PayPal Merchant Fees and How to Reduce Them

There Are Ways to Cut Down on PayPal Fees Charged to Your Business

PayPal merchant fees
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PayPal is an online payment system that has revolutionized e-commerce, banking, and the financial world since its introduction in 1998.

As one of the first payment processors online, PayPal has the luxury of being one of the most popular and most widely used payment systems on the internet. It’s an easy way for people to pay for products and services online, transfer money to friends and family, get paid as a freelancer, and much, much more.

However, you should be aware of the various fees that PayPal charges for its services—as well as some ways you can cut down on them.

An Overview of PayPal for Business

Once you have your business PayPal account set up, it’s a simple matter of pasting some code into your website so you have a PayPal “Buy Now” button on your site. A seamless, quick checkout process makes it easy to order, which means more sales for you, whether you are selling digital information products like ebooks or physical products via drop-shipping.

But that convenience comes at a cost. PayPal merchant fees cut into your bottom line, and the amount can add up if you do a lot of sales or transactions—although there are ways to reduce the amount you pay. There also are alternative payment processing methods you might look at signing up for that reduce and/or eliminate certain fees.

There are a few levels to PayPal merchant fees. Here's a breakdown of what you can expect to pay depending on what level of service you use when taking PayPal payments.

Standard PayPal Transaction Fees

This is the most popular way to receive funds through PayPal, and it is a good fit for most online business owners.

Here is the fee breakdown:

  • Online transactions with funds coming from inside the United States are charged a fee of 2.9% of the transaction amount, plus a fixed fee of 30 cents.
  • An online transaction where the funds come from outside the United States is charged 4.4% of the transaction amount, plus a fixed fee based on the currency.
  • There is no fee to sign up, no fee to terminate your relationship with PayPal, and no monthly fees. You can accept payment through PayPal or from all major credit cards.

PayPal Micropayments

One way to reduce your fees—if you generally accept payments less than $10—is to sign up for the micropayment process. To qualify, your PayPal account must be in good standing (no negative balance), you must not be using PayPal Payments Pro, and you must submit a simple application.

  • If the customer is paying from an account in the United States, the fee is 5% of the transaction.
  • If payments come from people outside the United States, the fee is 6.5% of the transaction amount.

PayPal Currency Fees

There are also fees associated with accepting payments from other countries. This includes a 2.5% charge for changing currencies and a 1.5% fee for taking payments from another country.

Going Pro With PayPal

With PayPal Payments Pro, there are no start-up costs or termination fees. But you do pay a $30 monthly fee to turn your computer into a virtual credit card terminal.

That’s the basic advantage there: it makes it easier for people to pay, and you can also take payments over the phone. You also keep the customer on your website during the checkout process. With standard PayPal, they are sent to the PayPal site.

There are fees per transaction to have your virtual credit card terminal:

  • American Express: 3.5% of the transaction
  • U.S. transactions: 2.9% plus 30 cents per transaction
  • International transactions: 4.4% plus a fixed fee depending on the currency per transaction
  • Virtual Terminal: 3.1% plus 30 cents for U.S. transactions (add 1.5% for cross-border transactions)

An Easy Way to Save on PayPal Fees

Many online entrepreneurs have missed one quick and easy step to lower their PayPal merchant fees. Instead of the usual 2.9% fee (plus 30 cents) per transaction that PayPal charges, you can reduce your fee amount to as low as 1.9%. It may not seem like much, but it definitely adds up over time.

To do so, you simply apply for the “merchant rate” through the PayPal site by logging in to your account and going to Profile and Settings, then My Money, and then clicking on Merchant Fees and filling out the application.

In general, you have to be doing $3,000 worth of business each month. And if your monthly sales dip below that amount, your merchant rate status can be taken away.

Alternatives to PayPal

As you can see, PayPal definitely nickel-and-dimes you. And the amount of money you pay in fees can quickly add up, especially the more transactions you do.

The good news is that there are alternatives to PayPal that charge less in fees. And you might also want to explore these different online payment services for other reasons.

For example, some of your potential customers might not use PayPal. Also, PayPal sometimes blocks accounts, so you may not want all your money in one place, just in case it happens to you and you need an alternative way to accept payments while you work things out with PayPal.


Stripe charges the same fees as PayPal, but it doesn’t charge additional fees for international transactions (remember that PayPal charges quite a bit extra for those). If you have a lot of customers outside the United States, this is a great alternative.


Transferwise is also a great choice if you have a lot of international customers, as their fees are low and they have better currency exchange rates than other payment services, especially PayPal.

Google Wallet

Google Wallet is a good option as your customers don’t need the Wallet app to make payments. Plus, payments are automatically sent to your connected bank account. Best of all, Wallet doesn’t charge any fees.

Apple Pay

Apple Pay is another payment process that is growing in popularity and integrates with many shopping cart and payment processing services, such as Stripe.

The Bottom Line

PayPal is an industry standard online payment system. Yes, the PayPal merchant fees can cut into your profits, but it’s so widely used by consumers you basically need to have this option to make sure you don’t miss out on potential sales.

But there are ways to reduce your fees, as we've shown, and it’s always good to keep other payment options open. Giving your customers more than one way to pay is always a good thing.