🎓 Critical Concept: Merchant of Record (MoR) vs. Payment Processor
Before choosing a tool, you must understand your legal burden. Most beginners confuse these two terms, leading to tax nightmares later.
- Payment Processor (e.g., Stripe, PayPal): They simply move money from the customer's card to your bank account. However, YOU are responsible for calculating and remitting sales tax (VAT/GST) in every country where you sell. This offers lower fees but higher administrative work.
- Merchant of Record (e.g., Paddle, LemonSqueezy): They technically "buy" the product from you and resell it to the customer. They handle all global tax compliance and liability. They charge higher fees (often 5%+), but they save you from hiring international accountants.
For this comparison, we are focusing on Payment Processors, which are the standard for most businesses utilizing 🛒 Best E-commerce Platforms like Shopify.
The Titans of Fintech: Deep Dive Reviews
Stripe
Best for Growth & SaaSStripe is the gold standard for modern internet business. It is not just a gateway; it is a programmable financial infrastructure. Developers love it because its API (Application Programming Interface) is flawlessly documented, allowing for deep customization. If you are building a subscription-based model or a marketplace, Stripe Connect is unrivaled.
However, this power comes with complexity. Stripe is strictly unforgiving regarding "High Risk" businesses. If your chargeback rate exceeds 1%, they may freeze your funds instantly. It integrates seamlessly with almost all tools, including top-tier 📊 Project Management Software for automated invoicing.
✅ The Good (Profit)
- 135+ currencies supported instantly.
- Best-in-class checkout UI (increases conversion).
- Comprehensive radar for fraud detection.
❌ The Bad (Cost)
- Technical knowledge required for full potential.
- Strict account bans for "risky" behavior.
PayPal
Best for Trust & ConversionPayPal possesses something no other gateway has: Consumer Trust. Many shoppers will only buy if they see the PayPal logo because it guarantees them "Buyer Protection." Adding PayPal as a secondary payment option can increase checkout conversion rates by up to 40%, especially for new brands that haven't established a reputation yet.
The downside is the cost and the "draconian" control. PayPal's fees are generally higher than Stripe's, and they are infamous for holding funds for 180 days if they suspect any unusual activity, which can kill a small business's cash flow. It is a necessary evil for retail, often used alongside 💡 Low Cost Business Ideas that rely on quick sales.
✅ The Good (Profit)
- Massive user base (400M+ active wallets).
- No-code setup; easiest to start.
- One-Touch checkout boosts mobile sales.
❌ The Bad (Cost)
- Aggressive fund holds (up to 6 months).
- Redirects customers away from your site (Standard plan).
Wise (formerly TransferWise)
Best for International FreelancersWise isn't a traditional merchant gateway like Stripe, but for B2B contractors and agencies, it is the superior choice. Why? Exchange Rates. Traditional banks and PayPal hide huge fees in the exchange rate (often 3-4% markup). Wise gives you the "Mid-Market Rate" (the real rate you see on Google) and charges a tiny transparent fee.
If you are working via 💼 Best Freelance Platforms like Upwork, receiving payments directly into a Wise multi-currency account can save you thousands per year in conversion fees compared to direct bank withdrawals.
✅ The Good (Profit)
- Lowest currency conversion fees (approx 0.5%).
- Get local bank details for US, UK, EU, etc.
- Hold 50+ currencies at once.
❌ The Bad (Cost)
- Not a checkout gateway for e-commerce carts.
- Manual invoicing required for clients.
Financial Showdown: The Cost of Doing Business
| Feature | Stripe | PayPal | Wise (Business) |
|---|---|---|---|
| Transaction Fee (Domestic) | 2.9% + $0.30 | 3.49% + $0.49 | Variable (Very Low) |
| International Fee | +1.5% Fee | Huge Markup (4%+) | Mid-Market Rate + ~0.43% |
| Payout Speed | 2-7 Business Days | Instant (to PayPal balance) | Instant or 1 Day |
| Chargeback Fee | $15.00 | $20.00 | N/A (Bank Transfer) |
| Ease of Integration | Developer Friendly | Plug & Play | Manual / Invoicing |
🕵️ Hidden Fees Exposed: What They Don't Tell You
The pricing page never tells the full story. Here is where your margins actually disappear:
- The FX Markup: When a customer pays in Euros and you receive Dollars, PayPal often takes a 3.5% - 4.0% "Currency Conversion Fee" on top of the transaction fee. Stripe usually charges 1% + 1%. Wise is the winner here.
- Cross-Border Fee: Even if the currency is the same (e.g., USD), if the customer's card was issued in a different country, Stripe and PayPal add an extra 1% - 1.5% fee.
- Refund Fee: In the past, when you refunded a customer, you got the transaction fee back. Now, Stripe and PayPal keep the fee. If you refund a $100 order, you lose the $3.20 fee forever.
Financial FAQ
Which gateway is best for dropshipping?
Stripe is generally preferred for dropshipping due to its seamless integration with Shopify and WooCommerce. However, dropshipping is considered "high risk." Always keep tracking numbers updated to prevent bans. PayPal is good as a backup but beware of holds.
Can I use all three together?
Yes, and you should. A standard setup is to use Stripe for credit card processing (primary), PayPal as an alternative wallet option (for trust), and Wise to pay your own international suppliers or receive B2B payments to save on FX fees.
What happens if my Stripe account gets banned?
This is a major risk. Always have a "Merchant ID" backup. Consider high-risk merchant accounts if you are in a sensitive industry. Never keep all your revenue inside the gateway; withdraw daily.
Final Verdict: The Smart Money Move
For E-Commerce
Stripe + PayPal. You need Stripe for the professional onsite checkout and PayPal to capture the users who are too lazy to enter their card details. Absorption of the fees is the cost of higher conversion.
For Freelancers
Wise. Do not use PayPal for large client contracts. You will lose ~4% in fees. Use Wise to give your client local bank details (ACH/IBAN) and keep your hard-earned money.
> Negotiate Rates: If you process over $50k/month, contact Stripe Sales. You can often negotiate the 2.9% down to 2.2% or lower.
> Turn off Auto-Currency Conversion: On PayPal, ensure you bill in the currency you want to hold, or set your card issuer to handle the conversion, not PayPal.
> Separate Accounts: Never mix personal and business funds. It makes accounting impossible and pierces your corporate veil.