PayPal Merchant Fees That You Need to Look Out For
PayPal, the online payment system, has revolutionized e-commerce, banking, and the financial world since its introduction in 1998. (By the way, did you know that Elon Musk, the brain behind the Tesla electric cars, Space X, and other high tech ventures was involved in PayPal’s early days?)
As one of the first payment processors online, PayPal has the luxury of being one of the most popular and most widely used and recognized payment systems on the internet. And because of that, many people trust using the service - making it a great option for anyone starting a new business online.
It’s an easy way for people to pay for services—online and offline, transfer money to friends and family, get paid as a freelancer, pay for products online, and much, much more. With PayPal, online merchants can even take credit card payments. And you can accept payments from customers in 25 different currencies, from more than 200 countries around the world.
In short, it’s the most widely used online transaction service. And it’s a great alternative to setting up a traditional credit card merchant account. It’s an invaluable service for any successful online entrepreneur.
Once you have your PayPal account set up, it’s a simple matter of pasting some code into your website so you have a PayPal “Buy Now” button on your site. This allows your customers to pay you using their PayPal account, their bank account, or with a debit or credit card. The cool thing is that your customers don’t even need a PayPal account to purchase something from you. And PayPal integrates easily with all the major shopping carts and e-commerce platforms out there.
A seamless, quick checkout process makes it easy to order… and when it’s easy to order more people do it, more often. That means more sales for you, whether you are selling digital information products like ebooks or physical products via dropshipping. In fact, data collected on PayPal merchant transactions in Nielsen’s Online Panel study shows that having PayPal as a payment option on an e-commerce site can improve conversion rates by up to 44 percent.
But that convenience comes at a cost. This is not a free service, of course. And for those who use PayPal to take payments as online sellers or merchants pay their fair share in PayPal merchant fees. For the ease of using this service, many entrepreneurs find it’s worth it.
PayPal merchant fees cut into your bottom line. And the amount can add up if you do a lot of sales or transactions. The good thing there are ways to reduce the amount you pay in fees. And there are even alternative payment processing methods you might look at signing up for that reduce and/or eliminate certain fees.
There are a few levels to PayPal merchant fees. Let’s check out a breakdown of what you can expect to pay depending on what level of service you use when taking PayPal payments.
Standard PayPal Transaction Fees
This is the most popular way to receive funds through PayPal and it is a good fit for most online business people.
Here is the fee breakdown:
- Online transactions with funds coming from inside the U.S.—the fee is 2.9 percent of the transaction amount. Plus, a fixed fee of 30 cents.
- An online transaction where the funds come from outside the U.S.—the fee is 4.4 percent of the transaction amount. Plus, a fixed fee based on the currency.
- One thing to note is that there is no fee to sign up, no fee to terminate your relationship with PayPal, and there are no monthly fees. You can accept payment through PayPal or from all major credit cards.
One way to reduce your fees—if you generally accept payments less than $10—is to sign up for micropayment process. To qualify, your PayPal account must be in good standing (no negative balance), you may not be using PayPal Payments Pro, and you have to submit a simple application.
- If the customer is paying from an account in the U.S., the fee is 5 percent of the transaction.
- If payments come from people outside the U.S., the fee is 6.5 percent of the transaction amount.
PayPal Currency Fees
There are also fees associated with accepting payments from other countries. This includes a 2.5 percent charge for changing currencies and a 1.5 percent fee for taking payments from another country.
Going “Pro” With PayPal
With PayPal Payments Pro there are no start-up costs or termination fees. But you do pay a $30 monthly fee to turn your computer into a virtual credit card terminal.
That’s the basic advantage there—it makes it easier for people to pay, and you can also take payments over the phone. You also keep the customer on your website during the checkout process. With standard PayPal, they are sent to the PayPal site.
There are fees per transaction to have your virtual credit card terminal:
- American Express – 3.5 percent of the transaction
- U.S. transactions – 2.9 percent + 30 cents per transaction
- International transactions – 4.4 percent + fixed fee depending on currency per transaction
- Virtual Terminal – 3.1 percent + 30 cents for U.S. transactions, add 1.5 percent for cross-border transactions
An Easy Way to Save on PayPal Fees
Many online entrepreneurs have missed one quick and easy step to lower their PayPal merchant fees. Instead of the usual 2.9 percent fee (plus 30 cents) per transaction that PayPal charges, you can reduce your fee amount to as low as 1.9 percent. May not seem like much, but it definitely adds up over time.
You simply apply for the “merchant rate” through the PayPal site. To do so, just log in to your account, go to Profile and Settings, then My Money, then click on Merchant Fees and fill out the application.
In general, you have to be doing $3,000 worth of business each month. And if your monthly sales dip below that amount, your Merchant Rate status can be taken away.
Alternatives to PayPal
As you can see, PayPal definitely nickel and dimes you. And the amount of money you pay in fees can quickly add up, especially the more transactions you do.
The good news is that there are alternatives to PayPal that charge less in fees. And you might also want to explore these different online payment services for other reasons.
Some of your potential customers might not use PayPal, for example. Another major reason is that PayPal sometimes does block accounts. So you don’t want all your money in one place, just in case. And you want to be able to accept payments through other services so you don’t lose out on potential sales while you try to resolve things with PayPal. Keep that cash flowing.
- Stripe is one service you might check out. It charges the same fees as PayPal, except it doesn’t charge additional fees for international transactions. Remember that PayPal charges quite a bit extra for those. If you have a lot of customers outside the U.S. this is a great alternative.
- Transferwise is also a great choice if you have a lot of international customers, as their fees are low and they have better currency exchange rates than other payment services, especially PayPal.
- Google Wallet is a good option as your customers don’t need the Wallet app to make payments. Plus, payments are automatically sent to your connected bank account. Best of all, Wallet doesn’t charge any fees!
- Apple Pay is another payment process that is growing in popularity and integrates with many shopping cart and payment processing services, such as Stripe.
PayPal Merchant Fees: Your Next Steps
PayPal is an industry standard online payment system. Yes, the PayPal merchant fees can cut into your profits. But it’s so widely used by consumers you basically need to have this option to make sure you don’t miss out on potential sales.
But there are ways to reduce your fees as you’ve seen. And it’s always good to keep other payment options open. Giving your customers more than one way to pay is always a good thing.