My PayPal alternative!

Stang Bladeworks

KNIFE MAKER
Below is a little writeup I did when I was determining if a PayPal alternative was financially viable. It is written from the perspective of a Canadian so there are some additional exchange rates and international fees being assessed but I think some of this info is still valuable to people in the U.S. After contacting dozens of providers this is what I learned. All knife business' are considered "high-risk". We are lumped in with adult films, people with bad credit, marijuana sales etc. This isn't the opinion of one provider, it is what every single one told me. This is one reason the mainstream providers shut us down. You must use a high risk provider.

The other thing I hear a lot is "I have been using service X forever and not had a problem". This may be true for now but if and when you are identified to be in violation you will be shut down. As a high risk business you pay a premium to accept payments. I know some larger stores accept PayPal but they too are in violation and are taking a risk. I don't agree with these policies, this is just what I have learned.

One reason they may turn the other cheek at larger retailers is money. At the end of the day they will be much more likely to shut down a little guy because you don't affect their bottom line. I just figured I would cover this first because invariably there is someone who makes these arguments and after weeks of research I have found them to be untrue.

I won't lie, setting all this up was a huge hassle. It's not easy or quick but I would rather do it now and avoid an unexpected hassle later. Certain providers will actually hold funds for months. Some of them forever. PayPal is notorious for this. For anyone who doesn't believe me look at the guys its actually happened to. I won't name names here but its very easy to find if you are interested.

As far as mainstream services go I investigated PayPal, Stripe, Square, and Wave. I know a lot of people say Wave is good but they process credit cards using Stripe. I have emailed and phoned everyone possible in the hopes of finding a free solution but there just isn't one. Of all the high risk providers the ones detailed below were the best.

There is a silver lining though, if you do enough volume using a high risk provider is actually cheaper than PayPal. See my examples below. I want to share this and help others avoid this lengthy process. Before I do I figured I would post here and let you guys check my math and my ideas. I want to make sure the info is as correct as possible so it's actually useful.

Costs of accepting USD in Canada when operating a high-risk business

You need a merchant gateway and a payment gateway (together these basically equal PayPal)

Merchant gateway $12USD / month START merchant services

Payment gateway $25USD / month Authorize.net

I negotiated with START to get 2.5% + $0.15 / per transaction

Credit card companies also charge international fees: assessments 0.11% and cross border fee ranges depending on card average at 0.8% for major cards. This is paid by the merchant not the customer

This means the total percent charged is 2.5 + 0.11 + 0.8 = 3.41% + $0.15 / transaction.



PayPal example (no monthly fee)USD to Canadian account

I sent an invoice for $580.00 USD based on an exchange of 0.8 this should be $722.74 CAD

PayPal deposit was $673.62 CAD

That means PayPal charged me $49.12 CAD to cover all their fees



Authorize.net / START example

$580.00 USD – (3.41% ($19.78) and $0.15 USD = $19.92 USD) = $560.22 USD

$560.22 USD = $700.28 CAD

On this transaction I would save $26.66 CAD as long as I leave the money in USD



Total monthly fees to make this work

START $12 USD

Authorize $25 USD

US credit card $3.25 USD

USD bank account $18.00 USD

Total USD = $58.25 USD = $72.81 CAD



When purchasing material in the US with USD there are no foreign exchange fees for the purchaser. If you spend the remining $560.22 USD in the US you will save an additional 3% on these fees.

560.22 USD * .03 = $16.81 USD or $21.00 CAD

Total saved on one $580.00 USD transaction is $26.66 CAD + $21.00 CAD = $47.66 CAD (Assuming the money is used to purchase US material)

So, for every $580.00 USD billed you save $47.66 CAD

Total monthly cost $72.81 CAD, based on that ratio you need to bill $886.06 USD per month to break even when compared to using the free option (PayPal in to a Canadian account)



This requires you to leave the USD as USD. It also requires your business to spend at least this much monthly in the US. Any money not reinvested in US material is subject to a lesser savings but provided you have already passed the break even point of $866.06 USD you are still coming out ahead.

If the USD is to be converted to CAD it can be done in large quantities (around 5 to 10k) by third party foreign exchange service providers to a fraction of a percent. In this case most of the benefit is still realized.

This gives you the advantage of using a high-risk provider, which means your account will not be closed and your funds not held. It means not supporting merchant providers who don’t want your business. It also allows for easy web store integration with big commerce (also high risk friendly).
 

Stang Bladeworks

KNIFE MAKER
Good write up thanks!!

The problem I've found with most payment gateways and merchant services is that they don't allow for a simple way to send online, custom invoices that allow the customer to pay with a card without setting up any account.
I also found that. This particular option does allow it. Thats how I send invoices. Through authorize.net. customers can pay via cc with no account. They just click a link and enter the info. It works the same as PayPal.
 
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