Daily Management Review

With Competition In Payments Sector Heating Up, PayPal Overhauls US Rates


With Competition In Payments Sector Heating Up, PayPal Overhauls US Rates
Merchant costs for its branded payment products will be lifted by PayPal Holdings Inc while also cutting down on those for behind-the-scenes processing of some Visa and Mastercard transactions which is being seen as a bold move by the company in the digital payments sector which is getting increasingly competitive.
The growing power of PayPal in online transactions is reflected by this strategic shift as the company’s business surged during the Covid-19 pandemic. The active accounts of the company mounted to 377 million, more than twice as many as in 2015, during the pandemic with consumers and businesses falling back on the company, a market leader.
The value of its proprietary services was reflected by the move of the company. The company said that it is three times more likely that consumers will complete a purchase when PayPal products are available at checkout while an average of 15 per cent more is spent by users of the new buy-now-pay-later option.
"We are changing prices to help our customers understand even more clearly where we provide value," Dan Leberman, PayPal's senior vice president for small and medium business and partners, said in an interview. "The wallet is of tremendous value; the card processing is commoditized."
According to material the company shared with the media, the company will charge sellers 3.49% plus 49 cents against processing transactions made through its proprietary products, including its button on merchant websites and its digital wallet.
Products like PayPal Checkout, Pay with Venmo, PayPal Credit and new buy-now-pay-later offering Pay in 4 will have the higher rates applied.
There are 392 million active accounts with PayPal, which includes 31 million merchants globally. The company also owns Venmo, Braintree and iZettle.
According to Ben Dwyer, the founder of cardfellow.com who analyzes processing deals offered to merchants, it would be difficult for merchants to come to know how much extra value the PayPal features will be offering them against the higher rates. "PayPal wants to be a comprehensive payment solution, but it is tough to get there by selling on value over price," Dwyer said.
The processing fees of online payments made with Visa and Mastercard debit and credit cards from other companies – a process that will not be seen by consumers, for sellers will be 2.59% plus 49 cents. In the past, PayPal charged sellers 2.9% plus 30 cents for payments on most online transactions, regardless of its role.
With the lowering of the basic transaction processing rates, PayPal will be able to now compete with rivals including Stripe and Authorize.net. Leberman said that PayPal expects to acquire customers because of the discounts.
"We think it's a bold price to come out with," he said.
Small-to-medium sized businesses are the ones that would largely be affected by the rate hike because large merchants tend to negotiate unique deals.