The paper deals with the problem of Pay Pal and conventional merchant accounts as a part of e-commerce. At the beginning Pay Pal is compared to other normal merchant accounts. Then it is briefly analyzed and main advantages and disadvantages found out. Finally, future prospects of Pay Pal are analyzed.

Nowadays, commerce is characterized by implementation of new technologies, particularly the most modern and progressive. It is the result of a rapid development of technologies and science that made possible progress in commerce and changed it practically completely. That is why traditional ways of commerce are now if not in decline than gradually replaced by new methods and technologies that have never been used before. Probably the most dramatic changes take place in the merchant accounts because due to the development of informational technologies, rapid growth of Internet, and computerization electronic or more precisely online merchant accounts not only become a usual thing but now tend to replace traditional merchant accounts. Though it is obvious that it cannot be done in one day. Certainly it would take some time and finally, nobody can say for sure that conventional merchant accounts would be completely replaced by online merchant accounts. At the same time, the development and successes of such systems as Pay Pal, which is a leading power in merchant type account transactions online, as well as others alike, make those who believe in a prosperous future of e-commerce full of optimism. That is why, in terms of this paper, an attempt to critically analyze the prospects of Pay Pal will be done as well as comparison of Pay Pal and conventional merchant accounts, its history and benefits. Naturally, it would be not an easy task and it is impossible to foresee the future but at least the trends and prospects may be found out that permit to say whether Pay Pal is just a temporary phenomenon or it is a serious competitor to the future of the market of merchant accounts.

History of Pay Pal vs. Normal Merchant Accounts

In order to understand what is going on with merchant accounts both Pay Pal and traditional it is necessary to look back at the history and understand the entity of the problem. To fulfill this task it is necessary to understand basic principles of normal merchant account and Pay Pal as a leading merchant account online. Furthermore, the difference between traditional merchant account and Pay Pal has to be clear.

First of all, it would be better to dwell upon conventional merchant account in order to understand the current situation and recent trends that are now observed. Speaking about conventional merchant accounts it has to be said that initially they were used to permit clients to buy goods or pay for different services with the help of their credit cards. Traditionally, merchant account processing services are provided by a bank or a third party to the merchant. These services include a lot of activities from the part of the bank. Basically, it includes authorization of credit cards, settlement of funds through the bankcard associations, such as Visa and Master Card. Also it implies depositing of funds to checking accounts, merchant billing, as well as account activity reporting. Furthermore, conventional merchant accounts permit to verify checks and buy goods, pay services, or make transactions with the help of e-commerce. The latter is, by the way, quite perspective and probably at this point the competition between Pay Pal and conventional merchant accounts would be the strongest and most dramatic.

Obviously, the information given above is not enough to understand the entity of merchant account processing. There is a link that is missed, it is the merchant account provider, i.e. the company that serves as a link between small businesses and credit card companies. Traditionally, when a person, or a company want to start business online with the help of merchant accounts it is necessary to firstly sign up that creates certain demands to the user. First of all, in the majority of cases users have to pay various fees, such as a software fee, one time set up fee, a monthly minimum charge, discount rate or percentage of total sales per month, a per transaction charge and many others. Actually, fees may vary depending on the merchant account provider a person or a company chooses. Traditionally, when it is supposed that there would be a processing of a great number of credit cards it is strongly recommended to use conventional merchant account.

However, there is an alternative that may be suggested and naturally, this alternative is Pay Pal. Traditionally, Pay Pal is recommended to use by small businesses since costs are relatively low here. Pay Pal is probably not so user-friendly as merchant accounts are but in its turn Pay Pal does not demand neither setup nor monthly fees, while the credit card information remains relatively more secure.

Basically, it may be said that both Pay Pal and conventional merchant accounts coexist normally now and probably will continue to do so. One of the reasons that explains such a situation is a different orientation of Pay Pal and conventional merchant accounts. Pay Pal is traditionally oriented on and is used by service businesses, e-Bay auctioneers, and international merchants while conventional merchant accounts are probably the best solution for serious retailers since the only thing their customers need is the credit card and the speed of transactions is quite fast that is extremely important for retailers.

So, finally, it is necessary to find out why merchant accounts and Pay Pal really so necessary and what are their positive and negative sides in comparison to each other.

Speaking about merchant accounts, they, compared to Pay Pal, suggest smaller percentage charge per transaction. Another advantage of conventional merchant accounts is the speed of transactions that is said to be practically instant. Furthermore, the user has a special instructions messaging and order-confirmation e-mails as well as the user is provided with customized reporting. However, conventional merchant accounts have a number of inconveniences. For instance, users have to pay a setup fee and monthly fees are traditionally applied to merchant accounts.

As for Pay Pal, its advantages would be analyzed in details further in the paper and here there would be only a few words about it in comparison to conventional merchant accounts. Probably the first advantage of Pay Pal over merchant accounts is the absence of setup and monthly fees. Pay Pal is also quite fast, easy in use and relatively more secure. One more advantage of Pay Pal is its ability to accept payments regardless their size, it means that payments may be of any size that in certain cases may be very convenient. Furthermore, credit cards may be accepted through Pay Pal as well as in conventional merchant accounts. Finally, Pay Pal is an alternative to accepting checks for payments for different goods and services. However, the user of Pay Pal has to pay a higher transaction fee and it is less user friendly than conventional merchant accounts. Consequently, both conventional merchant accounts and Pay Pal have their own advantages and disadvantages compared to each other but still it makes them quite competitive and popular among different customers and users.