal offers small businesses that are online the ability to accept payments electronically rather than via cheques, cash or other postal payments. By using an online payment system it is possible that more business can be closed as users can enter their payment details immediately they see an item they want to buy. This way orders can be taken instantly rather than asking the potential customer to post a cheque, which they often forget to do as they lose interest in the transaction when they leave a website. 

PayPal acts as an intermediary during the online transaction so customers can make purchases without actually revealing their credit card details to the online retailer. This in turn can increase the levels of trust customers have in making online payments, especially with smaller businesses that do not have a well known brand or reputation.

PayPal works by allowing the customer to login to their pre-configured PayPal account direct from the retailer’s web site to make the payment, saving them from having to type in their payment or delivery details over again.

For the customer, use of PayPal is free as the retailer is billed for use of the facility.

PayPal is not a bank, although its operations are licenced by a number of regulatory bodies. PayPal’s European headquarters is based in Luxemburg and is subject to local banking regulations. PayPal was acquired by eBay, the auction site, in 2002.

PayPal UK

PayPal Security

Accepting payments online has traditionally been a worrying area for businesses that see the opportunities of the internet but are concerned about possible fraud. This worry can never be completely eliminated whichever online payment method you use, so it is important to understand the basics of how a payment services provider such as PayPal secure their business. 

As you would expect user information is encrypted on the PayPal servers and any data that is passed between clients, retailers and PayPal is secured using appropriate technologies.

Further details on PayPal security.

If you want to understand more about online security and encryption then you can take a look at these guides:

• Securing computer data
• Securing laptop data

Implementing a PayPal Solution

For many small businesses implementing PayPal is a question of adding a PayPal button to their website. If you have a more complex website then a proper shopping cart (trolley) can be added and even more complicated sites can be created using programming tools.

Merchant Services - a summary of the PayPal services.

If you have no experience of IT then it is suggested that you speak to your website designer and ask them to help implement your specific solution. If you do not have a website then we have a number of guides that can help you decide the best way of building a site yourself or commissioning someone else to do it for you:

Buying a website

Choosing someone to build your website

Cost of Using PayPal

We have already seen that PayPal is free of charge to the customer as the retailer pays to use the facility.

For domestic GBP transactions typical retailer costs range from 1.4 – 3.4% commission fee plus 20p for each transaction dependent upon the volume of business you are conducting through PayPal.

International payments in other currencies attract different payment schedules.

It is recommended that you contact PayPal directly to discuss your own requirements as this pricing is indicative only.

PayPal Issues

Although a successful business, with around 15 million account holders in the UK alone, PayPal does have its critics. It has been suggested that the PayPal terms and conditions amount to a waiver of consumer credit card protection rights and the terms of service imposed by PayPal can result in accounts being closed in what some consider to be an arbitrary fashion. 

PayPal may also have associations with very small startup businesses and therefore carry with it a credibility issue for some. If that is a case then consider opening a merchant account with one of the major banks that will allow you to process online orders. We cover this in more detail in the online transactions guide.

Like any other product or service, small businesses need to evaluate the pros and cons of adopting a solution and making a decision as to whether it is right for their individual circumstances.

What next?

For access to information and advice on using ICT in your business, contact Business Link by:

• emailing: innovation@businesslinksoutheast.co.uk
• calling: 0845 600 9 006 
• visiting: www.businesslink.gov.uk/southeast/IT.

Alternatively, click here and complete a simple form to request a call back from a Business Link Adviser.

Commercial suppliers

We do not recommend specific products or suppliers; instead we provide you with a representative sample which covers the range of suppliers/products available. You may choose to look at these suppliers or products but this is entirely at your discretion.