PayPal is not a merchant account

When setting up an e-commerce website, a lot of people choose PayPal as their payment provider. It's a easy way to accept credit cards and for low levels of sales, it can be more cost effective than a full merchant account.

But here is another consideration. PayPal is NOT a merchant account. What does this mean?

A merchant account is effectively a separate bank account that the money obtained through credit card transactions goes into. The merchant account is your account, so the money is yours once the payment has been made (subject to chargebacks, etc). The credit card processor (SagePay, WorldPay, etc), merely processes the credit card transactions and puts the money into your merchant account.

But with PayPal, it's different. The money goes into PayPal's merchant account. Once the payment is processed, the money is PayPal's, not yours. You then have an agreement with PayPal that they will give you the money upon demand.

However, if you breach the terms and conditions with PayPal, they are under no obligation to give you that money.

In the main, the difference is merely academic. However, there have been cases where people have had money in their PayPal account permanently withheld and their accounts closed, and they claim that they had not breached the terms and conditions in any way.

Now they would say that wouldn't they. But, you should also be aware that it is PayPal that decides whether you have breached the Terms and Conditions and if you disagree with this, you need to take it up with the legal system.....the US legal system.

This is going to get very expensive, very quickly. And they'll be able to afford much better lawyers than you, that will find some nit-picky loophole which allows them to get away with anything.

But don't let this put you off using PayPal.

PayPal can be a very cost effective payment solution for some websites. But just be aware of the difference between PayPal and a full merchant account provider. Make sure that you don't leave your money sitting in your PayPal account and make sure that there is never enough money in your PayPal account for it to be a major problem if it suddenly disappeared.

Make regular transfers of your funds from PayPal to your business current account. The money isn't really yours until it's in your account.

For advice on this, or any other areas of e-commerce, contact OpenGlobal E-Commerce.

Nothing in this article constitutes legal advice. We are not lawyers and recommend that you seek professional legal advice before setting up a new website and making any decisions on payment providers.


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