PayPal fee changes for September 2011

PayPal are to revise their fees for the first time since they set up business in the UK eight years ago. These changes, which come into effect on the 7th September 2011, reflect the increased costs PayPal have incurred through expansion of their services. As is always the case there are some winners and losers in the fee changes.

Broadly speaking for main stream Europe there are no fee changes, it’ll cost you slightly less to trade with Northern Europe and slightly more to trade with Eastern Europe.

Cross border fee decreases

If you’re selling to Northern Europe (Denmark, Finland, Norway, Sweden, Iceland etc), you’ll benefit from a lower cross border fees as PayPal pass their own cost savings on – 0.4% of the transaction value compared with 0.5% now.

Cross border fee increases

If you’re selling to Asia, South America or Africa, you’ll see your cross border fee rising from 0.5% to 1.5%. Also the fee for some European countries is rising to 1.0% – this includes countries like Russia, Serbia and Romania. This is simply because it costs PayPal more to transact in the newly added currencies in these countries.

Currency conversion fee increases

Buyers and people sending money abroad will see a small increase in currency conversion fees. For example, the fee for sending a payment in euro from a UK (sterling) account will increase from 2.5% to 3.5% above the wholesale exchange rate applied to the amount being sent. The fee for sending a payment in US dollars will be 3% above the wholesale exchange rate.

20p charge for refunding a customer

For the first time, PayPal will be retaining the fixed (20p) portion of the transaction fee where a seller has made a full refund. There will be no changes in PayPal fees for partial refunds.

I can’t see many sellers liking this new cost, but in comparison many other payment providers retain the whole fee.

Doubling the chargeback fee

PayPal does not apply a chargeback fee if the transaction is covered by PayPal Seller Protection Programme. This is not changing, but the fee in all other cases is increasing from £7 to £14. This reflects the costs PayPal incurs in handling disputes.

I’m not to worried about this one personally as I’ve always been covered by PayPal Seller Protection for eBay transactions. However if you use PayPal off eBay then only transactions between UK, US or Canadian buyers and sellers can be covered by PayPal Seller Protection and this could have more impact.

Why the fee changes?

Since 2003 PayPal have invested heavily in expanding their services – for example, adding 40 new transactional currencies. In the main these changes are an adjustment of the cross border fee by region and country to reflect more closely the costs PayPal incur.

Unlike eBay who opted for a simpler fee structure to make it easy for sellers to calculate their costs (which for most people was a sizeable fee hike), PayPal have chosen a more complicated fee structure but one that relects the real cost of the transaction and currency conversion. I guess that means PayPal think sellers are more intelligent than eBay and prefer to do the maths and save money where they can.

Fee increases are never going to be popular, especially for those sellers who transact in the countries which will now be more expensive to trade with. In reality though PayPal is of course convenient and still competitively priced compared to merchant banking arrangements.

At the end of the day if we sell on eBay we don’t have a choice but to use PayPal, so we’ll complain about the fees and then pay them, and in truth by the time they come into effect we’ll probably not even notice the difference.

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It is clear that Paypal are strapped for cash. The current economy is obviously difficult for them. After all, they have not made any profit out of these expansions that are for our benefit have they?

Mark T • 21st July 2011 •

Let us get this straight. There are no substantial movements of currency within Paypal. The "currencies" are numbers within the system. There are no wheelbarrows full of Pound Notes, or Euro Notes or any other currency being moved. What there are is a lot of Accounts held in various currencies which can buy and sell in other currencies and the conversion is a pure mathematical process to convert from one currency to another and then either add or subtract from the various accounts. The Paypal Charges are just charges and while they may claim that it reflects costs in effect they are just charges much of which is profit. But we should think back to what used to happen pre-Paypal. If we can remember back then we are probably happy that Paypal exists and if comparing the costs pre-Paypal with now or indeed after the revised charges they represent a considerable easing of the costs and problems of small scale international trade. So I for one do not critisise them. But they do not represent the cost of monies being transfered from place to place

Chris • 21st July 2011 •

There is another point about such as Paypal. All those millions and millions of Accounts that flash up every time we log onto Paypal each contain monies. Most are probably quite small but some of the Traders Accounts could contain possibly tens or even hundreds of thousands of pounds(or other currency). Traditional Banks know thast the total amount of money in their Accounts remains fairly stable so they can lend out a proportion of the overall Balance. The Banks earn a considerable Interest on this monies. No doubt Paypal does the same. So Paypals expansion should have generated considerable profits over the years. The Accounts are in effect millions of pockets. Most transactions are just moving money from pocket to pocket. The overall balance is not affected. There are transactions that take monies out of Paypal. As an example when we transfer monies from our Paypal Account to our Non-Paypal Bank Account. Again it does not matter what currency the monies in a Paypal Account is nominally held in. The only proviso I might make in this regard would be if a currency is in trouble such as the Euro when things could get complicated but even then it is still a mathematical process and swapping currency from pocket to pocket.

Chris • 21st July 2011 •

"Traditional Banks know thast the total amount of money in their Accounts remains fairly stable so they can lend out a proportion of the overall Balance. The Banks earn a considerable Interest on this monies. No doubt Paypal does the same." I am pretty sure Paypal are not allowed to do that, something about not being an actual bank I seem to remember.

board_surfer • 21st July 2011 •

Paypal are an actual bank

Simon • 22nd July 2011 •

you are right.

board_surfer • 22nd July 2011 •

"These changes, which come into effect on the 7th September 2011, reflect the increased costs PayPal have incurred through expansion of their services" I don't understand this line being swallowed whole. My business has significant economies of scale: as I grow, things get cheaper. Paypal has been growing rapidly - how have the costs increased? Since Paypal is a required part of trading on eBay, we consider Paypal fees and eBay fees in the same line item in our accounts -- it's all just platform fees. So that's two increases this year in that figure.

David Brackin • 21st July 2011 •

The problem with such increases in charges are that there is a maximum that the market will bear. If the charges increase so much then we the sellers start to increase our prices to pay those charges and probably at the same time start to look around seriously for an alternate site. Sometime either an existing site will go through a facelift and provide us with what we want or a New site comes into existance and attracts us all away from such as eBay. Alternatively the customer starts to comment about our prices rising until they equate with the more traditional High Street sellers and then we are all in real trouble. I am not certain that we have reached that figure yet but we cannot be far away.

Chris • 21st July 2011 •

What we are also forgetting is that as well as a set amount paypal also take a percentage of ebay final value fees So in effect when ever ebay raise prices paypal do so as well.

hawkwind • 22nd July 2011 •

Just to quote you "At the end of the day if we sell on eBay we don’t have a choice but to use PayPal," Surely Paypal being the only payment gateway available on eBay UK must be braking competition rules. Wasn't eBay Australia made to open up to other payment gateways? Does David Cameron play with Paypal, much the same as he did with New International? I'm againest the EU and most of what it stands for but they should force eBay to accept other payment gateways.

Warren • 22nd July 2011 •

There is upcoming laws on charges for electronic payments; it typically costs Banks 22p to administer transfers, regardless of the amount. Doubtless ebay/paypal are aware and are making hay while the sun shines. In 5 years, paypal will not be the profit area for ebay; assuming ebay hold any position in ecommerce in that time.

Steve • 22nd July 2011 •

I thought Paypal were the business in eBays group that was making lots of money? Everyone is putting their prices up at the moment and feeling squeezed in the middle, we are going to have to choice over the coming months to put our prices up!

stuart • 22nd July 2011 •

Once the banks open their own transfer system through Visa etc . Paypal most likely will lose about 80% of their market

rooftop • 22nd July 2011 •

I'm assuming this applies to all accounts including merchant accounts? Eek, when will they give us a break.

J • 22nd July 2011 •

Why the fee changes? Because they can, but as Chris pointed out one must consider the alternatives. On eBay there are none so if eBay is still the only platform for you, you will just have to 'suck it up, cupcake'. I would think Google Checkout will implement similar increases soon, again, because they can. When will they give us a break? When they are forced to; either by law or by diminishing customer base, neither of which look particularly imminent.

Henrietta • 22nd July 2011 •

20p charge for refunding a customer For the first time, PayPal will be retaining the fixed (20p) portion of the transaction fee where a seller has made a full refund. There will be no changes in PayPal fees for partial refunds. So if i have to refund a £3.99 item i would be better refunding £3.98 and it saves me 20p

hawkwind • 22nd July 2011 •

Aha - good thinking, Batman!

Gill • 22nd July 2011 •

I wouldn't count on it working - currently PayPal *say* they don't refund a proportion of the 20p part of the purchase. They *say* they only refund a percentage of the variable part of the fee. Of course seeing as what they say and what they do is a different thing who knows what'll happen when the changes come into effect. For reference PayPal currently say: How do PayPal refunds work? You can refund payments for up to 60 days from the payment date. If you refund the payment in full, we’ll refund 100% of the fees. If you refund part of the payment, we’ll refund part of the PayPal fees. Here’s an example. Fees vary by country. Original transaction £100.00 GBP PayPal fees £3.60 GBP (£3.40 GBP variable fee + £0.20 GBP fixed fee) 50% refund £50.00 GBP PayPal refunds £1.70 GBP of your fees (50% of £3.40 GBP variable fee)

Chris Dawson • 22nd July 2011 •

Paypal and eBay fees are so interconnected that an increase in either will effect the other and therefore an increase in fees will have a knock on effect to sales and profit, albeit minimal. At the moment the eBay market and Paypal payment method works for me and I have no immediate plans of ending the eBay side of my business. The Amazon market and payment method also works for me and I’m happy to continue selling on Amazon. However once you start comparing selling on both markets changes like the little fee increase start to tip the balance as to which market works best. From a personal perspective I have been developing Amazon sales more and more over the last 12 months and although the fee increase is minimal it is one more consideration as to which market place works best for me. As has repeatedly been said in posts “Don’t put all your eggs in one basket”, and I have no intention of abandoning eBay, but the lack of stability in the eBay /Paypal partnership with constant changes, even if only a small fee increase just makes Amazon a more attractive market place.

Glenn • 22nd July 2011 •

If you think what paypal does and the fraud it prevents, its cheap at the price and a valued business partner.

John Pemberton • 25th July 2011 •

Regards Fraud on eBay,I would refer to a Uk,National News paper report,a seller on eBay was Prosocuted by the Trading Standards Office for selling Fakes on eBay,this seller it was reported,had 30,yes 30 different accounts with eBay for over 3 years,sold over a Million pounds worth of fake jeans etc,was only caught by chance,a courier noticed a parcel was wrong,if this seller had 30 eBay accounts,then he must have had 30 PayPal accounts? eBay State ALL sellers must offer PayPal as a payment option,so much for Security on eBay? get a life/

William • 9th August 2011 •

No - as far as I know you can link one Paypal account to any number of eBay accounts.

radroach • 10th August 2011 •

I have always used Paypal and found their service to be good. But as others have said their sales and profits seem to be going up and with economies of scale, they should not need to increase their margins. Perhaps they have heard about VISA starting up a similar service and knowing Visa they won't be cheap. So maybe they saw a window to put their prices up. Or they are very confident that VISA wont take all their market.

Digby Green • 26th July 2011 •

Earlier it was suggested that VISA would take 80% of Paypals market. If we take it that on eBay there is no choice but Paypal unless there is a relaxation in the future we can expect that situation to stay. So the only area where Paypal are going to be under threat if on other sites where Paypal is an option. Surely a lot will depend on costs of doing business and also if the Buyer and the Seller has a compatable "Bank". If I was on say ebid and I saw something I wanted and the seller accepted Paypal and I had a Paypal Account(with enough money in it) surely that would be the way I buy? So while it is possible that Paypal will loose a small proportion of its business(My estimate would be 5-10% certainly not 80%) it should not have too much to fear unless it decided by increased charges to shoot itself in the foot.

Chris • 26th July 2011 •

I think if getting the 20p back for a refund makes a difference to your business something else is probably very wrong with it.

board_surfer • 26th July 2011 •

Many years ago my late father taught me a saying about Looking after the pennies and the pounds looking after themselves. Today pennies(or even 20p) may be too little to worry aqbout but enough of them could make a differance.

Chris • 26th July 2011 •

1 refund a month will cost you £2,40 a year That is not worth worrying about.

board_surfer • 26th July 2011 •

Years ago we used to talk about "Spending a Penny". Obviously I would rather all those 20p's you so casually discard were in my pocket(where they could one day be useful) rather than in somebody elses pocket.

Chris • 26th July 2011 •

Years ago when I was the Garage Accountant on a Saturday Morning(just after I sent the rest of the Staff home) a bloke came in and bought a Car with small change-He ran the Slot Machines at the Fair Ground. So maybe as I had to count bags full of small change I realise that enough of them can make a differance.

Chris • 26th July 2011 •

thats the difference between what you and I are talking about. Of course "enough" of them make a difference, that is basic arithmetic. I am saying IF you are giving "enough" to paypal through refunds to make a difference , then you are doing something else very wrong, and if you are not, it is not worth worrying about.

board_surfer • 26th July 2011 •

Clothing is an area that generates a high level of refunds, somewhere between 10%-20% of total sales...If your turnover is around £400K with an average order value of £15, those 20p's add up to around £5k (I think)

BigPoppa • 26th July 2011 •

its nearer £1066 actually. :-p

board_surfer • 27th July 2011 •

However much it adds up to it would fund a good evening in the Pub with some mates. A lot better for that purpose than to boost Paypals Profits.

Chris • 27th July 2011 •

I'm beginning to see what Norf sees in you.

board_surfer • 27th July 2011 •

There is a very old technique that has been used on numerous occassions over the years. First you get into a Monopoly Situation then you capitalise on it by pushing your Profit Margin up. The current policy of eBay/Paypal to increase prices and consequently Profit Margins is directly in line with this. 20p here a percentage or so there all add up until the overall Profit Margin is significantly increased. There is a next stage and that is that the Overall Profit Margin is increased to such an extent that other Companies start to run the Rule over your Company. If they decide that your Company is attractive enough you may very well find a Competitor coming into your Market and Under-cutting you. If eBay/Paypal do manage to boost their overall profits enough then this is exactly what could happen.

Chris • 28th July 2011 •

My math goes... £400,000 turnover divided by £15 AOV, this gives a total of 26,666 transactions. 26,666 X 20p = £5333 isn't that right?

BigPoppa • 27th July 2011 •

its right if you refund every sale you forgot that your are only refunding 20% max

board_surfer • 27th July 2011 •