What is the legal structure of Stripe

Stripe vs. PayPal - Which Payment Gateway Should You Use?

Starting an e-commerce business is an exciting, chaotic time. You have so many things to consider: should you use a hosted platform or manage your shop with a plugin? What strategies do you need to drive your sales up?

But no question is as worrying as this: How should you accept the payments?

After you've done your homework, there will be two pretty clear favorites for your payment solution: Stripe and PayPal. Both offer comparable features, so choosing between the two feels like choosing between apples and apples. This is where this article comes in:

In this article we will compare and contrast the two payment gateways in order to get to the bottom of the Stripe vs. PayPal debate.

Stripe vs. PayPal

Here is the itinerary:

What are Stripe and Paypal doing?

Both Stripe (founded in 2011) and PayPal (founded in 1998) are payment gateways and act as intermediaries between merchants and the corresponding credit card networks or financial institutions to authorize and accept payments.

The intricacies of these relationships can be quite confusing at times. The function of a payment gateway service can be imagined as the provision and exchange of information between merchants and the bank. Here is a simplified illustration of where payment gateways come into play in the payment process.

Payment Gateways (Source: Due)

A payment gateway isn't the only solution for accepting online payments, but it's one of the easier options to get started with.

In contrast to a payment processor, payment gateways give your financial data a “watchdog” who guarantees a secure data transfer between your customers, your business and the credit card networks.

In other words, the payment gateway helps you comply with PCI guidelines in most cases from the outset. If you choose the gateway route, you will come across Stripe and Paypal again and again. There are many other payment gateways like Authorize.Net, 2Checkout, Braintree (owned by Paypal), but Stripe and PayPal are by far two that are most popular are easiest to use.

And for good reason: You have had a dominant market share for years. According to Datanyze, PayPal is used by 64% of the market. Stripe is in second place with around 20%. As of September 2018, Stripe is valued at $ 20 billion! 😮

Stripe vs. PayPal market shares (source: Datanyze)

In the graphic above, Square's young tech is listed in the top 3 as the strongest competitor. While Square currently only accounts for 2% of the market share, they are showing considerable growth.

However, your service is usually not viewed as a payment gateway but as an end-to-end payment processing system and is therefore outside the focus of this article.

After that has been clarified, the question arises what payment gateways are used for? First the obvious: Payment gateways are used by e-commerce shops. Under Armor is an example of an online shop that uses both Stripe and PayPal.

Perfmatters, a WordPress performance plugin, is an example of a digitally downloadable feature that accepts both payment gateways. Perfmatters enables this through integration with the Easy Digital Downloads E-Commerce Plugin.

You can even use both payment gateways to receive donations. For example, UNICEF, a non-profit organization, does this on its website.

Donations via Stripe and PayPal (Source: UNICEF)

(Note: Would you like to accept donations on your website like UNICEF? Check out our guides to learn how to set up donation buttons for Stripe and PayPal.)

Should you use one or two payment gateways?

All of this begs the obvious question: If you can use both payment gateways, why should you choose?

If you are not yet as big as Under Armor, UNICEF, or are very technically savvy and have enough time, two payment gates will only give you additional headaches.

With two payment gateways there are twice as many providers and therefore twice as many things that can potentially go wrong. You will also likely lose volume-based discounts from the respective gateway. If you have a custom back end or other integrations, developing around the products or services you sell could turn this into an unnecessarily complex task - not recommended for smaller businesses.

On the other hand, it can sometimes be beneficial for your company if you use both payment gateways; especially in other countries. Not everyone has a credit card and many consumers and bloggers use PayPal credit to pay online.

The decision whether to have one or two payment gateways depends heavily on the company Industry in which you operate, the products or services you offer and the type of customers.

Now that the problem is out of the way, let's jump right into the Stripe vs. PayPal comparison.

Transaction costs and fees

On the micro-payments side, PayPal is the clear winner, as significantly less is charged per micro-transaction than with Stripe. Micro-payments are typically payments under $ 10.

Paypal micro-payment fees 🏆

  • $ 1.00: 5% of $ 1 = 5 ¢ and 5 ¢ + 5 ¢ = 10¢
  • $ 5.00: 5% of $ 5 = 25 ¢ and 25 ¢ + 5 ¢ = 30¢

Stripe micro-payment fees

  • $ 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

Say you're interested in more than just micro-payments - this is where things get a little more complicated:

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

Paypal fees

Stripe’s fee schedule also provides for 2.9% + $ 0.30.

Stripe fees

As you can see, if you cross the “micro” threshold, PayPal and Stripe's transaction fees are the same. But how similar are the fees when you start with the fine print? This is where things get a little trickier.

PayPal charges 4.4% for transactions where funds come from outside of the US:

PayPal international fees

This means that even if the customer is now based in the US but uses an international card, you will be charged the international transaction fee.

Stripe is a bit more responsive on fees, only charging a total of 3.9% on top of its $ 0.30 fixed fee.

Stripe international fees

So who wins in the comparison of transaction fees? Unless you're expecting regular microtransactions, the answer in this case is pretty simple.

Winner: Stripe 🏆

However, this is only a fraction of the overall fee structure that you need to consider. We therefore recommend taking a look at Flavio’s in-depth comparison of the fees for Stripe vs PayPal.

Well, let's compare how these two competitors fare when it comes to chargeback and dunning fees.

Chargeback and reminder fees

Chargebacks are painful for everyone involved. When a customer initiates a refund, expect more than just the uncertainty of your payment - you will also have to pay additional fees.

A chargeback from PayPal and associated fees includes cases of unauthorized transactions, unreceived products, and products that are significantly different from what is described.

If the customer initiates a chargeback, the amount will be refunded and the credit card network will charge the merchant a fee of up to $ 20.00. (Fortunately, this fee will be refunded to you if they later decide the case in your favor.)

Stripe, on the other hand, takes a more straightforward approach and simply categorizes repayments as chargebacks in their documentation.

Refunds through Stripe come with a smaller, refundable fee of $ 15.00 that is due upon withdrawal. Additionally, Stripe gives merchants the ability to prevent credit card fraud with their new and amazing Stripe Radar feature. At Kinsta, we used it to prevent credit card fraud by 98%!

Winner: Stripe 🏆

If you haven't tried Stripe's new radar features, we definitely recommend you do.

But will Stripe keep that winning streak when it comes to availability and supported currencies?

Refund Fees

PayPal used to be the winner in the Refunds category as they would refund your original processing fee. However, as of October 11, 2019, this will no longer be the case.

PSA: Paypal will no longer return processing fees (2.9% + $ 0.30) when you refund a customer starting October 11, 2019.

After walking back the decision in May due to outrage, Paypal is now moving forward anyway and hoping you don't notice.

Nail in the coffin. Goodbye, @PayPal. pic.twitter.com/sAweMHxtLn

- Sean McCabe (@seanwes) September 19, 2019

You can find this in PayPal's guidelines.

If you refund a transaction (in part or in full) to a buyer or a donation to a donor, there are no refund fees, but the fees that you originally paid as the seller will not be returned to you.

Stripe already has that in its policy.

There are no fees for reimbursing a fee, but fees from the original fee are non-refundable.

Winner: none

Global availability and supported currencies

Now is the time to take a look at which currencies Stripe and PayPal support.

PayPal is currently available in over 200 countries / regions (Africa, America, Asia Pacific, and Europe) and supports 25 currencies - although some countries may not have access to all of PayPal's tools and features. PayPal makes it really easy, no matter where your business is registered, to open an account and start accepting payments right away.

Stripe, on the other hand, is only available in 26 countries. This alone could be a knockout for some companies. Be a criterion. However, Stripe has a solution: regardless of which country you're based in, Atlas makes it easy for you to start a US company, set up a US bank account, and start receiving payments through Stripe.

When it comes to currency support, Stripe leads the way. Stripe supports over 135 currencies.

Overall, we have to give PayPal a slight head start here, as the supported countries will be more important than the currencies. The reason for this is that PayPal has been around for a long time, while Stripe is still behind in supporting new countries.

Winner: PayPal 🏆

If you're a US-based company, Stripe would easily win the trophy.

Customer service

When your livelihood is at stake, you need a payment gateway that can offer you immediate support when in doubt.

Until recently, Stripe should have admitted defeat here. Trust us, we had our own fair share of problems with Stripe for the first few days. However, since July 2018 they have been offering 24/7 support via phone and live chat. There is also an IRC channel on Freenode available via #stripe.

A big trump card for Stripe: According to Invesp, 73% of customers are more satisfied with the live chat. We saw that firsthand for ourselves. At Kinsta, we offer 24/7 live chat through our MyKinsta dashboard.

Live chat customer experience (Source: Invest)

Unfortunately, PayPal is currently not able to exceed this support level or even to meet it. Telephone support, questions via the PayPal forum or by e-mail are currently available to you. You can find the available support channels here.

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PayPal offers a forum in which community members are likely to be available at any time. However, it cannot be compared to the possibility of receiving official support immediately, which PayPal itself confirms from the start in a disclaimer when you access the PayPal community page. Therefore, the information it contains should be viewed with a healthy amount of skepticism.

Disclaimer for the PayPal forum

PayPal’s phone times are also not comparable to Stripe’s 24/7 support.

PayPal’s phone times

When it comes to customer care, our winner is once again Stripe.

Winner: Stripe 🏆

Unfortunately, your lead in our next category can falter.

Payment schedule

High-priced products have a fundamental problem: They have a significantly smaller customer base.

One way to get around this is to offer payment plans. Payment plans open up new opportunities for ecommerce customers who want your products but may not be able to pay the costs in one fell swoop.

E-commerce jewelry retailer Vrai & Oro demonstrated the power of payment plans by allowing customers to pay by installments and generating $ 2,000,000 in annual sales.

Zulily also uses this for its more expensive offers, such as this KitchenAid stand mixer.

Payment plans are definitely beneficial for an online retailer with high-priced inventory (or when they want to switch to this type of inventory). It is therefore an advantage if the retailer's payment gateway makes it easier to set up one.

PayPal takes care of this with a lot of documentation about setting up the order process and the buttons for creating an installment plan.

PayPal payment plan

Stripe, on the other hand, does not offer this to its customers. Setting up a payment plan through Stripe requires a complicated detour through their “subscription” system: operational, but not nearly as simple or seamless as PayPal. You will most likely need a developer or special plugin that supports this in order for it to work properly.

Although Stripe is currently working on implementing such a feature, they are losing significantly to PayPal this round.

Winner: PayPal🏆

Speaking of payments: The choice of payment gateway can significantly limit your customers' payment options. Who has the least restrictions?

Payment methods accepted

With PayPal, you can accept PayPal credit in addition to any major credit card, any payment method that PayPal users can save (including eChecks). The latter in particular makes it difficult to appoint a clear winner in this category.

PayPal Credit

PayPal Credit, a virtual line of credit from Synchrony Bank, is available to any PayPal customer based in the United States. (Additional regulations require users to be over the age of 18. This is part of PayPal's basic user policy; much to the chagrin of many business owners.)

This credit line is available exclusively to PayPal customers. PayPal reached the 244,000,000 mark for active registered customer accounts in the second quarter of 2018. This enables you to reach potential customers via PayPal’s exclusive credit line.

PayPal’s active registered customer accounts (source: Statista)

This is something to keep in mind when comparing it to Stripe, which one far more payment methods accepted. Stripe accepts all major debit and credit cards, as well as the following wallets: Alipay, Amex Express Checkout, Apple Pay, Google Pay, Microsoft Pay, Masterpass with Mastercard, Visa Checkout and WeChat.

Stripe wallets

While all of these wallets (and additional card providers) are worth mentioning, the most important mentions among them are Visa Checkout and MasterPass from Mastercard. Why are these so important? Visa and Mastercard together take up 80.10% of the card market.

Market share in the card market (source: WalletHub)

The ability to use the infrastructure of already established wallets is a decisive advantage in the e-commerce business. If completed, right? Not quite.

Winner: Tie

While Stripe claims victory in this category by incorporating wallets and additional card networks, PayPal Credit can easily tip the scales in PayPal's favor if your customer base is primarily in the US.

Checkout Experience

We are nearing the end of our comparison.We've saved the two most important categories for last.

The checkout experience has a direct impact on the usability of your website and the entire user experience: an influence that is too great not to be scrutinized closely.

Stripe's checkout process is simple. Your customer enters a credit card number, clicks "Confirm" and is then redirected to your thank you or follow-up page. The design and the flow of the checkout process are entirely in your hands.

PayPal is a little more complicated. Here's what I mean: let's say we want to buy this book from Barnes & Noble. After we have added it to our cart, we proceed to the checkout.

PayPal checkout

Instead of performing the checkout process via the website, we click the PayPal button. A lightbox-type pop-up opens that we have to wait for before we can register. I mention the wait because I've tried this on various major retail sites and some of them took more than ten seconds to load the new window. Barnes & Noble was by far the fastest.

The effects of additional loading times must be taken into account when evaluating the checkout process: Customers are particularly impatient. Simply put, the longer a page takes to load, the higher the abandoned purchase rate. As a rule, you don't have much leeway, as customers often search for a specific product across multiple pages at the same time.

When a page loads past the three-second mark, your pageviews even go down. The additional loading time between two pages could result in your shopping cart / completed purchase conversion being completely destroyed.

Loading times vs. abortion rate (source: Pingdom)

To return to our checkout process: As soon as the page has loaded, PayPal instructs us to register. The screen can be skipped if the user chooses to stay signed in permanently.

PayPal login

Before the next step, we will then be asked by PayPal to select a payment method.

PayPal payment methods

After we have clicked the “Next” button, we are still not done. Another click on the “Accept & Next” button is necessary to get back to the checkout page.

PayPal "Next"

But we're back on the checkout page still not finished with our order.

PayPal final order form

All in all, PayPal added five additional clicks to our process while, among other things, being redirected away from the checkout page. However, this can vary depending on how you have configured PayPal and which payment methods you accept. PayPal offers additional solutions and integrations that allow you to accept credit cards directly from your website, for example.

While these additional steps are admittedly small and may not seem like much, there is a ton of scientific evidence to suggest that it can significantly affect your outcome.

Studies have shown that the fewer factors a customer has to consider when making a decision, the more likely it is that they will ultimately make that decision (also known as Hick’s Law). This means that the more steps a customer has to go through, the more likely it is that you will end up with an abandoned shopping cart.

Across all industries, over 75% of shopping carts are left behind. So it pays to do everything - or in this case avoid - to save a shopping cart.

Abandoned shopping carts by industry

Although PayPal offers checkout solutions for your website, it depends on the payments you accept and the type of PayPal account you have. So we're giving Stripe a slight advantage here, as the checkout with Stripe was seamless and easy right from the start.

Winner: Stripe 🏆

OK, there is one final category that the two payment gateways have to compete in, and for a WordPress user, it's the most important of all.

integration

WordPress users love a good plugin, and we at Kinsta are no exception. First, let's talk about WooCommerce. Regardless of which payment gateway you choose - you are on the safe side.

WooCommerce Payment Gateway Integration #

Easy Digital Downloads also has all the known payment gateway extensions.

Stripe Payment Gateway Extensions

What about other types of software? While your ecommerce software should be your primary concern, having the right CRM software is just as important to a well-oiled ecommerce business. After all, the right CRM software can increase revenue streams by 74% and reduce lead costs by 23%.

Do you work with a CRM? Definitely increases the importance of a payment gateway. A feature that PayPal unfortunately still has one or two flaws.

PayPal CRM

Stripe, on the other hand, shines with partnerships with HubSpot and Agile CRM. Both are regularly featured in the top five lists for the best free CRM suites available.

Stripe CRM

Due to their much broader partner diversity - both for WordPress, CRMs and beyond - we have come to the same conclusion for this comparison.

Winner: Stripe 🏆

Well, where does this, by and large, take us?

The final winner

While both payment gateways offer merchants many opportunities for expansion, Stripe was able to consistently - if only just - win over PayPal due to the increased user friendliness during checkout, customer support, simpler fee structure and integrations.

So if you're not sure which payment gateway to use, ask yourself the following question:

  • Do you plan to do many microtransactions (amounts less than $ 10.00)? If so, choose PayPal.
  • Are payment plans a criterion for you? In this case you should also use PayPal.

Otherwise, Stripe is the top choice for ecommerce stores, and it's super easy to set up on WordPress.

If you're in a country that doesn't support Stripe or PayPal (there are some that fall into this category), we recommend that you take a closer look at 2Checkout.

Summary

Choosing the payment gateway is one of the most important decisions you will make as an ecommerce owner. Although it is possible to have multiple gateways, it is not recommended for smaller businesses. Because with twice as many payment gateways, twice as many disasters come into question. Although, of course, if you succeed, it offers more options! 🤘

So if you are at the lower end of the scale in terms of size, you have to make a decision. PayPal and Stripe are the two biggest competitors in the market. In terms of transaction fees, PayPal Stripe beats microtransactions, while the fees of the payment gateways are balanced for "average" transactions. However, Stripe is taking the lead in international transactions, giving them a narrow victory in this category.

Refunds and chargebacks are a little confusing to decide between the two as both PayPal and Stripe use different terms. Stripe ultimately proved victorious due to its simplicity.

The availability of customer support was also a criterion. With the recent addition of 24/7 live chat and phone support, Stripe can once again claim dominance. This trend continued in accepted payments, checkout experience, and integration.

Overall, due to its overwhelming simplicity and performance in our metrics, we conclude that Stripe is the payment gateway of choice for your ecommerce business.


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