Last editedDec 20253 min read
Businesses have countless options when it comes to collecting payments, but few names are as globally recognised as PayPal. However, for businesses with subscription models, regular invoicing, or large transactions, a new generation of payment systems is challenging the status quo.
While both GoCardless and PayPal serve the function of moving money from your customer to your business, they do so using fundamentally different payment methods. This difference is the key to understanding which solution is the better fit for your business model.
The fundamental difference: GoCardless focuses on bank payments, while PayPal focuses on card and wallet payments.
When comparing GoCardless vs PayPal, do not overlook the long-term benefit of direct bank payments for recurring revenue. GoCardless’s Direct Debit (or ACH debit in the US) system is typically a more cost-effective and reliable method for collecting repeat payments compared to the card-centric models used by PayPal.
What’s the difference in payment methods?
The core distinction between the two platforms is how they move money:
| Feature | GoCardless | PayPal |
|---|---|---|
| Primary payment method | Direct bank payments (Direct Debit, ACH debit, etc.) and Instant Bank Pay (open banking). | Card payments (Visa, Mastercard, etc.), PayPal wallet balance, and PayPal Credit. |
| Ideal for | Recurring invoices, subscriptions, instalments, large one-off payments. | E-commerce checkouts, one-off online purchases, peer-to-peer transfers, businesses requiring instant payment. |
| Set-up | Customer authorises a one-time mandate to allow future collection. | Customer provides card details or uses their existing PayPal account/balance. |
PayPal: The versatile card and e-wallet solution
PayPal’s key strength is its widespread recognition and ease of use, particularly for one-off payments and e-commerce.
PayPal’s core features
Widespread acceptance and brand trust: A global, household name that customers instantly trust, leading to higher conversion rates at checkout.
Multiple payment options: Accepts all major credit and debit cards, as well as the customer’s existing PayPal balance or PayPal Credit.
Instant payment: Funds are typically received into your PayPal account instantly, making it ideal for immediate delivery of goods or services.
Simple set-up: Adding PayPal to an e-commerce checkout is quick and requires little technical expertise.
Where PayPal is less suitable for business
Higher fees for volume: PayPal’s percentage-based fees (plus a fixed fee) can become expensive, especially for businesses with high volumes or large average transaction values.
High failure rate on recurring payments: Cards expire, get cancelled, or are lost, leading to involuntary churn. PayPal relies on stored card details or a customer’s wallet balance, which can result in a higher payment failure rate over time.
Chargeback risk: Like all card processors, PayPal transactions are susceptible to customer chargebacks, which can be costly and time-consuming for businesses to manage.
GoCardless: The automated bank payment specialist
GoCardless is built for businesses that rely on recurring revenue and need maximum payment certainty and minimal administration.
GoCardless’s core features
Lower fees: As bank payments bypass card networks, GoCardless typically offers significantly lower transaction fees than PayPal for recurring and large payments, often with a low fee cap.
High payment success: Bank details rarely change, which means the involuntary churn caused by expired cards is virtually eliminated, leading to far higher payment success rates for subscriptions and instalments.
Full automation: GoCardless automates the entire payment collection process—from collecting the payment on the due date to reconciliation with accounting software (like Xero or QuickBooks)—greatly reducing manual admin time.
Reduced chargeback risk: Direct Debit and ACH schemes are inherently more secure and provide greater protection against payment fraud and chargeback abuse than card payments.
Instant Bank Pay: For one-off payments, Instant Bank Pay uses open banking for a secure, bank-to-bank transfer that offers the same cost-efficiency as direct debit without the card fees.
Where GoCardless is less suitable for business
Bank payments only: GoCardless only supports bank-to-bank payments. If your business needs to accept card payments or popular e-wallets, you would need to use GoCardless in combination with another provider like Stripe or PayPal.
Settlement times: Bank payments, by nature, do not settle instantly. Settlement times can vary by country but are typically slower than instant card payments.
GoCardless vs PayPal: Which platform is right for you?
The best choice depends entirely on your business model:
| Business need | Recommendation | Rationale |
|---|---|---|
| E-commerce and one-off sales | PayPal (or a combination) | Offers instant payment, high brand trust at checkout, and accepts cards/wallets. |
| Subscriptions and recurring revenue | GoCardless | Higher payment success, lower transaction fees, and eliminates involuntary churn from expired cards. |
| Large value invoices | GoCardless | The low fee cap makes it significantly more cost-effective than a percentage-based card fee. |
| International collections (recurring) | GoCardless | Built for international bank payments, often providing a streamlined and cheaper service than card-based platforms with high currency conversion fees. |
There’s no need to choose one over the other. Many growing businesses adopt a blended strategy, using PayPal for their e-commerce checkout (one-off sales) and GoCardless for their core recurring revenue streams (subscriptions and monthly invoices) to leverage the strengths of each platform.
When comparing GoCardless vs PayPal, a key distinction lies in cost-effectiveness, especially for recurring payments. GoCardless's Direct Debit fees are generally lower and more predictable than PayPal's typical card-based fees for subscriptions. For instance, our £4 cap on transactions ensures that higher-value recurring payments don't lead to exponentially higher charges, unlike uncapped percentage fees you might encounter elsewhere.
Source: IDC, The Business Value of The GoCardless Platform for Recurring Payments, 2020
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