As with many Web-based businesses, Wi-Gear Inc., a company that sells iPod accessories, wants to ensure the shopping process is a simple one for its customers. "But setting up a traditional merchant service from a credit card company can be a pain," concedes Mark Pundsack, Wi-Gear's president and CEO.

Instead, the San Francisco-based company opted for a merchant account with PayPal, the world's largest online payment service, boasting more than 114 million accounts globally.

"It was easy to sign up, activation is nearly instantaneous and the rates through PayPal are better than we can get through a traditional merchant services account," explains Pundsack. "Plus, there are still customers out there that don't like to give their credit card information to merchants over the Web so having PayPal payments makes them feel more secure."

Consider PayPal an online wallet that lets your customers buy products or even e-mail funds from one person (or business) to another. The following is everything you need to know about PayPal and how you can use it in your business.


Founded in December, 1998, but acquired by eBay in October, 2002, PayPal has become a global leader in online payment solutions, available in 55 markets and in seven currencies: U.S. dollars, Canadian dollars, Australian dollars, euros, pounds sterling, Japanese yen and Chinese RMB. Consistently ranked the No. 1 personal finance site on the Web (Nielsen//NetRatings), the San Jose, Calif.-based company processes billions of dollars in online payments for retailers, online businesses and eBay sellers (90 percent of eBay sellers offer PayPal as a purchase option). PayPal revenues for Q2 2006 were $339 million, up 39 percent year-over-year.


The PayPal service builds on the existing financial infrastructure of bank accounts and credit cards. Customers set up a free PayPal account on the Net, adds funds to the account from a credit card or bank account, and then begin shopping online or e-mailing cash. Using PayPal on the Net is like reaching into your wallet at a store: you can decide then and there to use cash (use your existing PayPal balance); you can use a debit card; write a check (linking PayPal to your bank account); or you can use a credit card (linking PayPal to your Visa or MasterCard).


Small-to-mid-sized Web merchants will tell you it can be costly and time-consuming to offer credit card payments to online customers. And if you have an unproven (or worse, a bad) credit history, it may be like pulling teeth to secure a merchant credit card account. This is where PayPal comes in. It allows merchants of any size to accept payments from customers in a safe and secure way (PayPal's loss rate due to fraud is a tiny 0.27 percent). Unveiled in the spring of 2006, PayPal Mobile even lets customers shop using a cell phone, text-message cash from one PayPal account to another, or make a donation to a charitable cause.


Depending on the size of your business, merchants can review the different types of accounts at PayPal merchants. But the easiest way to get on board is the Website Payments Standard, which simply involves signing up for a PayPal Business Account, verifying your information, and then adding a little payment button on your site (check out the online demos and tutorials). Customers could be buying products or services on your Web page the same day. And when you get funds from a customer it's as good as cash right away, so you can leave it in your PayPal account, buy something with it, transfer it into your offline bank account, invest in the PayPal Money Market Fund (the company claims it offers some of the best yields in the country), or even sign up for a plastic PayPal debit card to use offline at brick and mortar stores (and get one percent cash back).

How much?

PayPal is free to buyers. Merchants, however, pay a small fee to use the service. Transaction fees depend on monthly volume. PayPal charges 2.9 percent + $0.30 USD for PayPal payments between $0 and $3000; 2.5 percent + $0.30 USD for $3001 and $10,000; 2.2 percent + $0.30 USD for $10,001 to $100,000; and 1.9 percent + $0.30 USD for $100,001 and higher (visit for more info). The transaction fee comes off right away, so when a merchant receives $100, they really get $97.50 (at 2.2 percent + $0.30 USD). Unlike credit card merchant accounts, PayPal does not charge a set-up fee, gateway fee or any monthly fees.