PayPal: A Growing Trend for Entrepreneurs and Organizations

By Karen Lubieniecki, STAFF WRITER



One of Personal Chef Lorraine Kramer's customers uses PayPal to pay for family meals while she's traveling. Clients of CPA Matthew Horowitz use it to pay their bills. For entrepreneur David Hepple, whose Columbia Internet company, Oasis, sells his guitar humidifier, PayPal facilitates his business with both high-volume dealers and individual customers. The Columbia Foundation and politician Jim Rosapepe have used it for donations and The Association of Community Services and the Business Women's Network let people pay for membership and register for events with it.

Has PayPal revolutionized business? Perhaps not completely, but for a wide variety of organizations and small businesses, PayPal, founded in 1999 and purchased by eBay in 2002, is making a variety of transactions easier and speeding up cash flow.

With a PayPal system, businesses do not have to have a separate credit card or merchant account with a bank or other financial institution. Customers can charge their purchase on a credit card through PayPal. The amount is immediately deposited in the business's account.



A Variety of Applications

Lorraine Kramer operates Sage Gourmet, a personal chef and catering business. Her clients are generally two-working parent families who are often on the road or working late hours. Clients order meals tailored to their individual likes and dislikes, incorporating any special needs, such as allergies. They can re-order and pay through PayPal. Said Kramer, "My goal was to accept credit card payments - and PayPal met that goal. It also allows me to invoice, and keeps the payment history."

Matt Horowitz is a traditional CPA offering accounting and tax preparation services. Beginning in 2005, he started to get requests for credit card payments. Pragmatically, he decided to add it to his client payment options. "PayPal makes it easier for clients to send you money, so why wouldn't you [use it]?" he asked.

PayPal is also emerging as an important resource for nonprofit organizations and political entities. Internet fundraising, successful on the national-candidate level, is finding its way to the local scene through PayPal. Maryland's 21 District ticket and Maryland State Senator Jim Rosapepe offered it as a donation option for the 2005-2006 election season. The Howard County Republican Party web site offers it as a donation option, as does The Columbia Foundation. (The Democratic Party does not offer a PayPal or other online option.)

Nonprofit organizations are also recognizing that PayPal's structure offers them opportunities to sell their "products" - which for them can be memberships, training, or fundraising events. The Association of Community Services, for example, has an "ACS Online Payment System" for its events, conferences, memberships and training.

Web designer Joan Cranmer, of Tempest Web Publications LLC, helps clients determine which kind of Internet setup and payment system may be best for them. Said Cranmer, "PayPal is especially good for customers just starting to do e-commerce, with a relatively small number of items to sell - say up to a dozen products." She noted that while PayPal's per transaction charge is higher than a credit card processor may be, there is no monthly fee.



'User Friendly'

Another benefit of PayPal comes in recordkeeping. With a merchant account, the business owner keeps the records. PayPal keeps the records for charges made through its site, and the service can generate invoices, as well, depending on which PayPal module the business selects. Since businesses are required to keep records for three years of credit card payments, having PayPal maintain these relieves often-harried business owners of one more piece of paperwork. For Kramer this tracking has an extra benefit: It helps her know which clients have paid.

Basic fees range from 2.9% of the transaction plus $.30/per transaction for monthly charges up to $3,000, to 1.9% plus $.30 for charges over $100,000, with no monthly fee. To use its "Virtual Terminal," which allows the ability to charge from faxes or e-mails, there is an additional $30 fee. To translate that into real dollars: At the 2.9% rate, the cost is $3.20 per $100 transaction. If you qualify for the 1.9% rate, the same fee would be $2.20 on a $100 transaction.

In the standard PayPal, customers go through your site, but then complete their transaction at PayPal (called a remote site). For $30 per month, the system can be set up so that, while transactions are completed at PayPal, to customers it looks as though they remain within your web site. That fee also includes the Virtual Terminal. There are also options to set up "Shopping Carts," which organizations like ACS are developing.

PayPal has an extensive and step-by-step web site (www.PayPal.com) designed to help the novice create and set up an account. Horowitz was able to easily add PayPal to his web site himself. Yet many other smaller entities rely on their web developers/designers to incorporate PayPal onto their site. Kim Petro maintains ACS's web site, and created its new online payment area. Said Petro of PayPal: "It's very user friendly and they walk you through the steps to set up the accounts and make the buttons simple. However, while PayPal creates the html for the buttons, there still needs to be someone who knows web programming to create the web page and who knows how to embed the button html into the page's html."



Its Time Has Come?

How important is PayPal for clients or customers? Sage Gourmet's Kramer thinks that because her clients are often severely time-constrained, the ability to pay online makes for repeat business. Rosapepe's office feels that while the percentage of clients who use the service is relatively low - around 10% - PayPal's ease of operation results in some donations that might have been lost had the individual been required to write and mail a check.

For smaller organizations such as the human services nonprofits that are members of ACS, online payments may be the coming thing, but are not quite there yet. Only 14% of ACS's members used PayPal to renew their memberships during the last membership renewal period. ACS Executive Director Anne Towne noted that many of her members don't have "institutional" credit cards to pay for meetings and memberships.

Horowitz estimates that 99% of his clients still pay for his services by check. He believes his clients simply don't think of paying by credit card, but he may make it easier by suggesting it when invoicing, to speed up payments. After all he noted, for any small business, "It's all about cash flow." For business folks like Horowitz, Kramer and Hepple, PayPal's immediate payment system and infusion into a business's cash flow trumps its fees.



The Future Is Clear

While others may not have totally embraced this form of payment, Hepple is enthusiastic about his PayPal experience. With considerably more than the minimum $3,000 in monthly transactions online, Hepple's Oasis sales qualify for the lower per transaction fee of a merchant account. He also uses PayPal's virtual terminal and invoicing capability. He noted that part of the reason he chose PayPal was that it was straightforward - he could keep track of the fees and charges easily, whereas there were "boatloads of fees" with other systems, such as merchant accounts. "PayPal has done an amazing job making it simple for the average business person to do business," he said.

And the downside? Kramer noted, "There is no free lunch." She doesn't like paying the 2-3% on transactions, but figures it is a cost of doing business." Rosapepe's office noted that, when they had a glitch setting up the system, getting PayPal to respond was a little difficult. In addition, when setting up a donation site, as a political organization they had to provide additional documentation proving that they were a legitimate entity and had a political fundraising license.

The ability to pay for services online is clearly something today's web-savvy customers are increasingly expecting, and even for those who haven't fully embraced it now, the future is clear. For many businesses, PayPal is a way to test the waters before committing to a bigger and more complicated setup. For others, it serves as the primary payment option. Since there are currently 164 million PayPal accounts, the company must be doing something right.