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 2 days
Available worldwide Available to sellers in US, Canada and 11 more countries**

 * Stripe: “We start offering volume discounts for companies that are on track to do a million a year”
** https://stripe.com/global

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 = ?

{ 4 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
John Jesensky
August 7, 2014 at 9:36 pm

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