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The AuctionBytes Blog has been giving a voice to online merchants since its launch in 2005. Named one of the world's top 30 blogs in 2008 by "Blogging Heroes." Weigh in with your thoughts on the joys and pitfalls of selling online.

Sun Nov 3 2019 09:24:40

Expect More PayPal Price Changes Ahead

By: Ina Steiner

PayPal executives revealed there are more price changes coming in 2020 after rolling out a controversial refund policy last month that promised to be costly for merchants: PayPal no longer credits any fees when they issue refunds for returns or other reasons - previously it had credited all but the fixed-price transaction fee.

During its third-quarter conference call on October 23rd, PayPal Chief Financial Officer John Rainey addressed the new policy, saying it had been rolled out in three countries this year and will be expanded further next year.

What might come as a major surprise to many sellers, however, is the revelation that certain merchants are excluded from the new, costly policy - "... certain merchants are excluded if you have negotiated pricing and so forth,..." Rainey told analysts.

Volume discounts are standard in ecommerce and elsewhere, but offering a policy exemption for merchants of a certain size is another matter. It means small sellers are stuck with the costly new policy, while an unknown number of larger merchants are exempt. (It's possible PayPal received pushback from large merchants back in April when it first announced the new policy in its new user agreement.)

A former merchant sales officer at a big bank sent us an email last week to point out that when a merchant issues a refund to a customer, Visa and Mastercard refund a portion of the interchange fees - meaning PayPal now keeps all of it.

We found an interesting discussion of this topic on a site called Cardfellow.com. "Visa and MasterCard use interchange fees to determine how much you pay an issuing bank each time you accept a credit or debit card transaction. Interchange is also used to determine how much money you get back on your processing fees when a customer returns the product she purchased."

"I am not opposed to PayPal keeping something, overall I think they have provided a good service to me over the years I never had a big issue," the former banker-turned-online seller said. "But PayPal's new policy is a big dynamic shift towards profit, which I am all for, but not so much that you tick off you customer base."

"When PayPal is taking back the IC refund and keeping it in their pocket under the ruse that all the other kids are doing it, does not sit well with me," he said.

During the same Q3 conference call where Rainey discussed the policy, PayPal CEO Dan Schulman said, "We're going to have pricing initiatives this year, next year, the year after and then the year after that. I mean we continually assess market dynamics. We look at the evolving practices of our competitors. We take a hard look at the value we provide. And then we try to price appropriately based on all those factors."

You can find the full transcript of the PayPal conference call on SeekingAlpha.com.

To understand the impact of PayPal's new refund policy: one reader explained to us that for a $100 transaction, they pay PayPal fees of 2.9% plus a 30-cent fixed transaction fee - $3.20. Prior to the new policy rolling out in October, if the seller refunded the entire $100, PayPal would keep only the fixed-price portion, or 30 cents, and the seller would receive back $2.90. But under the new policy, PayPal keeps the entire processing fee of $3.20.

There are many reasons why a seller would issue a refund - sometimes it's because of a shortcoming of a marketplace. For example, a seller may be forced to overcharge on shipping for multi-quantity purchases and then feel obligated to refund the customer a portion of the shipping charge.

Sellers must also issue refunds for most returns, meaning they become even more costly for merchants.