Stripe vs PayPal

February 25, 2013

stripe-vs-paypal

Just over a month ago we added Stripe as an option for credit card payments (an alternative to PayPal) for our subscription-based project management service 5pm (www.5pmweb.com). After observing it for a month, we also added it to smartQ workflow management service (www.getsmartQ.com). So far, It has been working very well. So what is Stripe (www.Stripe.com), and why is it a viable alternative to PayPal?

Also, check the follow up article “Stripe + PayPal − Google Checkout = ?

If you are a SaaS (like us) and are offering a subscription service (that’s the important part),

there are not many options if you don’t want to deal with processing the credit cards through your site (and deal with payment gateways, merchant accounts, PCI compliance, etc.).

PayPal is was  the first choice that usually comes up – and we have been using it for years. But there are not many choices beyond that. Google Checkout? No, thank you. Even after introducing the support for recurring payments, Google Checkout still looks and acts like it’s in beta when dealing with subscriptions. In fact, we spent weeks implementing it as an alternative to PayPal – well, it took them 15 days to reply to the email that supplied documentation for a chargeback. At the end, we hit the wall – it can not deal with subscription plan upgrades/downgrades. We had to abandon Google Checkout… Luckily, at that exact moment we discovered Stripe.

Why not PayPal?

If it works, why look into PayPal alternatives? Some reasons:

  • Sending clients away from your site – You have to send clients to the PayPal website, and they have to open a PayPal account (for recurring payments).
  • “We do not want to use PayPal” – Some clients do not like to deal with PayPal.
  • Lack of transparency – You will never get information on why a payment failed. Anything on PayPal’s side is a black box. One summer, all our subscriptions from outside the US with failed payment attempts (PayPal tries three times and then cancels the subscription) just got stuck “indefinitely”. Not only did we have to track these issues ourselves and prove it to PayPal (and that usually takes time), but, in the end, the answer from them was to cancel those subscriptions and ask our clients to re-subscribe.
  • Limits on upgrade amounts – Some time ago, PayPal introduced limitations on the subscription plan upgrades (“You can only increase the profile amount by 20% in each 180-day interval after the profile is created”). Basically, if you offer a subscription plan for $10/month, there is no way to process the upgrade to a $20/month plan. The 20% limitation makes any upgrades pretty much unrealistic. Old PayPal accounts got grandfathered and do not have this limitation, but this was years ago, so, most likely, you will have to deal with it. For most subscription services this limitation alone can be a show-stopper – unless you want to deal with creating a new subscription and cancelling the old one on each upgrade.
  • Non-adequate support – PayPal is just a big company. That can be good and bad. Between submitting a ticket there, emailing here, calling elsewhere, you will end up bouncing back and forth between different agents explaining your issue again and again. We have been there. At one point, a dedicated account manager was assigned to us (not sure what volume you have to hit for that) – which is nice since there is a contact you can call and email directly. But that account manager has limited technical knowledge of the systems and, most of the time can not help with real issues.

With all that, PayPal does work for subscription payments and is a solid workhorse when it comes to online payments. Google Checkout is not there yet.

Enter Stripe

Stripe.com is relatively new on the market, but growing fast in their San Francisco headquarters.

For those outside the US and Canada (Canada only since September 2012), unfortunately, you can stop reading right here since it is available only in these countries right now. But it looks like they are coming to the UK soon.

So how does Stripe stack against PayPal? In short, is has the same pricing, but you can process credit cards without sending clients to another site.

The last part is important. Stripe came up with a smart way of having it both ways. It allows people to enter the credit card info directly on your site, without you storing it, no PCI compliance has to be involved.

As a whole, Stripe just looks like PayPal 2.0

While the PayPal interface still looks like it was built in the 1990s, Stripe is built by developers for developers with an easy site and great UI. Stripe API is well thought, documentation is clear and the sandbox environment is very easy to set up.

Stripe is active on Facebook and Twitter, emailing support is simple, and the answers are pretty fast – generally a day or two, though one time it took five. Most importantly, the answers come from people who know what they are talking about. After all, it is still a small company.

There are some differences when comparing apples to apples (see the table below) – like PayPal is actually cheaper (for high volume sellers) – but the most important thing Stripe offers, that PayPal can not, is CONTROL. Since clients remain on your site, you can track exactly what is going on: log the errors, measure the conversion on all pages, run A/B tests on your payments forms, etc. With PayPal you just “push and pray” – with the push of a button, you send your clients to the PayPal site, and hope they will emerge back from that black box as paid customers. And the PayPal website is a bit of a maze – we constantly deal with clients opening a new subscription when trying to upgrade an existing one.  Sure, with Stripe, doing it all on your site also means you will have to do some things by yourself – like building the payment form, generating some custom notifications (like when the payment fails), but that’s a small price to pay.

Then there are small but important differences. Stripe will automatically adjust the next month’s price on a plan upgrade to include the partial price for the period left in the current month. PayPal does not do that, and it means you lose money in those cases – that can add up. It also means customers get prorated on downgrades with Stripe, so you don’t have to deal with partial refunds, like with PayPal.

paypal_logo Stripe
Customers are sent to PayPal site Customers never leave your site
2.9% + $0.30 per transaction
2.4% + $0.30 (when over $10K monthly sales)
2.9% + 30 cents per successful charge *
Funds available at once Funds are held for 7 days
Available worldwide Available to sellers in US and Canada

 * Stripe: “We start offering volume discounts for companies that are on track to do a million a year”

So what to pick?

The answer is simple – both. Most likely you already have PayPal available as an option. Add Stripe as a second option, brand-free, so it is positioned as a “plain” credit card payment option while PayPal remains as a good option for those who have PayPal accounts. PayPal is still a solid payment system, but giving Stripe a chance too is a good idea.

Also, check the follow up article “Stripe + PayPal − Google Checkout = ?

{ 3 trackbacks }

Random Gripes of The Day | MakerBlock
March 19, 2013 at 6:08 pm
Climbers and Dogs Positive Net Inside Transaction (3/23/13) « Climbers and Dogs
March 25, 2013 at 10:07 pm
Stripe + PayPal − Google Checkout = ? | 5pm Blog
November 21, 2013 at 6:34 pm

{ 24 comments… read them below or add one }

Brent March 10, 2013 at 8:40 am

Doesn’t PayPal have x.com and the adaptive payments API which allows you to process payments without leaving your site as well? It’s been available for about 3 years now… Confused on what Stripe does over that?

Zech March 10, 2013 at 12:21 pm

@Brent, PayPal has a very poor implementation of something vaguely resembling Stripe’s functionality. It’s called PayPal Advanced – it allows you to plugin a “Widget” to your site .. which is very poorly designed, clunky, and overall a nuisance. I am fresh off of working with this very thing, and suggested to my client they switched to Stripe. Oh, and it cost. (5$/mo). Anything that doesn’t force you to swap pages will cost you with PayPal (paypal pro, advanced, or whatever they are calling it now’a'days.)

The comparison is like night and day. I implore you to check out Stripe just in a test bed, and see what you think =o)

Independent Software Developer March 23, 2013 at 3:24 pm

I plan to setup recurring payment options for some SaaS and was leaning towards going with paypal until I heard all the downsides to subscription based payments you listed so I’m now going to use Stripe (it’s API looks well documented which is a huge plus)!
-Thanks-

Umar March 26, 2013 at 5:50 pm

I have had one of those days with PayPal!!! Very frustrated with the run-around from agent to agent to agent… I have a Shopify store and after reading this, its time to say goodbye to Paypal and move on to Stripe. Thanks you for sharing.

J Marston April 9, 2013 at 3:46 pm

Your points are valid for the most part and something our company struggles with constantly. HOWEVER, your percentages table is incorrect and can make an enormous difference in revenue when talking about higher volumes:

PayPal
———
$0 to $3,000 => 2.9% + $0.30
$3,000+ to $10,000 => 2.5% + $0.30
$10,000+ => 2.2% + $0.30
high discount when over $100,000/mo

Stripe fees listed are correct but you have to get to $1MM before you see any discount. That is the one thing that has kept our business with PayPal for so long. Awesome APIs and support is great but when you are talking about he difference of nearly a percentage point per month, that adds up quick annually.

Tyler May 12, 2013 at 3:38 am

Stripe > Paypal for most things. Big catch – no international support. I’ve been riding the stripe awesomeness for a time now, but need to migrate, or provide both, soon.

Jennifer Lyle July 6, 2013 at 9:41 am

What about security? It is my understanding that by the transaction taking place on Paypal’s website that the financial transaction security liability rests there. If Stripe keeps the customer on my website, doesn’t that mean that I now am legally liable if anything goes wrong during the transaction? This is something that just isn’t talked about in the online entrepreneur world.

5pm Team July 6, 2013 at 10:32 am

The transaction still takes place on Stripe website. The form just passes the data to them, no information on client credit card is stored on the store site.

From Stripe website: “We shoulder the PCI compliance burden by ensuring that you never need to handle sensitive card data. (Learn more about PCI and our approach.)”

JW August 8, 2013 at 4:27 pm

Nice to have an alternative to PayPal…currently we are using a payment gateway and are charged approx 2% per on Visa and MasterCard…and we receive payment into our bank account in two days vs. seven days…honestly, I do not see the big advantage to Stripe…please explain.

Kevin McCaughey August 18, 2013 at 5:50 am

With Paypal most sellers get a HORRIBLE rolling reserve (i.e. 20% of transactions held in reserve for 120 days, or (in my case) 100% of transactions held in reserve for 28 days). And these are mostly random and for no reason, so that Paypal can keep money and gather interest on it.

I strongly advise you to have a look at paypalsucks.com or similar websites to read the horor stories. Almost all accounts have stupid “reserves” placed on them. If you have a chargeback, well you are screwed basically – they can freeze your account for 6+ months and you have no hope of getting your money.

MAke sure and check the horror stories before you choose. These stories are all over the internet.

Brandon October 9, 2013 at 6:51 am

It’s great we can use Stripe Brand-free and make it look like a regular credit card check-out. It’s great we don’t have to worry about PCI and SSL with Stripe. But the issue I see is when you’re trying to make it a “regular” credit card check out, then sophisticated shoppers will want to see the “regular” SSL badges that should be accompanying the sites.

So how does one go about winning the trust of the buyer? I would like to say, “Trust us, we do not need to be PCI compliant and we do not need any SSL badges…” But I’m sure that won’t do it. LOL! This is a serious question. I see that 3DCart has partnered with Stripe and I’m strongly considering this. Before, I would think about the added cost of the payment gateway, the merchant, etc. But this is really intriguing now.

James October 12, 2013 at 9:10 pm

I worked on PCI compliance and it can be time consuming if you don’t have full level IT support to handle some of the technical questions for you and depending on the credit card processing system you have it can also be pricey to get up to compliance…What small business has 20K to shell out for compliance if they are not already set up? I think this is one great thing about Stripe or any other service that takes care of PCI for you.

However, I am not too fond of these all-in-one packages touting horrible percentages and interchange fees. Our company was able to negotiate fees using Level II and III because we dealt with predominately B2B and corporate cards. We saved 50K one year! 2.9% IS freaking insanely high. Could you imagine we were just throwing away money because of one tiny detail that these big banks won’t care to tell you– because they don’t have to. And yes we have someone entering the credit card details and the system isn’t imbedded as these packages seem to be, but for our business, having control of fees and processing is important to us. It’s all about the bottom line and I think it takes a lot of number crunching and research.

I have an accounting/finance background and experience above comes from working with a $MM designer company. I know this article caters to perhaps a different volume and type of business but I’m just reiterating– really dig into what kinds of processors, gateways, merchant banks, etc out there.

John November 10, 2013 at 1:03 pm

Great article – thanks. I am looking into an alternative payments processor to add to Paypal, now that Google Checkout/Wallet has closed its doors to most physical goods resellers. We are UK-based so Square is not suitable. Stripe certainly sounds like a contender. Having said that, Paypal has been pretty good for us, as was Google Checkout during its brief existence.

5pm Team November 10, 2013 at 1:24 pm

We deal with subscription (recurring payments). While Google Checkout “kind of” supported it (in some perpetual beta mode) – when we tried to implement it, we found out that it’s not a working solution. For example, we were not able to figure out how to handle upgrades from one plan to another – it looked like it could only be done by cancelling a subscription and opening a new one. So while we found Google Checkout a good alternative to PayPal (prior to Stripe) for one-time payments, we found it not fit for subscriptions.

Nick November 19, 2013 at 2:32 pm

I will be trying out Stripe because they are the only payment platform that is supported by the Leaky Paywall plugin. Hopefully it functions well.

Chris M January 23, 2014 at 6:52 am

How do you find the signups/conversions compare for Stripe vs Paypal? We used to host our own payment pages but found that people converted better when using Paypal’s checkout.

Chris.

Craig January 30, 2014 at 11:14 am

I have look at the Stripe and found you have to send the data on to you server then to there to be safe. The Stripe.js and Checkout widget should not be use as they run on the client computer and can be easily hack.

Dave February 5, 2014 at 3:26 am

Stripe takes at least a week to clear your funds. That is ridiculous.

5pm Team February 21, 2014 at 8:06 am

You just sign in into this blog

Dave March 13, 2014 at 6:28 pm

7 days is not bad, considering the upsides.

Kwame Gondwe March 16, 2014 at 9:44 am

7 Days is just fine. Amazon takes 14Days. Yes, a whole fortnight. No worries about checking out conversions and stuff. I recommend and agree with a post above, use SSL, the majority of customers really checks this green and https sign. Add a nice About Us page and Secure Shopping features and you are good to go.
I was about to pay £75 one off plus £58+ monthly subscription fees excluding merchant account fees which i am not yet aware off before I just chanced on STRIPE somewhere doing something else unrelated. What a FOUND. Paypal sucks. Who doesn’t know paypal sucks?

Sahar March 19, 2014 at 4:28 pm

James,
Can you please elaborate on the Level I & III negotiations given B2B integrations.. etc for your business ? I agree 2.9% is very high

Andre March 30, 2014 at 10:12 pm

Would NOT recommend Stripe… I’ve recieved the message below from them. Stripe is currently holding our funds, does not reply to any messages indicating that we sell USED products and are not, and can not be, an authorized reseller of either Apple or “Playstation” (last we checked the company is called Sony) when you’re selling USED items. If you had to be an authorized reseller when dealing with used products then places like eBay would have very few sellers.

Hi Andre,

Thanks for signing up with Stripe! It seems like you’re reselling fairly popular brand name products, such as Apple adapters and Playstation controllers. In these instances, we need to ask for confirmation of your authorized reseller status for Apple and Playstation. Can you send us documentation that can confirm your reseller status? Sorry for the hassle — we know it’s frustrating when a few bad actors make it more difficult for legitimate businesses, but we will need to complete this step before we can transfer payments to your bank account.

Best,
Dale

5pm Team April 3, 2014 at 11:04 am

Stripe update: Now funds are not held for seven days anymore, just one.

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