why-you-should-never-use-paypal-for-subscriptions

Why You Should Never Use PayPal for Subscriptions

You are looking for an easy way to manage user subscriptions to your products, and are thinking of using PayPal. At first glance, this seems like a fantastic idea: After all, PayPal is one of the most widely known payment services.

However, the most obvious option is not always the best one. There are some significant downsides to using PayPal to manage recurring payments from users.

Here is the roundup on why you may want to choose a different provider for your subscriptions.

Payment Gateway Comparison Chart

Complex Set-Up

Setting up a subscription in PayPal is far from straightforward. Users are forced to leave your business’ application and log in to PayPal.

This, in turn, assumes that they are not only familiar with PayPal and how it works, but also that they have a PayPal account. Users without an account will be required to create one, which means going through PayPal’s painful sign-up process. Once they have jumped through all of those hoops, they need to get an understanding of how to actually use the service.

You can already sense that all of this will not be great for your conversion rate. If you want to avoid churn, you are better off staying away from PayPal.

Upgrading or Downgrading is Painful

PayPal was never intended to be used for recurring payments, and this is more than obvious in its design.

Most subscriptions have different plans to cater to different user needs. As those needs change over time, a user might want to switch to a more premium or more basic plan. Unfortunately, PayPal offers no transparent way to manage these upgrades or downgrades.

Your only option is to cancel a user’s existing subscription and ask them to authorize an entirely new one. This is not only a huge hassle for both you and your users, but also implies that they might forget about authorizing their new subscription plan and you might lose them as a client altogether.

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Unrequested Cancellations

PayPal subscriptions sometimes get cancelled automatically, for no apparent reason. This is extremely frustrating, hard to keep track of, and creates a large amount of unnecessary extra effort for you.

You need to get in touch with your user and tell them that their subscription was cancelled but you don’t know why, which sheds a rather unprofessional light on your business. Then you need to send them a new link and ask them to please authorize a new subscription in PayPal.

This may create suspicion – why do they need to authorize a subscription they had already confirmed previously? – or make them lose interest in your product. Both of these scenarios are easily avoided by choosing a different payment gateway.

Notifications

PayPal recently launched a new API REST, designed to make integrations with it easier.

However, most sites using PayPal currently still use Instant Payment Notification (IPN) for notifications when a subscription is renewed or canceled. This outdated system unfortunately presents a number of bugs and security flaws, and it is thus preferable to shy away from it.

Support

PayPal’s help section and support documentation are extremely complex and full of contradictions.

The only way to get decent support and fast solutions to your problems is if you are a major account for Paypal – and chances are that as a small or medium digital business, you fall in a quite different category for them.

High Fees

Far from a bargain, PayPal is actually one of the most expensive platforms around right now. If you are conscious about costs, you should certainly be looking elsewhere.

Alternatives

Since PayPal turns out to be less than desirable when it comes to managing recurrent payments, the big question is: Where do you go instead?

There are a number of payment providers on the market now catering specifically to businesses in need of subscription billing. Among the biggest names in this space are Stripe, Braintree and Gocardless.

PayPal Stripe Braintree GoCardless
Monthly Fees $0 $0 $0 0€
Transactions Fees 2,9% + $0,30 2,9% + $0,30 2,9% + $0,30 1%
Countries 200+ 25 44 11
Currencies 25 135+ 130+ GBP, EUR and SEK
Payment Gateway Comparison Chart

Which gateway is right for you depends on your individual needs, but generally speaking, you will want to opt for a service that has been designed with recurring payments in mind, provides great support, and makes managing your subscriptions as hassle-free as possible for you.

Conclusion

Going deeper than just scratching the surface pays off. Researching the pros and cons of different payment providers can be time-consuming, but making this initial effort for your subscriptions can yield enormous benefits in the long run. From lower fees and less hassle to greater user satisfaction and better customer retention, dedicating some time and thought to selecting a truly great subscription management service is a very worthwhile investment.

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* At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.