PayPal is undoubtedly one of the most popular payment processing solutions. It is set up in a way that anybody can become a seller quickly and easily.
PayPal makes buying and selling so simple that more and more merchants are using it over other methods. However, it has evolved over the years to offer more robust services and features and a more complex pricing scheme wherein the merchant fees depend on several factors.
In this post, let us try to simplify PayPal fees for buying and selling and try to understand how much PayPal charges merchants for business transactions.
PayPal Fees Explained
While there is no fee to set up a PayPal account, you pay a fee for every transaction you make. For a personal account, PayPal doesn’t charge a lot. Buying with PayPal involves no charges while US-based sellers can expect to pay a processing fee for accepting digital payments and credit/debit cards.
PayPal allows sending money to friends and family within the country for free. However, you pay a transaction fee on sending money internationally. Transferring the balance out of your PayPal account doesn’t involve any fee.
PayPal Merchant Fees Explained
Sellers using PayPal for their business are aware of PayPal fees. The service costs nothing to your buyers and they don’t require an account to make payment. However, a merchant should pay different types of fees some of which we break down here in more detail.
Transaction Fees
The most well-known of the PayPal fees is the transaction fee that applies when you sell products or services online or in-store. The rate differs depending on the type of transaction.
There are currently four transaction fee rates applicable to merchants, split by whether transactions take place within or outside the country and whether they are for online or offline sales.
The transaction fee for online sales in the United States is presently charged at 2.99% + $0.49 for standard credit/debit card payments which rises to 3.49% + $0.49 for digital payments.
The base transaction fee for international sales is 4.4% while the in-store sales in the US have a lower transaction charge of 2.7%.
Monthly Fees
Though most services are free as everything is covered under the transaction fee, a few services from PayPal still charge you a monthly fee.
eCommerce stores can incorporate the ‘Donate’ and ‘Buy’ buttons at no charge on the website. You can also send digital invoices for free and pay the transaction fee only when the invoice is paid.
For physical stores, mobile app access is free of cost. However, if you want to integrate PayPal into your POS application, invoicing software, or any other program, you pay the software costs. You don’t need to pay anything for the integration.
Currency Conversion & Foreign Transaction Fee
One of the top reasons to use PayPal is its worldwide reach. You can use a single platform to buy and sell in about 95 countries with support for 24 currencies. However, selling internationally involves additional charges generally calculated on a per-transaction basis. US sellers accepting online payments from buyers in other countries or in-person payments with a card from outside the country should pay a cross-border fee of 1.5% on top of the transaction fee.
If the transaction involves currency conversion, you should pay a conversion fee of 3-4% based on the transaction. It depends on whether the customer’s bank takes care of the currency conversion.
Balance Transfer Fees
You can transfer your earnings from your PayPal account to a bank account in one of the two ways. The first is a standard transfer to a linked account with no fees.
Funds are generally transferred to your bank account in one business day. Secondly, there is a faster route for deposits called the Instant Transfer where you pay a fee of 1% of the amount up to $10 to deposit your earnings in minutes.
Virtual Terminal Fees
PayPal’s virtual terminal solution can transform your computer quickly into a credit card terminal, allowing you to accept payments at retail locations.
Also, you get the opportunity to use Payments Pro which is a gateway that facilitates accepting payments on the website. The fees for these two services differ depending on the location, so it is important to be aware of them.
For transactions within the United States, the current Payments Pro fees are 2.9%+$0.3 per transaction while it is a 4.4%+fixed fee for international payments. This fixed fee differs from location to location like the transaction fee.
For virtual terminal transactions, the fee structure is different – 3.1%+$0.3 for domestic transactions and 4.6%+$0.3 for international sales.
Mobile Card Reader Fees
Mobile card readers provide an easy way to accept credit card payments remotely or on the go. PayPal offers you a mobile app service that involves no annual, monthly, or startup charges; you only pay transaction fees.
Check-in and swiped transactions cost you a 2.7% fee per transaction which goes up to 3.5%+$0.15 for scanned or keyed transactions. You can also accept international credit cards but incur an additional 1.5% fee. If the customer pays in a different currency, you also pay a currency conversion fee of 2.5%.
Chargeback Fees
Sometimes, you may need to process a chargeback request where PayPal charges you on the basis of the currency of the payment. It doesn’t depend on exchange rates but rather follows a fixed fee structure for every currency. The website lists the chargeback fees for different currencies.
Refund Fees
Refund requests are more common than chargebacks. PayPal doesn’t charge you anything for processing the refund. However, you don’t receive a refund of the seller fees you have paid.
Other Fees
While most transactions are straightforward with comprehensive fees, there are some unique cases where other fees apply. International sales, for example, include an extra 3% fee for currency conversion on top of the 1.5% increase in transaction fees than domestic sales. PayPal also charges users for processing American Express cards.
Sellers can also expect to pay for uncaptured authorization where a card is authorized but the transaction doesn’t occur and also for card verification transactions carried out to check the standing of a credit card before a transaction. The fee is only 30 cents but can add up when you process a high volume of sales with PayPal.
Final Thoughts
PayPal has always remained a preferred way to receive payments, for both physical stores and eCommerce owners.
PayPal merchant fee is one of the most significant costs of doing business through this platform. Once you are aware of the PayPal fees, it is easier to factor in these costs to come up with a profitable pricing strategy.
