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The Complete Guide to PayPal’s Fees, Rates, and Pricing

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As a consumer mobile wallet, PayPal is darn-near ubiquitous. But with more than 17 million merchants worldwide calling PayPal their payments processor, it’s also a massive force in the merchant services industry. So if you’re looking for a quick and easy way to get set up with credit card payments, whether for a POS system or online, PayPal is probably going to be on your radar, and with good reason.

But should you choose PayPal as your payments processor, and what will it cost? The good news is that PayPal offers transparent, pay-as-you-go pricing with no monthly fees, no account termination fees, or other hidden costs. You can predict fairly well what you’ll pay with PayPal, and all payment processing fees are deducted before PayPal deposits funds in your account.

The one major drawback is that PayPal is a third-party processor, also referred to as an aggregator. That means the company essentially onboards merchants as sub-users of one, giant merchant account that includes the entirety of PayPal’s merchant base. This means that the company does minimal underwriting before approving an account. You don’t need to provide much info beyond confirming your identity to open an account. However, this does mean you face a greater amount of scrutiny after opening an account, and PayPal can terminate your account or place a hold on funds with no notice to you.

That sounds worrisome, but the reality is it only happens to a small percentage of merchants. You can also take steps to protect yourself by recognizing the common red flags that processors look for and avoiding them. Check out our article on how to avoid merchant accounts holds and terminations to learn more.

PayPal obviously isn’t the right choice for everyone. There are restrictions on the types of products merchants can offer, and it doesn’t support certain business models. High-risk businesses should look somewhere else for a merchant account. However, most merchants should be fine with a PayPal account for payment processing.

Read on for a closer look at what you can expect to pay with PayPal as your business’ credit card processor! You can also check out our PayPal and PayPal Here reviews for a focused look at the products and services.

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Payment Processing Fees

The major concern for most merchants who use (or are considering using) PayPal are the payment processing costs, so we’ll start there. PayPal offers predictable, flat-rate pricing for all merchants. You don’t have to worry about higher interchange for American Express cards, or MCCs, or qualified vs non-qualified transactions. Your exact rate will depend on the type of transaction.

Merchants who use PayPal’s mPOS app, PayPal Here, or integrate with one of PayPal’s POS partners (such as Vend), will pay the following for in-person transactions:

  • 2.7% per swiped, dipped or tapped transaction
  • 3.5 + $0.15 per keyed transaction

For online transactions, including monthly subscription charges, donations, and digital invoices, PayPal charges the following:

  • 2.9% + $0.30 per online transaction

That’s it. Really. The simplicity of PayPal’s pricing is one of the biggest draws for merchants. You can predict fairly easily what your pricing will be and, because PayPal deducts its fees before depositing funds in your account, you don’t have to worry about an end-of-the-month invoice or going over a limit and incurring additional fees.

What About Alternative Payment Processing Rates?

If you’re wondering whether PayPal offers any sort of alternative payment plans, the answer is yes. Merchants with an average transaction size under $10 can opt for the micropayments plan. PayPal also offers a nonprofit discount for online transactions to qualified 501(c)(3) nonprofits.

  • Micropayments Plan: 5% + $0.05 per transaction. (Note: This rate applies to all transactions, even those above $10)
  • Nonprofit Discount (Online Only): 2.2% + $0.30 per transaction

If you integrate with one of PayPal’s partner POS systems, such as Vend or TouchBistro, you may be eligible for special discounts  (presumably volume-based) or other promotions. However, these offers aren’t clearly disclosed, just advertised on the POS software sites.

Other PayPal Fees For Payment Processing

While PayPal does charge a few extra fees relating to payment processing, they aren’t many. But these are what you might come across:

  • 1.5% Cross-Border Transaction Fee: For US merchants who accept online payments from buyers out of the country, or in-person transactions involving a card from outside the US, PayPal charges a 1.5% cross-border fee. That means, for example, that a US merchant accepting a Canadian card at a POS terminal will pay 4% of the transaction value to PayPal.
  • 2.5% Currency Conversion Fee:  If PayPal has to convert the currency before it deposits the funds in your account, you’ll pay another 2.5% conversion fee. Whether you have to pay the conversion fee depends on the customer’s bank and whether it will handle the currency conversion (usually at a cost to the customer).
  • $20 Chargeback Fee: Chargeback fees are pretty standard, and if a customer files a chargeback against you, PayPal will assess a $20 fee in addition to withdrawing the funds to cover the transaction amount.
  • Refund Fee: In the event of a refund, PayPal will refund the percentage-based fee from the transaction to you, but keep the fixed fee. For most in-person transactions that means you’ll pay nothing. However, refunds on keyed transactions mean you’ll pay $0.15. Refunds on online or invoiced transactions will cost $0.30. PayPal can be a bit confusing about how this works in its transaction summaries, but be aware that you will pay a fee for most refunded transactions, albeit a small one.
  • 1% Instant Transfer Fee: If you’d like to move your PayPal balance to a bank account immediately, you can do that — for a fee. PayPal charges merchants 1% of the transfer value, capped at $10 per transfer, but your funds will be available typically within 30 minutes (s0 long as your bank’s system isn’t incredibly slow). You’ll have to connect an eligible debit card to support instant transfers as well. However, if you prefer to have instant access to funds without paying a fee, don’t forget that PayPal offers a business debit card that’s linked to your PayPal balance, too.

Software Fees

One of the big draws for PayPal is the lack of software fees. Instead of paying a monthly fee for PayPal’s ecommerce features, you pay only the payment transaction costs (in most circumstances — but we’ll come back to this in a moment). While you’ll need to arrange for your own domain and web hosting, you can implement PayPal’s “buy” and “donate” buttons with no additional costs. You can send digital invoices for free and only pay the transaction cost when the invoice is paid.

Likewise, access to PayPal’s mPOS app, PayPal Here (read our review) is also free. However, if you opt to integrate PayPal into a POS app, invoicing software, or another platform, you’ll be responsible for those software costs. PayPal doesn’t charge anything for use of the integration.

Also, take note: PayPal doesn’t charge merchants any PCI compliance fees, account maintenance fees, customer service fees, or termination/account closure fees.

However, PayPal does offer a couple of advanced software options that come with additional costs:

  • PayPal Payments Pro: The “Pro” plan from PayPal has two advantages. One, it includes a virtual terminal to accept payments over the phone by keying in a card from a browser window.  Two, it allows merchants to keep the checkout process on their own website rather than redirecting to PayPal to complete a transaction. This does come with a couple of concerns. For one, you’re not automatically PCI compliant and you’ll need to take additional steps to handle your PCI compliance. Two, $30/month for a virtual terminal is pretty pricey considering you’ll still pay higher rates than swiped/dipped/tapped transactions. Square and Shopify both offer free virtual terminals. Also, opting for PayPal Payments Pro and the Virtual Terminal will mean a few different transaction fees to worry about:
    • 3.5% American Express Fee: Any Amex cards will process at the higher 3.5% rate if you’re on the Pro plan.
    • 3.1% + $0.30 Virtual Terminal Fee: Any transactions processed through PayPal’s Virtual Terminal process at 3.1% + $0.30, plus the international transaction fee if applicable.
  • Recurring Billing: If you’d like to sell subscriptions (software, gift boxes, etc.), PayPal does offer a set of recurring billing tools. Recurring payments are available with PayPal’s Express Checkout Option at no additional charge, but if you have PayPal Payments Pro and want advanced tools, they’ll cost you $10/month. This doesn’t apply to “Donate” buttons, which have their own option for donors to choose between a one-time or recurring donation.

  • Mass Payouts: If you need to distribute funds to multiple parties, PayPal’s Mass Payouts feature might be an appealing option. You have two options here: using PayPal’s API to handle the command, or uploading a spreadsheet. Which method you choose affects how much you pay — if you opt to upload a spreadsheet through PayPal’s website, you’ll pay 2% per transaction, capped at a maximum $1 USD, which is pretty reasonable. If you opt for the API, you’ll pay a flat fee of $0.25 USD per payment. This is a great way to distribute payments to contractors, for example, or manage marketplace payments if you use PayPal’s platform.

PayPal Hardware Costs

Unless you’re integrating PayPal with a POS system or using the free mPOS, PayPal Here, you won’t have to worry about hardware costs. But if you do, you’ll have a few options for card readers:

  • Chip & Swipe Reader: PayPal’s entry-level chip reader sells for $24.99. In addition to EMV capabilities it supports magstripe transactions, but no contactless payments. However, it does connect to phones and tablets via Bluetooth and comes with a convenient mounting clip.
  • Chip & Tap Reader: To get a credit card reader that supports magstripe, EMV, and contactless payments, you’ll need the Chip and Tap reader, which sells for $59.99. We’ve already reviewed this reader as well as the optional charging dock ($30 separately, or bundled for $79.99), with a very positive rating. Again, the Chip and Tap reader connects via Bluetooth. In addition to the charging dock, it comes with a convenient mounting clip.
  • Chip Card Reader: The Chip Card Reader was the first EMV-enabled card reader PayPal offered, and it’s still the only hardware option for merchants who want to integrate with one of PayPal’s POS partners. It sells for $99 on the PayPal site, with an optional charging dock. Given the price point, it shouldn’t surprise you to learn that this all-in-one reader connects via Bluetooth.

  • Mobile Card Reader: PayPal used to offer its entry-level swipe-only reader for free, but now it sells for $15 because PayPal, like most processors, really wants you to start accepting EMV. Use of the mobile reader comes with limitations on accounts, so if you do a decent volume of credit card transactions and don’t want to encounter any holds on your funds, you should avoid the mobile reader at all costs:

*Key-in transactions and sales over $500 in a 7-day period made with the Mobile Card Reader are subject to an automatic 30-day reserve where funds are held in your PayPal account to cover the high risk associated with these types of transactions. For increased protection from fraudulent transactions, we recommend using a chip card reader. All PayPal accounts are subject to policies that can lead to account restrictions in the form of holds, limitations, or reserves. Additional information about these policies can be found in the PayPal User Agreement.

Apart from the cardreaders, PayPal doesn’t offer any proprietary hardware. If you need a countertop register setup, you can choose from an array of tablet stands, receipt printers, and cash drawers. A few select models are confirmed to work, while many others are “unofficially supported” in that they’re likely to work in most cases. The PayPal Here app doesn’t officially support any external barcode scanners (it supports in-app scanning using the device’s camera), but Bluetooth-enabled scanners may work with your setup.

Is PayPal Actually a Good Value?

We’ve talked pretty extensively about the cost of using PayPal, but we haven’t really talked about value. Because value is so much more than just the actual, physical cost. Value encompasses convenience, customer service, and other extra factors that could easily justify paying more than the absolute lowest prices.

PayPal isn’t the absolute cheapest processor out there — especially not for businesses that handle more than $10,000/month in credit card transactions. Larger businesses may be eligible for merchant accounts with volume discounts. For low-volume businesses, PayPal often does offer more competitive pricing because of the lack of monthly fees. The flat-rate pricing, especially for in-person transactions, can mean cost savings over interchange-plus.

But the real value in PayPal is the massive consumer trust and convenience. Just about everyone recognizes the PayPal name, and with 200+ million consumer users around the world, it’s safe to say a lot of people have PayPal accounts. The barriers to entry are minimal — you don’t need a huge amount of technological experience to implement PayPal for in-person or online payments. As long as you aren’t using PayPal Payments Pro, you don’t even have to worry about PCI compliance. PayPal handles it for you, at no additional cost.

Apart from the issue of account terminations or funding holds, the only other consistent complaint about PayPal is its customer service, and reports vary. Some merchants say they’ve never had a problem with customer service. Others say that their support reps have been downright unhelpful when they’ve called in. Fortunately, PayPal offers extensive self-help resources so you should be able to deal with most technical issues without having to contact PayPal directly.

I can’t say unequivocally that PayPal is right for everyone. It’s not. But it is a really good option for a lot of merchants, especially low-volume businesses that are just starting out. For a closer look at PayPal and all its services, we recommend checking out our PayPal and PayPal Here reviews.

If you’re not sure PayPal is right for you, I suggest looking at our Square vs. PayPal article, as the two companies are fairly similar in their business models and offerings.

Thanks for reading! If you have any questions or comments, we’d love to hear from you, so please drop us a comment!

Looking for a PayPal Alternative? Check out Square

ReadereCommerceRetailFood Service
Free App & ReaderSquare eCommerceSquare for RetailSquare for Restaurants
Get StartedGet StartedGet StartedGet Started
Free, general-purpose POS software and reader for iOS and AndroidEasy integration with popular platforms plus API for customizationSpecialized software for more complex retail storesSpecialized software for full-service restaurants
$0/month$0/month$60/month$60/month
Always FreeAlways FreeFree TrialFree Trial
Melissa Johnson

Melissa Johnson

Melissa Johnson has been writing about payment processing and mobile payments since 2014, and has been quoted in articles for Credit Karma and The Next Web, among others. She graduated from The University of Kansas in 2010 with bachelor's degrees in English and journalism.
Melissa Johnson

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