Paypal vs. Gumroad vs. Stripe – The Battle of The Payment Processors

By Leslie Samuel | Business Building

May 25

If you’re building an online business where people are paying for products or services, you’re going to need a payment processor.

Nobody is going to show up at your office or home and hand you cash. In fact, many of your customers are probably sitting at home in their jammies making purchases.

There are tons of payment processing services out there and it can be overwhelming to figure out  the best choice for each situation.

I’ve done a lot of research on this topic and have narrowed my findings down to three payment processing solutions; and I use all three for different purposes.

In this article, I’m going to discuss the pros and cons of Paypal, Gumroad and Stripe and explain how each works best for different scenarios.  Let's do this.

PayPal

05_25_Payment-Processors_PinterestWhether you like them or not, PayPal is the Godfather of payment processing; one of the first to come on the scene. When people think about online payment processing, this is almost ALWAYS an option that is considered, and in most cases, the option that many solopreneurs choose.

PayPal came on the scene as a way to send money via email, and has grown way beyond it’s original purpose.

People were initially drawn to PayPal because you weren’t required to create a merchant account or pay monthly fees. You’d only be charged a fee when someone sent you money, and the fees were pretty nominal.

Today, when someone purchases something from you, you are charged 2.9% of that transaction + $0.30, which is relatively low.

Also, depending on your volume of sales, those fees can go down to 2.2%.

Another plus to PayPal is that purchases can be anonymous. I can purchase something as “Leslie Samuel”, as “That Guy With A Blog” or as thatguywithablog@gmail.com, depending on how I set my account.

This anonymity played a big role in PayPal’s growth, especially at a time when people were uncomfortable entering credit card info onto a stranger’s website (understandably so).

It basically gave a layer of protection against fraud that was beneficial for the average consumer.

Paypal-Page

The main downside I’ve found in PayPal is that they are notorious for placing holds on accounts for various reasons. I’ve had my account placed on hold for about a month. I was able to receive payments but not withdraw payments made to me. As you can imagine, this can be inconvenient when you have bills to pay.

I’ve also had other minor incidents which involved someone filing a dispute on a payment they made. Paypal would place a hold on those transactions and almost always sided with the purchaser, whether or not they were in the right.

All in all, I present Paypal as an option to my customers because it’s still the payment processor of choice for many people; but I absolutely hate using it since I like being in full control of my business.

Because I don’t fully trust PayPal, I try not to keep a lot of money in there. At the end of the day, if I have more than $500 in my account, I withdraw and deposit the money in my bank account – just to be on the safe side.

Check out Paypal

Gumroad

This is a serviceI started using when I began selling a Physiology Study Guide on my Biology Blog. Like PayPal, Gumroad doesn’t charge a monthly fee, but their processing fee is higher than PayPal’s.

Their fee is 5% + $0.25. However, the reason they charge more is because they do much more. PayPal only accept payments. You have to have a different system, or create a system for delivering the goods.

With Gumroad, you upload your product (in my case, an eBook) to Gumroad, set your price, connect it to your bank account and that’s it!

Gumroad-Page

They will accept the payment for you and deliver the digital product to your customers. Two days later, that money is direct-deposited into your bank account. Your involvement in the process is absolutely zero after the initial setup.

The key here is ease of use. I started using them because I didn’t want to think about the potential issues that arise when setting up a shopping cart and using self-hosted solutions for delivering products.

Since setting up my eBook on Gumroad, I haven’t done anything but see payments come in. It’s just that simple. You set it and forget it. You’re only involvement occurs if a customer is having a specific problem or question and they need direct contact with a real human 🙂

If you have a simple digital product, like an eBook, that you want to sell, this is  the route I recommend.

Check out Gumroad

EXCITING NEWS: I was just informed that Gumroad has launched an affiliate program. You can easily add individuals as affiliates, specify commission levels and they can immediately start promoting your products. This is HUGE. Click here to read more.

Stripe

As stated in their “about” page, “Stripe is a developer-friendly way to accept payments online and through mobile apps”.

That’s exactly what they are. If you want to accept payments directly on your website, you’d typically set up a merchant account. This is a special type of bank account that allows you to accept online payments.

Stripe-Page

You also need a Payment Gateway – a kind of e-commerce service that does the payment authorization. These two services work together making it possible for you to take payments on your website (without having to resort to a service like Paypal).

There’s usually an application and setup process to get everything working together correctly.

I did this once. I used authorize.net and some other services that came along with it and was so confused with the instructions and fees that I decided to run away – tail tucked between my legs.

Then I heard about Stripe and fell in love. The fee structure is similar to Paypal – 2.9% + $0.30. Also, the setup process is pretty easy. However, you do need some kind of shopping cart system that integrates with Stripe.

Fortunately, most of the good shopping cart systems integrate with Stripe. I use Amember to manage my membership site and accept payment; and since Amember integrates with Stripe, this combination has become my payment solution of choice.

Combining Amember with Stripe does require a SSL certificate on your server and that usually comes with an additional annual cost determined by your hosting provider. So if you decide to go this route, make sure to look into SSL certificates. This means people will feel safe entering their credit card information on to your website.

One of the additional reasons why I’ve decided to go with Stripe is because it integrates with services like Hookfeed, a program which gives you  all kinds of awesome customer insights like the lifetime value of each customer and Intercom, a service I  use to increase engagement inside my member areas.

Check out Stripe

Your Payment Processor

These are the three payment processors I use and the reasons why I use them. They all serve slightly different purposes but have similar results –  getting paid.

What about you? What’s your payment processor of choice and why do you use them? Let me know in the comments area below.

Infographic

05_25_Payment-Processors_Infographic_

  • Thank you for this information. I had been pondering which would be best for my business. As usual you’v been most helpful.

  • Kerwin says:

    Leslie, nicely done here.

    I used to use Payloadz.

    I now use Gumroad and love it. I love the fact that you can do pay as much as you want, plus you can easily add a bonus. You can also do free for a limited quantity so it’s very robust.

    I’m perhaps ditching PayPal soon for stripe in my membership sites as well.

  • Elias says:

    This article is incredibly helpful and amazingly punctual.
    I’m wondering if you’d have any advice or first-hand experience with bookkeeping software and if you’d even recommend using it.

    Thanks for creating, sharing and caring, Leslie!

    Kind regards,
    Elias

    • I’ve used Quickbooks and that one is pretty good. However, now I use Mazuma for all of my bookkeeping and accounting. They take care of everything.

  • Tom Miller says:

    I only used Paypal. This is a helpful article with super information. Thanks for sharing this.

  • Kathy says:

    Thank you for this article. I use stripe now but only because when I tried to signup on paypal, they wanted to see my business account information? I probably just talked to a confused rep? I told them I am a sole proprietor, but they wanted to see my business registration.

  • Peter says:

    I guess the problem with all of these processors is the lack of protection for sellers. Without 3D Secure merchants really are at the mercy of any fraudulent purchaser.

  • Manu says:

    Great post Leslie. I have been using Gumroad to sell my digital program for a while now and very happy with it. The only complaint I have is that it doesn’t offer an affiliate program. Any thoughts on affiliate management programs with a similar smooth interface?

  • Niklas Goeke says:

    Hey Leslie,

    this is the exact info I needed! Even better to find this through Google (stripe vs gumroad).

    I just remembered I listened to your podcast with Pat Flynn and I was genuinely impressed. You’re a very nice and down-to-earth guy.

    Anyways, this helped me confirm that I’ll use Gumroad for my first digital product.

    Cool infographic also, I’ll share on Twitter 🙂

    Keep up the great work Leslie!

  • heartcentered says:

    I’m selling educational audio through a website hosted on Squarespace. I’ve got Gumroad all set up to open as a lightbox for purchasing with each product, but am now rethinking this strategy. Stripe is completely integrated with Squarespace if I want it. However, I would have to bump up to a $26/month business membership to do commerce through Squarespace. By integrating Gumroad, I get around this and can keep my membership at the basic $8/month. But with Gumroad’s 5% + 25¢ per purchase, is this the best option? I’m just starting out. What do you think? I’d love to hear your input! Thanks!!

    • If you’re just starting out, I would recommend switching to WordPress. Why? Because you aren’t charged more based on what you integrate it with. It’s your site to build and control as you wish. Since you’re just starting out, I think it’s worth doing it now. You should check out my free course.

  • Nick says:

    Just a word of warning about Gumroad, there’s a chance they will suspend your account permanently, and when you inquire as to why you will only get a vague canned response mentioning “suspicion of fraudulent activity.” There is no contact phone number and you’ll be left hanging with no clue and a banned account.

    This is what happened to my business partner and I.. our account was active for about 2 days, we hadn’t sold any products yet, and we didn’t even have any for sale when we were suspended. I can assure you we weren’t doing anything fraudulent and didn’t violate the TOS.

    Here is the response from them:

    Our risk models detected behaviors in your Gumroad account that are considered, in the payment processing industry, to be fraudulent or correlated to fraud – to be sure, we apologize for the negative connotation that the word “fraud” has.

    You can learn more about how we handle fraud here:
    https://help.gumroad.com/11169-Creator-FAQ/what-is-considered-fraud-on-gumroad

    Due to the strict regulations by our business partners, we have suspended your account and will not be able to continue working with you. I would recommend contacting your clients to find a different means of payment.

    All payments in your balance will be refunded to your customers.

    We are constantly working on expanding the array of industries we can service. It is our hope that in the future we can help business such as yours.

    The last sentence is just trite salt in the wound.

    This is all probably due to some fraud detection system that gets fooled into producing false positives, but you don’t even have the option to discuss it with anyone.

    There are other instances of this happening to people online.

    Potential user, be warned..

  • Marilyn Smith says:

    Can you tell me which program asks the customer to input the LEAST amount of information? We are nervous that gumroad has them fill out a page full of information before they can checkout? Do you know how that compares to the information the customer has to fill out with e-junkie?

  • kathy martin says:

    Leslie,
    Great article! Great details and feedback! Given all that you know now, which of the 3 would you choose? I need to make a decision on which service to use and would love your opinion!

  • Gidon Ariel says:

    nice article and even nicer engagement with commenters:-)
    I have been using gumroad for a few months and am very satisfied with it.
    I have been using paypal for about 2 years (in my current focus business) and have found than about 2/3 of my potential customers don’t like it and wont use it!
    I am thinking strongly now about changing my business model to a store, and would like a cart, which I understand Gumroad does not offer. Have you got a suggestion for me?

  • Herman says:

    I was trying to decide between stripe and gum road to accept donations on my client’s site and found your article. It looks like I need to purchase an SSL cert and get access to their merchant account whereas with stripe I would just need to direct deposit into their bank account..is this correct?
    If so I’m thinking Gumroad would be the easiest to implement? Thoughts?

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