PayPal vs. Stripe: Which Payment Processor Is Best for Your Business?

Paying online
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PayPal vs Stripe, it's one of the most common comparisons when deciding on what payment processor to use to take payments online.

So which one should you use? The only way to answer this question is to analyze your respective needs in important categories and then make a decision. In this article, we will concentrate on transaction fees because they are the most visible aspect of payment processing to current online business owners as well as those who are just starting a new blog or building an e-commerce site.

First, though, a quick primer on the two companies.

Background Information

About PayPal

When it comes to online payment companies, PayPal quickly springs to mind for most online business owners, people who are starting a new blog, and casual consumers alike. Founded in 1998, San Jose, California-based PayPal operated in 203 markets (countries) and had 152 million registered accounts as of mid-2014, making it a clear market leader in transaction volume. It's a flexible payment option, given that it holds twenty-six (26) local currencies.

About Stripe

San Francisco-based Stripe can be considered an upstart in the payment processing field, but it is arguably PayPal's greatest competitor. Founded in 2010 and funded by several heavy hitters like Sequoia Capital and three PayPal co-founders (Peter Thiel, Elon Musk, Max R Levchin) its stated goal is to be “a developer-friendly way to accept payments online and in mobile apps.” In a relatively short time, Stripe has become a multi-billion dollar transaction hub for those looking for payment options other than PayPal.

Transaction Fees

Both companies have a base rate of 2.9% plus 30 cents per transaction, but there are a few more details to note. Stripe will offer a better rate if you do over $80,000 per month ($1 million dollars annually), but you'll have to contact them via e-mail to initiate negotiations. There are no monthly fees, no refund costs, and no other hidden fees (e.g. setup fees, card storage fees) that come into play.

Stripe transfers your money on a two-day rolling basis.

PayPal has a graduated level of transaction pricing that starts at $3,000 USD monthly (2.5% plus 30 cents), then $10,000 monthly (2.2% plus 30 cents) and finally to $100,000 monthly (undisclosed).

A slam dunk in favor of PayPal, right? Well, not until you factor in its various service fees. For example:

  1. Charge cards from websites: $10 per month (Paypal Advanced); $35 per month (Paypal Pro).
  2. Chargebacks: $20.
  3. American Express Credit Card: 3.5%.
  4. Refunds: Standard Transaction Fee.
  5. International Cards: 1% over and above regular transaction rate.
  6. Authorize Card: 30 cents for uncaptured authorizations and card verification transactions.

Stripe only asks $15 for its chargebacks and has a 2% currency conversion charge if necessary. Otherwise, the other services are fee-free.

Is Stripe Better Than Paypal?

All business have unique transaction histories, but assuming an average transaction of $20 USD, standard PayPal transactions would be cheaper than Stripe if you do five-thousand dollars or more of business monthly. This assumes minimal international transactions, and limited American Express credit card use from customers. However, if your business is internationally oriented and requires PayPal Pro, there's a good chance that the apparent savings using PayPal will be negligible. Other factors will have to be considered.

As we lower the average transaction, PayPal's microtransaction pricing policies really kick in. PayPal's micropayment rate of 0.5% + 5¢ per transaction gives its the advantage for now (note: Stripe does not have a micro policy as of now.) Make sure you get it if you sign up for PayPal.

Stripe vs PayPal: Final Thoughts

PayPal offers prospects a well-known brand with a pioneering history in online payments. PayPal is a great option because it is so widely known that people trust using PayPal as a payment processor. Simply offering PayPal as a payment gateway on your website can increase sales, making it a great choice to offer.

Also, many people keep their money in PayPal and treat almost as a "found money" type account where they may be more likely to spend money out their PayPal balance than fron their own credit accounts.

Based on transaction fees alone, the small entrepreneur with a mostly U.S. and North American customer base would likely save a bit of money with PayPal.

PayPal is a great option for businesses just getting started and for established busineses.

As the business grows, the overall cost of using Stripe will make it a more attractive option as fees can add up quickly and eat into margins.

Many businesses will actually use both PayPal and Stripe as payment options on their website. Most shopping carts will intergrate with both PayPal and Stripe. With this setup if a customer decides to use a credit card it will default to Stripe for the payment; or the customer can choose to use PayPal (which they may be more comfortable with as mentioned above).

Of course, transaction fees are just one of the things to consider when picking an online payment solution, such as ease of use, data portability, ability to accept Apple Pay on your website, etc. You should also read the second part of this PayPal versus Stripe review here.