Did You Know that You Can Reduce your PayPal Transaction Fees with Micropayments?

Wednesday, May 27th, 2020

PayPal is currently one of the most popular digital payment solutions. Indeed, some studies put it at number two on the list of most popular online payment gateways in the UK.

A key attraction of the platform is the convenience. Once you have your business PayPal account set up, all you have to do is paste a small code into your website, and you’re ready to start accepting payments. You’ll also get a PayPal buy button.

Unfortunately, this convenience comes at a cost. PayPal levies a merchant fee that can eat into your profits. Worse still, the charges are structured such that the more transactions your process, the more money you’ll “lose.”

The good news is that you can change your payment preferences to reduce the total transaction fees, especially if you sell low-priced items.

The Standard PayPal Fee

Before you change your payment preferences, it’s crucial to understand how the standard (or default) fee works.

The standard fee is the transaction fee your business is charged if you don’t make any changes to your payment preferences. In the UK, this fee is currently 3.4% of the transaction amount plus a fixed charge of 20 pence (£0.2).

You’ll quickly realize that this fee structure could cost you a lot of money if you sell low-priced items. For instance, let’s say that you sell 1,000 items, @ £2 every day. In this case, you’ll be charged a transaction fee of;

{(3.4% x £2) + £0.2} = £0.268/item

1,000 items = {1,000 x £0.268} = £268

Enter PayPal Micropayments

You can considerably reduce the transaction fee by signing up for PayPal Micropayments if you pass the following criteria;

• Your account is in good standing order (no negative balance)
• You’re not using the PayPal Payments Pro service

If you meet both requirements, head over to the PayPal Micropayments UK page, and submit a simple application. Once your application is accepted, your new transaction charge will change to 5% of the transaction value + 5 pence (£0.05).

Using our earlier example, the new transaction charges will be as follows;

{(5% x £2) + £0.05} = £0.15/item

1,000 items = {1,000 x 0.15} = £150

So, how much do you save?

£268 – £150 = whopping £118!

Remember

The micropayments service works best for low-priced items, typically under £10. For higher-priced items, the 5% charge would cause the final costs to exceed standard transactional fees. Also, keep in mind that once you change your preferences, the new rates (5% + 5p) will apply to every single transaction you process.