Uncovering the Truth About PayPal: All the Fees, Hidden Charges, and How to Save Money
Are you an e-commerce store owner who uses PayPal to process payments? If so, you may be getting ripped off without even realizing it. In this article, we'll uncover the truth about PayPal's fees, hidden charges, and how you can save money with your credit card processing. We'll also discuss what to do if your PayPal account is currently limited or banned, and how to prevent it from happening in the first place.
The Shocking Truth About PayPal's Fees
During a recent audit of my e-commerce store's expenses, I discovered something unexpected about PayPal that I was not aware of. For over a decade, I had negotiated a rate with PayPal where I was getting charged 2.2% plus 30 cents per transaction, which is actually a pretty decent rate. However, I got careless over the years and stopped looking at my PayPal statements because I had assumed that they had stayed the same. In fact, I don't even remember PayPal ever sending me any correspondence that they had increased my rates. But I couldn't have been more wrong.
Here are some important facts about PayPal's fees that you should know right off the bat if you sell anything online and if you accept PayPal in any sort of volume:
- For credit cards, the rate is 2.9% plus 30 cents per transaction.
- You are charged 3.49% for all PayPal checkout transactions that do not involve credit cards.
In other words, you're paying 0.5% more if someone pays by PayPal on your site, and in theory, paying by PayPal costs PayPal no money at all. Accepting PayPal payments directly is easily the most expensive way to accept payments online now.
To illustrate the magnitude of this rate, let's throw some actual numbers into the mix. Let's say you process $1 million per year, and 50% of your transactions are coming from PayPal. You'd be paying about $32,000 per year in payment processing fees. At that sales volume, you can easily get a 2.2% rate or lower with practically any other payment processor. With a 2.2% rate, you would only be paying $22,000. Basically, you would save $10,000 a year by going with a different payment processor.
What makes things even worse is that PayPal stopped refunding fees for returns in 2019. So, let's say you sell expensive products and you make a sale for $11,000. The PayPal fees on that sale are 2.9% plus 30 cents, or $329.30. Now, if the customer returns that product at any time, you have to eat that $329.30 no matter what.
How to Prevent Your PayPal Account from Getting Limited or Banned
If you've done any searches on Google for PayPal, you've probably noticed that PayPal has a history of limiting accounts or freezing your funds. PayPal is what I would call a low-risk payment processor, and they have a strict set of guidelines on who they serve. For example, if you sell any products with chemicals, CBD, or controlled substances, you're going to get banned by PayPal, period.
Most of the complaints I've come across online indicate that PayPal will sometimes hold your funds for up to 6 months. And six months can be a long time if you need access to your money. Once they freeze your funds, it doesn't make sense to continue to accept money through PayPal because you can't access it. In other words, once your account is frozen, you are pretty much screwed.
If you're worried about PayPal ever limiting or banning your account, here are some precautions that you can take:
- If you are expecting to receive a large sum of money, then you should call PayPal ahead of time so they expect to see the extra funds.
- Make sure that your account is not limited in any way in terms of how much money you can accept per day.
- Make sure your name or the name of your business is on your PayPal account and that it exactly matches your bank account and your credit cards.
- Use the exact same addresses and phone numbers that match your bank account and credit cards.
- Always use trackable methods of shipping if you ship physical goods.
- Make sure that your tax ID or social security number exactly matches the name of your business on the account.
How to Save Money with Your Credit Card Processing
In general, you should never accept credit card payments with PayPal ever because it will by far be the most expensive way to accept payments online. If you process any sort of volume with your e-commerce business, you should get a traditional payment gateway and ask for interchange plus pricing.
Interchange plus pricing is when you pay a fixed percentage over the interchange rate, which is the wholesale rate that all credit card companies have to pay in order to process payments. Each time a business processes a credit card, it pays a fee to the bank that issued the customer's card, and this is called the interchange fee. Interchange rates are determined on a per-transaction basis using the details of the transaction, such as the credit card type, credit or debit, the card category, whether it's a reward or a commercial card, and the processing method.
Ultimately, how much the business will have to pay the issuing bank depends on the interchange rate associated with the transaction. Interchange rates are a non-negotiable component of credit card processing costs that remain exactly the same regardless of which processor a business uses.
As I mentioned earlier, the current interchange rates for Visa at the time of filming this video is 1.51% for a regular Visa card and 2.3% for a Visa reward signature card. When you negotiate interchange plus pricing, you'll get quoted a fixed percentage above interchange, and you know that you're not going to get ripped off because the interchange rate is fixed.
Conclusion
If you haven't checked how much you are paying for payment processing in a while, then do it right now because otherwise, you're just flushing money down the drain. PayPal may have been a good option in the past, but it's no longer the cheapest way to accept payments online. If you process any sort of volume with your e-commerce business, you should get a traditional payment gateway and ask for interchange plus pricing. By doing so, you can save thousands of dollars per year.
Highlights
- PayPal's fees for credit cards are 2.9% plus 30 cents per transaction, and for PayPal checkout transactions that do not involve credit cards, you are charged 3.49%.
- Accepting PayPal payments directly is easily the most expensive way to accept payments online now.
- PayPal stopped refunding fees for returns in 2019.
- PayPal has a history of limiting accounts or freezing your funds.
- If you're worried about PayPal ever limiting or banning your account, there are precautions that you can take.
- Interchange plus pricing is when you pay a fixed percentage over the interchange rate, which is the wholesale rate that all credit card companies have to pay in order to process payments.
FAQ
Q: What is interchange plus pricing?
A: Interchange plus pricing is when you pay a fixed percentage over the interchange rate, which is the wholesale rate that all credit card companies have to pay in order to process payments.
Q: Why is accepting PayPal payments directly the most expensive way to accept payments online?
A: Accepting PayPal payments directly is the most expensive way to accept payments online because PayPal charges a higher fee for PayPal checkout transactions that do not involve credit cards.
Q: What should I do if my PayPal account is limited or banned?
A: If your PayPal account is limited or banned, you should take precautions such as calling PayPal ahead of time if you are expecting to receive a large sum of money, making sure that your account is not limited in any way in terms of how much money you can accept per day, and using the exact same addresses and phone numbers that match your bank account and credit cards.
Q: How can I save money with my credit card processing?
A: You can save money with your credit card processing by getting a traditional payment gateway and asking for interchange plus pricing.
