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PayPal Holdings Inc. will eliminate volume-based price tiers and charge all of its small U.S. merchants 2.9% of the sale plus 30 cents per domestic transaction come Oct. 1, according to a notice the leading online-payments firm began sending to merchants Thursday.
The 2.9%-plus-30-cents tier is the highest rate under the current price schedule that has been in effect for years. That standard rate is for merchants generating only up to $3,000 in monthly PayPal volume.
The tiers to be eliminated are 2.5% plus 30 cents, for merchants generating $3,000 to $10,000 in monthly PayPal volume, and 2.2% plus 30 cents, for those with PayPal monthly charges between $10,000 and $100,000. The micropayments rate—5% plus 5 cents for merchants with transactions averaging under $10—will not be changing.
A spokesperson for San Jose, Calif.-based PayPal says the change will affect fewer than than 1% of the 10 million merchants worldwide that accept PayPal. Most merchants are big enough to have individual pricing agreements with PayPal.
“We’re making these changes to be in line with the services we have,” says the spokesperson, referring to PayPal’s assortment of services for merchants that include the One Touch service for fast online checkout, fraud protection, the PayPal Working Capital loan program, and access to 169 million consumers who use PayPal.
The pricing changes don’t affect many merchants but still will help PayPal, recently spun off from long-time parent company eBay Inc., counter the downward pressure on pricing exerted by bigger merchants, according to Gil Luria, an analyst and managing director at Los Angeles-based Wedbush Securities. PayPal’s so-called take rate, a measure of profitability, declined in 2015’s first six months to 3.43% of the transaction from 3.54% in the same period a year earlier, according to an eBay regulatory filing.
“Based on the magnitude of sellers impacted, the price increase looks like more of a price simplification,” Luria tells Digital Transactions News by email. “PayPal has had declining take rates for the last few years, which it needs to offset. As larger merchants become a greater part of its volumes, PayPal needs to offset the negative mix shift by charging more from smaller merchants that don’t have the same negotiating power.”
Pay with Amazon, a rival online-payments service from Seattle-based Amazon.com Inc., also charges 2.9% plus 30 cents for domestic transactions, with lower pricing available to higher-volume merchants.
PayPal had revenues of $4.43 billion in 2015’s first half, up 15% from $3.86 billion a year earlier. Total payment volume increased 18% to $130.5 billion from the prior-year period’s $110.4 billion.
