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Dwolla vs PayPal vs Stripe: A guide to e-commerce payments

Online shopping has never gone so viral as now. Thousands of small businesses are forced to create or switch to online stores because of COVID-19, and eventually, they win from such a decision. After all, it is convenient to get instant payments and skip all the financial routines that come with paper checks.

Hopefully, now, there is no need to build an entire system from scratch to set the purchasing or checkout process. You can use ready solutions for online payments. But the problem is, all payment gateways work differently. They provide different conditions, transaction fees, counties or credit cards coverage, etc.

Knowing how the payment gateways work, what you need, and what will work best for you - is key. For this reason, I reviewed some of the best online payment platforms and made an unbiased comparison.

In this article, you will learn: how online payment solutions work, key things to take into account while choosing one, and comparison of some of the most popular and trusted platforms nowadays.

Payment gateway comparison

The choice of an online payment system is a thorny issue. When you lack information on how these systems work, and what they offer, you are unable to compare them properly. But often a hit-or-miss choice ends up with negative outcomes like unexpected processing fees, high transaction costs, weak security, no usability, and even more.

To make the right choice, you must first do research. Sure, the domain of payment gateways can be difficult for newcomers - lots of complex terms, hours of googling information. To bring you more clarity, I prepared a checklist of things that are necessary to know. They include both explanations of the terms and some other particularities of online payment systems to take into account.

How do payment systems work?

A good question to clarify right from the start. Technically, a payment service provider allows you to run payments through one merchant account that is registered with a processing bank. Also, a payment aggregator gives you a license to process payments through their merchant account.

This model is very simple because no direct interaction with the processor from your side is needed. You also skip the necessity to use a merchant ID number. Since online payment systems provide you with a separate account to use theirs, you become a sub-merchant.

Two payment methods

Typically, there are two payment methods:

As a rule, a system handles one, and more rarely both types. That’s why, to make the right choice, you need to take into account the preferred payment method for your customers.

What type of cards the system can process?

The next factor you should take into account is the type of cards preferred for your customers. Almost every system can accept popular cards like Visa or Mastercard. But only a few can process rare or exclusive types, like American Express or UnionPay.

How can you integrate the system?

What the process of integration may look like, and what do you need for that? Usually, there are two options:

White label or not?

White label means you can use the systems’ features for your own brand. This opportunity is good for those who do not want to invest in software development, PCI DSS certification, and more. Everything is included in the online payment system, and you can legally customize all its features for your needs.

Security

Trust is a determining factor for any electronic payment solution. To keep your payments secure, be sure you choose the system that uses SSL protocol, PCI compliance, Tokenization (encrypting all data, replacing them with tokens (markers). Also, it is beneficial if the system has 3D Secure authentication, Address Verification Service, also known as AVS.

Transaction fees

Transaction fees are paid by the seller, and the buyer isn't forced to pay any fee. That’s why it is important to know how they are built. As a rule, you pay a flat processing fee per transaction, an established percentage from each purchase, or a combination of both charges. Premium features usually go with monthly fees.

Now you are ready for comparison. Below you can find most popular solutions in terms of transaction fees, supported platforms, pros and cons, and any other features you should know.

Dwolla

General description

Dwolla is an ACH bank transfer that lets users link bank accounts manually or via an automatic, almost seamless process. Technically, it is an API that sends all data (requests) from your client to a separate server to process digital payments. You can customize it as per your needs and integrate it into any application or web store.

At first glance, everything is perfect about this payment gateway service: satisfying user experience and flexible customer management, security(lots of protocols), proper account verification, most importantly low fees (lower than in PayPal). But for sure, there are some pitfalls as well. Let’s take a closer look at Dwolla.

Supported platforms

Transaction costs

You don't pay anything if your transaction is under $10. All other transactions have standard fees, that is $0.25. For instance, if you accepted 10 transactions worth $100 each, you should pay $2.50 fees.

For businesses that handle numerous transactions per day, Dwolla offers different pricing models. And although they don’t include interchange costs at all (that often comes with credit cards) they aren't cheap.

Pricing models offered by Dwolla:

You can use Dwolla’s calculator, to estimate how much a certain transaction will cost you.

Advantages

Dwolla uses high strategies for data protection such as encryption and tokenization, SOC 2 Type II, OAuth 2 standard for API authentication, and authorization.

You can legally use all the features developed by Dwolla to create your own brand.

It has lots of features to customize the unique visual appearance of your brand.

For developers, no extra work is needed - just to configure three endpoints (+ there is good documentation). The most appealing part is that all the work done by Dwolla will not interfere with your functionality, it will work separately.

You can conduct multiple instant payouts in near real-time, even on holidays (up to 5,000 payments at once).

Dwolla allows you to use the dashboard to monitor transaction activity in real-time and receive notifications as events happen within your marketplace.

Disadvantages

Dwolla doesn’t support credit or debit card processing at all. Compared to other payment services that offer a mix of credit + ACH payments, this is obviously a drawback.

You can't make an account with Dwolla if you're located outside the United States. Moreover, you can't make payments if both the sender and receiver aren't using Dwolla. That’s why this option isn’t suitable for international sellers.

PayPal

General description

The most frequently used option around the globe. The system is constantly updated and doesn’t lose its reputation on the market over years. Available in 203 countries and 25 currencies, it works both for website payments and payments by email (invoicing).

When comparing Dwolla vs PayPal, the main difference is a way of accepting money. PayPal is a card processing solution, and it doesn’t process ACH bank transfers. Instead, it lets customers send money via a wide range of credit cards (Visa, Mastercard, American Express, Discover, Venmo, and more).

To start invoicing customers by PayPal, you need to create an account and customize features as you need. Also, you need to activate Instant Payment Notifications (IPN), and then set a URL for the IPN listeners to create a notification feed to keep track of transaction events as they go.

Supported platforms

Transaction costs

PayPal has no monthly fees or startup costs, but requires payment fees. In-person sales via a card reader require 2.7% + $0.30 per transaction. Any other transactions go with 2.9% + $0.30 fees. A standard card reader is free, and a more advanced one is $79.99.

Advantages

You pay only transaction fees.

PayPal encrypts all customers' data using secure sockets layer (SSL) protocol technology with 128-bit encryption. It also stores that data on servers that are not directly connected to the rest of the web.

PayPal covers a great amount of credit cards, countries, and currencies. No doubt, it is a good option to sell products worldwide.

PayPal offers a seller protection policy that may cover losses for products lost or damaged in shipment or from a chargeback.

Disadvantages

PayPal is known for shutting down accounts without warning (sometimes even for six months or longer). This happens in case of volume changes or chargebacks in your account or anything else that PayPal may consider as suspicious activity.

Square

General description

Square is another popular online payment system for e-commerce projects. For one side, it is similar to PayPal because it is also a Credit Card Processor that covers a whole range of card types (Visa, Mastercard, American Express, Discover, JCB, UnionPay). Besides, it accepts Apple Pay, Android Pay, and eWallet payments (which PayPal doesn’t).

If to make a Square vs PayPal parallel, both require the card reader and POS for accepting money. However, in Square, it is 100% free. Square, just like Dwolla, provides a developer-friendly and easy to integrate API. All you need is just to configure a couple of endpoints.

Supported platforms

Transaction costs

Square maintains the same amount of fees as PayPal, which is 2.9% + $0.30 per transaction. When it comes to manually keyed-in cards, then transaction fees are 3.5% + $0.15 per transaction. That means you only pay a flat rate regardless of the credit card type.

The huge advantage is that you don’t have to pay monthly, chargeback, early termination, or PCI compliance fees. To make a quick estimation of the amount of possible fees, you can use Square calculator.

Advantages

Square complies with all PCI regulations and leads the industry with technology and security protocols, including end-to-end encryption.

For example, Square uses machine learning to spot and block payment fraud and secure businesses of all sizes. Such tools allow to get insight into payment fraud patterns, and set custom rules and alerts to manage risk.

Just like with Dwolla you can configure everything as per your needs. It goes with fast setup, free POS software, and many other equipment options you can use to create a unique design and set of features for your online store.

Unlike other online systems, Square is not a standalone solution, it offers a set of e-commerce tools. These tools help you to get detailed reports and generally have a big picture of what is going on with the payments in the store.

Disadvantages

Just like PayPal, Square may lock or limit accounts for general suspicious activity. Funds may be preserved for several weeks or even months.

Stripe

General description

Stripe is an end-to-end card processor with an aim to eliminate the need for a merchant account and gateway. This means everything is handled by Stripe, from collecting payments to sending those payments to the bank (including ACH payments and even Bitcoin transactions).

If you compare Stripe vs Square, the difference is in the types of payment options that they accept. Stripe is a total winner because it accepts all possible credit cards, debit cards, international cards, wire transfers, and even ACG direct debit and credit (a feature Square doesn’t have).

This makes Stripe vs PayPal parallel a bit equal because both have huge coverage globally (Stripe covers 135+ currencies and 35+ countries).

Supported platforms

Transaction costs

Similar to PayPal, Stripe has a card processing fee 2.9% + $0.30 per transaction. If you want to accept worldwide payments, then fees will be 3.9% + $0.30. ACH transaction fees are 0.8% with a $5 cap. No monthly fees are needed.

Advantages

It works with all types of currencies, banks, and credit cards and can be introduced in any type of online platform.

Stripe is focused on developers, so it has extensive documentation, written in a simple language, so anyone can understand its API, products, and features. The documentation also contains ample ready-made solutions for the various programming languages, as well as possibilities for online payment software solutions testing and customization for Stripe gateway.

Accept payments from the iOS app, Android app, or mobile websites.

Your money is automatically sent to your bank account every few days, so you don't have to manually log in to Stripe to withdraw your account balance.

Disadvantages

Stripe requires technical skills or developer resources to customize. Though the documentation of this payment gateway is simple enough, you’ll still need to perform some coding to make it all work properly.

Conclusion: What Should I Use?

The reality is, there is no perfect solution. Everything depends on how you run a business, how you sell, what is the number of products you sell, what your monthly volume is, and more. The right payment solution depends on variables that are obviously unique to your business.

Here are key takeaways on each of the platforms:

Not sure how to build engineering teams for e-commerce projects, online stores, or any other software products? Altigee helps projects of all ranges to skip the routine of technical hiring and team management.

Reach out to us, and we will help to find the most proper fit for your requirements.



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Altigee is a software development company fueled by ridiculously competent software development pros who are crazy about their job and hungry for challenges.

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