PayPal’s new rates will affect U.S. merchants starting August 2, 2021.
Before PayPal’s new rates come into effect, read on to learn about:
Why PayPal Is Changing Its Rates
PayPal has evolved from being just a button or payment processor to becoming a complete e-commerce platform that influences shoppers to purchase from its merchant customers.
Customers of merchants that include PayPal as a payment method are also three times more likely to complete their purchase.
PayPal is increasing the rates it charges its merchants for using payment services. The rate change reflects the costs associated with improving its platform, from upgrading its protection and security measures to optimizing authorization and conversion rates.
PayPal is also lowering its rates for its payment processing services to increase revenue and compete with other payment processors. PayPal is introducing new products such as Pay with Rewards and Checkout with Crypto to offer several payment options for customers.
PayPal Services Affected by the Rate Change
PayPal used to charge a flat rate of 2.90% of the transaction amount for customers using their services plus a $0.30 transaction fee. The new rates will depend on the services used.
PayPal’s rate change will affect the following services:
- PayPal Digital Payments: Digital payments services which include Seller Protection such as PayPal Checkout, Pay with Venmo, PayPal Credit, Pay in 4, PayPal Pay with Rewards, and Checkout with Crypto, will charge 3.49% + $0.49 per transaction.
- In-person Payments: Rates for in-person payments depend on the transaction amount and the medium used. PayPal and Venmo QR transactions have different rates compared to in-person credit and debit card payments.
- Credit and Debit Card Payments: Online credit and debit card payments will also be adopting different rates, depending on whether or not chargeback protection is enabled.
- Charity Payments: Fees for charity payments will depend on application and pre-approval.
- Non-standard Payments: Fees for non-standard payments remain unchanged.
What PayPal’s Rate Change Means for Your Business
PayPal’s rate changes directly affect small and medium business (SMB) owners as larger corporations can negotiate pricing deals with PayPal.
Business owners should consider PayPal’s rate change when calculating profit margins. Here are some things you can do to mitigate the changes:
- Accept other forms of payment. PayPal isn’t the only way to accept payments for your e-commerce business. If you can switch to a PayPal alternative such as WooCommerce Payments, you can avoid PayPal fees altogether. Just make sure that the options have lower transaction fees.
- Encourage the use of payment methods with lower transaction fees. PayPal’s transaction fees vary depending on the service used. If you omit the PayPal Digital Payments option, such as PayPal Checkout, or encourage users to use credit or debit card transactions, you save a little more (2.99% vs. 3.49%).
- Add a minimum transaction amount. Fees vary for transactions above $10 when using PayPal and Venmo QR transactions.
- Include PayPal fees as a tax deduction. Businesses can file PayPal fees as tax deductions. PayPal fees can be considered an associated cost of doing business.
- Factor in the new PayPal fees into the price of goods.
Keep in mind that other payment platforms may follow suit in increasing their rates to stay competitive. For that reason, you should always have multiple payment options available to your business.
Final Thoughts: What You Need To Know About PayPal’s Updated Fees
PayPal enjoyed massive growth in 2020 due to businesses shifting to an e-commerce model during the pandemic.
To serve customers better and promote their newer product offerings, PayPal is implementing a rate change starting August 2, 2020. Not all rate changes will involve increases — newer services will offer lower rates to encourage use.
Businesses must prepare to adapt to this change by exploring alternative payment methods and have backup payment processors.
What do you think about PayPal’s rate changes? Let us know by dropping a comment in the section below or tweeting @Bluehost.