For Startups: Stripe vs PayPal — What form of payment should I choose?

Starting an e-commerce business is a moment of pure chaos and excitement. You have to consider so many things: use a hosted platform or manage your store with a plugin? What are the strategies you need to increase your sales?

But neither a question is more difficult than this: How to accept payments?

After doing your homework, there will be two clear solutions for your budget: Stripe and PayPal. By offering similar characteristics, choosing between these two seems as if you have to choose between two apples. And this is the reason why this article exists.

Today we will compare and contrast between these two forms of payment and we will get to the bottom of the Stripe vs. PayPal debate.

What is Stripe and PayPal doing?

Stripe (founded in 2011) and PayPal (founded in 1998) are payment platforms, functioning as intermediaries between sellers and the appropriate credit card networks / financial institutions to authorize and accept payments.

The complexities of these relationships can be a bit difficult to understand. A simple way to see these payment platforms is as a path that transfers information between sellers and banks.

This is a visual representation of how platforms enter the e-commerce network.

A payment platform is not the only solution to accept online payments, but it is one of the easiest options to start.

Because unlike a payment processor, platforms give your financial data the protection it needs to travel between credit card networks, your customer and the store.

In other words, in most scenarios, it can help you comply with the PCI. And if you decide to take this route, you will find Stripe and PayPal again and again. There are many payment platforms, such as Authorize.Net, 2Checkout, Braintree (PayPal), although Stripe and PayPal are still two of the easiest to use.

And this is for a good reason: they have absolute control of the market. According to data from Datanyze, PayPal is used by 64% of the market. Stripe arrives in second place with 20%. As of this September 2018, Stripe was valued at $ 20 billion dollars !! 😮

Wish you realize that, in the above infographics, Square is also emerging as a strong competitor in the market. Although it barely occupies 2% of the market, they are growing rapidly.

However, its service is usually not considered as a payment platform, but an end-to-end payment processing system, and thus does not fall within the subject of the article.

With this out of the way, what are these payment platforms used for? The first and most obvious, e-commerce stores use these payment platforms. Under Armor is an example of a store that uses Stripe and PayPal.

Should I use One or Two Forms of Payment?

To all the above, the question arises: If both forms of payment can be used, why do I have to choose?

With these two forms of payment come twice as many sellers, double things that can go wrong, and you can lose discounts based on volume of each respective form of payment. If you have custom back-end integrations or other integrations, the development around products or services that you sell could make this a too complex task. And this is not good or sustainable for a small business.

However, having said this. Sometimes having both forms of payment could be an advantage for your business. Especially in other countries. Not all of them have credit cards and many of the consumers and bloggers use PayPal credit to pay for everything.

Using one or the other form of payment depends a lot on the industry, what you sell, and the type of customer you have.

Now, with this let’s go into our comparison between Stripe and PayPal.

Transaction Costs and Fees

When it comes to micropayments, PayPal is undoubtedly the winner, charging much less than Stripe for each microtransaction. Micropayments are generally those below $ 10.

PayPal payments for Micro payments 🏆

$ 1.00: 5% of $ 1 = 5 ¢ and 5 ¢ + 5 ¢ = 10 ¢

$ 5.00: 5% of $ 5 = 25 ¢ and 25 ¢ + 5 ¢ = 30 ¢

Stripe fees for Micro payments

$ 1.00: 2.9% of $ 1 = 2.9 ¢ and 2.9 ¢ + 30 ¢ = 32.9 ¢

$ 5.00: 2.9% of $ 5 = 14.5 ¢ and 14.5 ¢ + 30 ¢ = 44.5 ¢

Standard fees

Assuming that you are interested in more than micro payments, the situation starts to get a little more complex.

The current PayPal fee is 2.9% + $ 0.30 per transaction.

The Stripe fee is also 2.9% + $ 0.30 per transaction.

As you can see, your transaction fees are non-existent if you move above the “micro” level. But how similar are the dues maintained once we start reading the little letters? This is where everything gets complicated.

PayPal charges a 4.4% per transaction where funds originated outside of the US:

What this means is that even if the customer is in the United States but uses an international card, you will receive the same transaction fee.

Stripe is a little gentler in its fees, charging a total of 3.9% in addition to the flat fee of $ 0.30.

So, who is the winner when it comes to transaction fees? Unless you are processing microtransactions regularly, the answer is very simple in this case.

Winner: Stripe 🏆

But this is a fragment of the general quota structure that you should take into consideration. We also recommend checking Flavio’s even more detailed comparison of the fees between Stripe and PayPal.

Now, let’s see how these two titans are measured when it comes to disputes and reimbursements.

Disputes and Reimbursement Fees

Refunds are somewhat uncomfortable for everyone involved. When a customer initiates a refund process, you can anticipate a payment that will be in limbo — but you will also find additional charges.

PayPal refunds and associated charges include unauthorized transactions, the item has received no complaints, and complaints about items that do not meet the description.

When they initiate a refund, the amount is reimbursed to the customer, and the credit network ends up charging a $ 20.00 charge to the seller. (Fortunately, this charge is reimbursed if you put this case in your favor).

Stripe, on the other hand, takes more direct action and categorizes the disputes simply as reimbursements in their documentation.

Disputes through Stripe also have a smaller charge of $ 15 refundable added to your issue. And as a bonus, Stripe gives sellers the ability to prevent credit card fraud with their new and amazing Stripe Radar option. At Kinsta, we managed to prevent 98% of credit card fraud!

Winner: Stripe 🏆

If you have not tried the new Stripe Radar options, we highly recommend doing it.

But will they keep this streak when it comes to availability and accepted currencies?

Global Availability and Supported Currencies

Now it’s time to see where you can use Stripe and PayPal, along with your coin type.

PayPal is currently available in more than 200 countries / regions (Africa, America, Asia Pacific, and Europe) and supports 25 currencies. PayPal makes it very easy, no matter where the business is located, the process to open an account and start accepting payments.

Stripe on the other hand, is only available in 26 countries. This, for many businesses, is not enough. However, Stripe offers an alternative. Regardless of which country you come from, you can use Atlas to easily incorporate a company into E.U.A, establish an E.U.A bank account and start accepting payments with Stripe.

Where Stripe beats PayPal is in the currencies you accept. Stripe accepts more than 135 different coins.

We have to give PayPal a slight advantage, since the supported countries will end up being more important than the currencies. In part it’s because PayPal has been in the market longer, while Stripe is barely adapting when it comes to supporting new countries.

Winner: PayPal 🏆

If you are an American company, Stripe would undoubtedly take the trophy.

Customer Support

When your life is on the line, you need a form of payment that provides immediate support.

And until very recently, Stripe did not comply with this. Trust us, we had several problems with Stripe at the beginning. However, since July of 2018, they now offer 24/7 support through telephone and live chat. You can also enter the #stripe IRC channel in Freenode.

This is a huge positive point. According to Invesp data, 73% of customers are more satisfied with live chat. And we have seen this closely. In Kinsta we offer 24 × 7 live chat through our MyKinsta dashboard.

Unfortunately, PayPal does not compete against this level of support. Currently, your available support channels include telephone support, questions in your forum or by mail. Here are the available support channels.

Although they offer a forum where members of the community can be available at any time, it is not the same as receiving official support, something that even they themselves mention in a note before entering the community page. So, the information should be verified with a little skepticism.

Your telephone support hours do not compare to 24/7 Stripe support.

And that’s how the winner comes up when it comes to customer service.

Winner: Stripe 🏆

Unfortunately, his reign may end up crumbling into the next category.

Payment plans

High-end items have a complex problem: they have a much smaller audience.

One way to avoid this is to use payment plans. Payment plans open the doors of ecommerce to customers who want their products, but can not always make a single payment.

The jewelry ecommerce store, Vrai & Oro, demonstrated the power of payment plans, when they reduced their inventory, and allowed customers to pay in installments, with this, they achieved a profit of $ 2,000,000 per year.

Zulily also uses this for more expensive offers, as you can see with this KitchenAid blender.

So the plans are very positive for sellers with high category inventory (or for those who want to move to that category). And it’s even better if the seller’s payment platform makes this easy to set up.

PayPal does this natively with a lot of documentation on the development of payment processes and buttons to establish a quota plan in installments.

Stripe, he does not do this. Creating a payment plan with Stripe requires too many complex steps, using your “Subscription” system. It can be done, but it is not simple. It is likely to require a developer or plugin to support this to work properly.

Although Stripe has commented that he is working to implement this option, for the moment, they have lost by a large margin.

Winner: PayPal 🏆

Speaking of payments, your choice of platform can significantly limit the options that customers will have to pay you. Who offers the least amount of restrictions?

Accepted Payments

From the beginning, PayPal allows you to accept any major credit card, any payment method that PayPal users can save (including eChecks), and PayPal Credit.

PayPal Credit, a virtual credit line extended by the Synchrony Bank, is available to anyone in the United States who has a PayPal account (additional stipulations require users to be over 18, but it is a basic part of PayPal’s user policies, something that is a nuisance for many entrepreneurs).

PayPal reached the 244,000,000 marks of active accounts registered in the second quarter of 2018, so that gives you a huge number of potential customers through a line of credit that, as you may have noticed, is exclusive to PayPal.

And it is important to keep this in mind when comparing it with Stripe, which accepts even more payment methods. They accept all major debit and credit cards, along with the following “portfolios”: Alipay, Amex Express Checkout, Apple Pay, Google Pay, Microsoft Pay, Masterpass by Mastercard, Visa Checkout, and WeChat.

Although it is important to take into account these portfolios (and additional cards, the most important are Visa Checkout and MasterPass by Mastercard). Why are they so important? Visa and MasterCard dominate 80.10% of the card network.

Winner: Draw

While the inclusion of portfolios and extended card networks seems to give Stripe the victory, PayPal Credit can easily give the advantage to PayPal if its clientele normally comes from the United States.

Payment Experience

We are nearing the end of our comparison, but we leave the best two for the end.

Your payment experience directly impacts the user experience and the usability of the site: in fact, too much, so it deserves to be evaluated in depth.

Stripe’s payment process is simple. Your customers enter their credit card number, click send, and then they are sent to a thank-you or follow-up page. The design and flow is in your hands.

PayPal is a bit more complicated. This is worth saying. Let’s say we want to buy this Barnes & Noble book. After adding it to our cart, we are taken to the payment section.

But instead of going through the payment process of the page, we have to click on PayPal. This opens a popup that we have to wait until we can enter. I mention this to wait, because I’ve tried it in different stores, and many of these took up to ten seconds to open the new window. Barnes & Noble was the fastest.

The potential of additional load times is something that should be kept in mind when evaluating the payment process: users are very impatient. Simply, the later the page opens, the greater the number of bounces and abandoned shopping carts. And normally, even though they may be browsing other pages at that time, they will not be so flexible.

In fact, after a page takes 3 seconds, your visitors begin to disappear. So the load time between pages could end up killing your conversions in the long run.

But, returning to our process, once it is loaded, it asks us to log in. You can skip this screen if you already have the option to stay in session permanently.

After that, we have to see all the payment methods before clicking again.

We have not finished yet after pressing the “continue” button. You have to click on the “Access & Continue” screen.

When you return to the payment page, the process has not yet finished.

In general, PayPal added five additional clicks to our process, and at the same time moving us further away from the payment page. However, this may be due to how PayPal is configured and what types of payments it accepts. PayPal offers additional solutions and integrations to accept credit cards from your site.

Although these additional steps are small and may not seem like much, there is a lot of scientific evidence to suggest that it is very likely that you will get fed up.

Known as Hick’s law, studies have found that the fewer factors a user has to think about when making a decision, the more likely they are to continue with this same decision. Which means that the more steps the customer has to take, the more likely they are not to do so and abandon their cart.

More than 75% of the carts are abandoned in different industries, so any method you can take to store this cart is something worth doing — or in this case, avoiding it.

Number of carts abandoned by industry

Winner: Stripe 🏆

Integrations

WordPress users love a good plugin, and in Kinsta, we are not the exception to the rule. First and foremost, let’s talk about WooCommerce. No matter which payment platform you choose, we have it covered.

Easy Digital Downloads also has all the extensions of the most popular payment platforms.

And when it comes to other types of software? While your e-commerce software should be a primary concern, CRM software is just as important as a well-oiled business. After all, CRM software can increase your revenue streams by 74% and reduce lead costs by 23%.

So, do you work with a CRM? It will definitely add weight to a payment platform. One that, unfortunately, PayPal wants to have.

Stripe, on the other hand, already has collaborations with HubSpot and Agile CRM, these two frequently enter the lists of the five best free CRM suites available.

Thanks to its wide variety of partners — with WordPress, CRMs and more — we have reached a very familiar conclusion for this comparison.

Winner: Stripe 🏆

Now, where does this leave us in the grand scheme of things?

The Great Winner

While both platforms offer sellers many opportunities to expand, Stripe consistently achieved — even if it narrowly won — victories against PayPal, due to its ease of use at the time of payment, customer support, a simpler quota structure and its integrations

So, if you still do not know which platform to choose, ask yourself this:

Do you plan to make many microtransactions (less than $ 10.00)? If so, choose PayPal.

Are payment plans very important to you? In that case, choose PayPal again.

For everything else, Stripe is the best option for e-commerce stores, and it’s super simple to set up in WordPress.

If you are in a country that does not have support for Stripe or PayPal (there are some that fall into this category), we recommend checking 2Checkout.

Summary

Payment platforms are one of the most important decisions you will make as the owner of an ecommerce store. While it is possible to have more than one platform, it is not always recommended for small businesses. Because the more options you have, the more potential disasters will be. Although, if you can do this, go ahead! 🤘

So, if you have a small business you will have to choose. PayPal and Stripe are the biggest competitors in the market. When it comes to fees per transaction, PayPal beats Stripe when it comes to micro transactions, while “average” transactions are fairly similar on both platforms. However, Stripe takes advantage of international transactions, which gives them a very close victory when it comes to this.

It is a bit confusing to deal with disputes and reimbursements on both platforms, since PayPal and Stripe use different terms, Stripe, in the end, is also victorious for its simplicity.

The hours of customer support were also considered. Due to its recent inclusion of live chat 24/7 and phone support, Stripe again takes the domain. This remains the same for accepted payment methods, payment experience and integration.

In general, due to its simplicity and performance in our metrics, we have concluded that Stripe is the best payment platform for an ecommerce business.


Originally published at TheStartupFounder.com.