Is PayPal  Merchant Service Right for Your Business? Decoding PayPal’s Merchant Fees

By Jasmine Glasheen

PayPal is one of the few payment processing platforms that has become a household name, and it is the most popular digital payment platform on the market. This may lead you to think that PayPal is also the most effective platform for merchants. Yet, as Einstein once said, “what is right is not always popular and what is popular is not always right.” PayPal may be the most widely-used platform, but that doesn’t necessarily mean that it is the best payment processing option for your store. Multiple factors go into determining whether a payment processing platform is right for your business, including:

  • Business size
  • Whether sales are online or in-store
  • Location
  • If you use a traditional POS system or mobile payments
  • Average transaction amount
  • Transaction volume,
  • And more!

As you can see, payment processing platforms aren’t a one-size-fits-all proposition. In addition to taking a look at the above factors when assessing payment processing providers, remember that some platforms also have start-up/termination fees and other hidden charges that can deeply cut into your business’s profits.

To choose the provider that will help you hold on to your business’s hard-earned cash, you need to understand how each platform’s fees and capabilities align with your business’s needs. So, let’s take a look at the real costs of using PayPal and how PayPal’s merchant services program stacks up against other best-in-class providers.

Mobile and in-store payments:

In-store payments probably make up the bulk of your business if you own a brick and mortar store(s). The rates on PayPal’s website seem pretty simple at first glance. When you take a deeper look at the costs, however, there are a few major caveats to PayPal’s fixed rate that can negatively impact your bottom line–– especially if you do business outside of the United States:

  • PayPal charges 2.7 percent per US swipe, 3.5 percent + $0.15 for keyed sales. (Keyed sales are sales where the credit card number is typed instead of swiped or chipped.)
  • However, mobile and in-store transactions that happen outside of the U.S. are charged 4.4 percent of the transaction amount, plus a fixed fee based on the currency. Fixed fees vary depending on the country where the transaction takes place and PayPal’s fixed fees are actually pretty hefty.
  • PayPal accepts non-US cards for the standard 2.7 percent per swipe plus a 1.5 percent cross-border fee and/or 2.5 percent currency conversion fee. This means that if your store attracts a lot of travelers or customers from outside the U.S., you might be looking at up to a paying out a 6.7 percent deduction from each transaction!

Online payments and invoicing:

Online and mobile sales are growing at a breakneck pace, and it’s only a matter of time before digital sales eclipse brick and mortar. Since PayPal lets customers purchase from online retailers without sharing their credit card info, it enables you to give customers the security they need when purchasing from your online store for the first time. However, like with PayPal’s mobile and in-store payment processing, PayPal’s website lists a bevy of additional charges for those who process smaller transactions, or if you do international business:

  • PayPal’s base rate for online payments are 2.9 percent + $0.30 per transaction within the US.
  • For transactions that take place outside of the U.S., PayPal charges a fee of 4.4 percent plus a fixed fee depending which currency is used.
  • To receive payments from another country, there’s an additional 2.5 percent charge for currency conversion and a 1.5 percent international transaction fee.
  • Transactions under $10 are also subject to a “micro-payment fee,” which is 5 percent of the transaction amount plus a fixed fee if it’s within the U.S., or 6.5 percent plus a fixed fee for international transactions.

PayPal merchant services vs. best-in-class competitors

Even with all of this info, you can’t really know whether PayPal is the best option for your retail business without knowing how it measures up to the competition. It can be tough to cut through all of the advertising jargon to get to the core of what a company really offers. So, let’s take a look at how PayPal stacks up against 3 of the top payment processing companies on the market.

  • PayPal: 2.7 to 3.75 percent flat rate plus .30 per transaction, plus international and micro-payment fees when applicable.
  • Square: 2.75 percent to 3.75 percent flat rate plus .15 for keyed in transactions.
  • QuickBooks: 1.6 percent or higher and a 30-cent tiered rate, plus a 0-$20 monthly fee.
  • Payment Depot: $49 to $199 a month plus interchange of .05 to .15 per transaction.

Most payment processing platforms use flat rates, which means they take a large cut of each transaction–– so the more you make, the more you pay. This can end up costing large businesses significantly more than interchange plus pricing, which charges a set dollar amount per month with a low transaction fee. For this reason, FitSmallBusiness suggests that only businesses making under $30,000 a year use flat rate payment processing companies like PayPal and Square.

Bringing it all together

PayPal is definitely a top contender for merchants who sell low-to-moderately priced goods to local customers. Since it’s hard to know what rate QuickBooks will charge for each transaction, it is a risky option for small business owners. However, if your business pulls in more than $10,000 to $30,000 per year, if you sell high-priced items, or if you intend to scale in the near future, Payment Depot’s interchange plus pricing model offered by is the option that will let you hold on to the most of your business’s hard-earned cash.

Business owners often make the mistake of thinking that “flat rate” means “transparent pricing” and this is simply not the case. As you saw above, flat rate payment processing providers often have a bevy of hidden fees for different types of transactions. Interchange plus pricing is the only model that lets businesses make a significant profit without taking a huge percentage of those profits for themselves. This is why Business.com states that, “Industry experts recommend the interchange-plus pricing model as the most beneficial pricing structure available.”

So, whether you’re a small business selling high-ticket items, or a large business planning to continue to scale, do the math before you choose a payment processing solution. You might be surprised at how much money your business can save!