Think Mac‘s Rory Prior mentions that he’s switching from eSellerate to PayPal as his business’s payment provider. In a further post, Lowering Costs, he does a very useful comparison of different payment providers.

As you can see from Rory’s table, Kagi and eSellerate come out the same on modest annual sales. However, not mentioned is that Kagi actually offers incentives if you sell more in contrast to eSellerate’s attitude of taking 15% rather than 10% when your annual sales hit $15K. PayPal also offers incentives for higher sales.

I did a similar comparison before setting up this business and chose PayPal. However, during the first month or so some people said they couldn’t or wouldn’t use PayPal. At the time it may have been a requirement to become a PayPal member in some countries before PayPal would accept payment, and not all countries were covered (I don’t think that is an issue today). I had long been a member of Kagi, so added them as a choice. Kagi also has advantages if you’re selling to schools and such, as they will accept almost any form of payment apart from bartered cattle.

I was able to offer both Kagi and PayPal without too much hassle as both of these can contact your server when a payment is made, allowing you to generate and send registration codes. I rolled my own registration system, Rory will be switching to Aquatic Prime. I think it is highly recommended to have a registration system that is not tied to one particular payment provider, since you do not know what the future will bring. All this takes time, however, which is when payment providers’ own systems start to look attractive. But with them comes some measure of lock-in.

There are other fees involved in taking payments too. As I don’t live in the US, I have Kagi wire the payment to me. This used to be $30 but is now $15, making it cheaper than cashing a foreign cheque at my bank, which is £10, or about $17.50 and has the advantage that I get it in 2 or 3 days, rather than 7 to 10. Another consideration with PayPal, if your are selling in US Dollars but that is not your native currency, is that its exchange rate is a little lousy. Even so, the net amount still beats Kagi.

The best thing about PayPal is that you can get your hands on your money whenever you want. Kagi waits until the 21st of the following month to issue payment. So, if I sell a copy of Feeder on March 1st, that payment won’t be sent out by Kagi until April 21st and won’t reach my business account until around April 23rd.

Other things to consider with payment providers are situations such as refunds. With PayPal, you can issue a refund up to 60 days after the payment was made for no fee, right from your account page. With Kagi, if a customer wants a refund, they have to contact Kagi, who contacts you and informs them of your decision – it feels very cold. Kagi keeps its transaction fee regardless and refunds the customer the whole amount, the only person who loses is you. I’ve had this happen when someone chose to buy KIT when they meant to buy Feeder. I was the only party who suffered.

Another advantage that Rory’s first post reminded me of is that European customers don’t need to pay VAT if they use PayPal. This is because PayPal leaves the decision to charge VAT to me, and I am sole trader whose turnover is less than £55K a year (the UK VAT threshold), so I don’t need to charge it. Kagi and eSellerate automatically charge VAT for European customers. That makes me angry.

With all that in mind, I can definitely recommend PayPal to anyone selling software or taking payments over the web.

This entry was posted on Friday, January 13th, 2006 at 7:22 pm by Steve Harris and is filed under Software Development. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.