The recently launched PayPal Website Payments Pro system offers a myriad benefits to small Canadian online businesses, the company says.
Pro consolidates payments under a single system, and can even be used by those who don’t have a PayPal account.
These features could boost an online merchant’s average sales by around 14 per cent, according to a survey by Northstar Research Inc., a market research firm based in Bremerton, Wash.
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And the benefits don’t stop there.
The new product offers a choice of payment methods, reaches out to millions of potential customers – including those who don’t hold a PayPal account, said PayPal Canada spokespersons at an event in Toronto last week.
They said Pro also saves time by simplifying options with a single system, and reduces fraud with PayPal’s protection tools.
At least one Canadian merchant has already experienced some of these benefits.
Dale Denison, a small business owner says her business has grown significantly since September, when she started using PayPal Pro to sell her products in Canada and the U.S.
Denison is manager of client services for Wynner Group Inc. in Heidelberg, Ont. Her company’s flagship product is Volluma, a coloured, volumizing hairspray for people with thinning hair.
Denison says use of PayPal Pro in her business has enabled her to keep her operating costs down – a key benefit, especially for “a small business trying to launch [itself] on the Internet.”
For instance, she said with PayPal you don’t incur the upfront costs that are traditionally associated with merchant services.
The savings on this alone could be significant, she said.
Through her research Denison discovered setting up a merchant account, through a bank, could cost anywhere between $300 to $500 dollars – just for set up plus an additional monthly fee. She says she avoids these costs by opting for PayPal.
The flexibility of the PayPal contract also appealed to Denison.
With PayPal, she said, there was no contract or set up fee making it possible to cancel any time instead of being locked in for two years, which other contracts were proposing.
The ability to use one account to sell both in Canada and the U.S. was yet another attractive feature of the PayPal system – with banks, Denison would have had to set up two separate accounts, doubling her cost.
Customers without a PayPal account can “key in their Mastercard or Visa card number,” she said.
Denison expects the additional functionality of PayPal Pro will enable her to widen her customer base.
She notes her counterparts in Europe sold as many as 1.5 million cans of Volluma last year – and she hopes to emulate that record.
“My goal is to sell 50 cans a day.”
With each can selling for $39.99 – the operating expenses on the transaction are very reasonable, Denison says.
She says with PayPal Pro she will pay $35 per month, 35 cents per transaction and anywhere from 2.1 – 2.3 per cent per sale.
“Also, once you have $150 in your PayPal account, any funds over and above that can be transferred for free to your bank account (with a grace period of five business days).”
She says transfer of funds to the bank is swift and easy.
“While it specifies five business days to transfer, it’s never taken that long,” says Denison. “The support is great as well.”
It seems many of the above benefits, however, depend on the volume of business transacted. Businesses with significantly smaller sales volumes may not find the Pro version as useful.
For instance, Dan Pernokis, another Ontario small business owner said while he did take a look at the new Pro version, he decided against it.
From his home in Sault Ste. Marie, Ont., Pernokis runs Candlenut Books, a small book publishing firm and a stained glass company, RainbowCraft.
While he’s been using PayPal for the past six years, one reason for his rejection of the “Pro” version is the monthly fee.
He says the fee isn’t affordable yet, given the volume of business he does in a month. Around eight to 10 sales a month is generally a good cycle for him and that only brings in $200 to $500.
Pernokis figures the month fee to use the Pro services as the major obstacle. “I can pay the same fee and deal with credit cards directly if I wanted to.”
He noted that he chose PayPal in the first place because the service had no minimum charge, and levied a flat service fee of around 30 cents plus four per cent per sale.
“And if we didn’t sell anything it didn’t cost us a cent.”
In addition, Pernokis is concerned that adopting Pro would require him to add payment processing functionality to his site “and pay extra for those services.”
Denison said when she moved to the Pro system she started using InfusionSoft, a Web-based software application that automates sales, marketing and customer relationship transactions.
“All we had to do was enter our PayPal information and the service processes all our credit card information.”
She said a PayPal IT representative called her and walked her through the upgrade process with InfusionSoft, which took only five minutes.
“I was pleasantly surprised because I’m not an IT expert.”
While he doesn’t rule out the use of the Pro product, Pernokis says it’s an option he would consider if business really takes off.
“If we put out a book and it starts selling like wildfire, I would consider it.”
He said, for now, it’s cheaper to continue with what he has in place – which is the basic version of PayPal. In this way, he also avoids paying the $50 to $100 monthly fee which specific credit card companies charge.
This reasoning is probably one of the main reasons why online payment services – such as basic PayPal – have taken off as payment options.
Recent surveys indicate that such services are used in as much as 15 per cent of all e-commerce transactions.
This isn’t very good news for the credit card companies. The growth of alterative payment methods could erode the credit card business by around $345 million by 2011, according to new research from San Francisco-based financial consultant firm Celent, a member of the Oliver Wyman Group.
Alternative payment channels are gaining because of the fees charged by credit card companies and the lack of discounts or transaction-based financing, according to Red Gillen, Celent’s senior banking analyst and report author says.
PayPal spokespersons, however, emphasize the “good relationship” they have with many of the credit card brands.
Last year, for instance, prior to the holiday season PayPal worked with Mastercard for their toolbar plug in option.
This toolbar plug-in enabled online shoppers to use the PayPal service even when a merchant didn’t offer PayPal. By downloading the toolbar consumers were able to use a temporary Mastercard number for a one-time use only transaction.
Customers could make payments from their PayPal linked credit card or bank account. This option, however, isn’t available in Canada yet.
“As a PayPal user, you have the choice of using your credit card within your PayPal account,” says Darrell MacMullin, who was recently appointed as country manager of PayPal Canada.
“You still earn any loyalty points associated with that credit card,” MacMullin says.
Big names in the industry include PayPal, Google Checkout and Amazon Payments. They dominate the market by offering perks (such as free shipping if your purchase is over a certain amount) and their secure payment methods helps bring in the more skeptical consumers.
“If you look at the online consumer and what’s motivating them to do more online there’s the three C’s: convenience, control, and confidence,” said MacMullin.
Last week PayPal purchased the Timonium, Md.-based Bill Me Later Inc. Bill Me Later offers consumers financing programs on individual products and accepts payment through direct debits to a bank account, cheque or money order. They do not use credit cards.
According to Gillen, Bill Me Later provided a huge sales lift to its merchants due to its ability to provide financing on individual purchases.
PayPal, however, has a set of merchant servicers notes Tim Hickernell, a senior analyst with London, Ont.-based Info-Tech Research Group.
Businesses can rely on PayPal instead of managing a credit card acceptance system. It also gives consumers the choice of credit card as a payment option without charging the merchant extra for using that method.
