PayPal Raises Rates and Offers Chargeback Protection for a Fee

PayPal is raising rates in August and is offering an optional chargeback protection service for an additional fee. Sellers of low-priced goods will feel a greater impact from the rate hike. (A seller processing a $7 transaction will see a fee increase of 46%, while a seller processing a $100 transaction will see a fee increase of 24%.)

Sellers currently pay 2.9% plus 30 cents per transaction to process a payment through PayPal. The company announced on Friday it's raising rates in August to 3.49% plus 49 cents per transaction.

For a $25 item, sellers who currently pay PayPal 2.9% plus 30 cents, or $1.03, would pay $1.36 under the new fee structure - a difference of 33 cents, which in this case, is a rate increase of 32%. 

This directly impacts sellers' profit margin. Another way of looking at the impact of the higher rates on a $25 sale - currently sellers pay a fee equal to 4.1% of the item's selling price; in August, that will rise to 5.4%.

As sellers understand all too well, the sale of a $25 item generally incurs higher payment-processing fees since companies like PayPal charge fees on the *total* transaction amount - including sales tax and shipping charges. 

To see how the impact of the new fees varies depending on the transaction amount: 

- A $7 transaction now costs a seller 50 cents in PayPal fees, in August they will pay 73 cents, a difference of 23 cents, which is a 46% increase in payment processing costs.

- A $100 transaction now costs a seller $3.20 in PayPal fees. In August, they will pay $3.98, an extra 78 cents, which is an increase of 24%.

That's our back-of-the-envelope jottings - we'd like to hear from sellers about the impact it will have on their business.

Could PayPal's decision to raise rates be part of its risk mitigation strategy as the pandemic increases online buying and selling - and as PayPal forays into cryptocurrency? (Generally speaking, buyers choose which method they fund their payments, but sellers pay the payment processing fees.)

PayPal didn't say that in its announcement: it said it was better aligning its pricing with the value that its products and services provide, and stated the following:

"By investing in our data analytics capabilities, the improvement of our fraud tools, and the new consumer experiences we are delivering with products like Buy Now and Pay Later, Pay with Rewards Points, and Checkout with crypto."

The announcement also describes other fees that are changing, and sellers will want to delve into the details for themselves.

As far as the chargeback protection, here's a section from the PayPal FAQs:

What is Chargeback Protection and how can I get it?

Chargeback Protection is a fully managed risk solution that helps to reduce loss liability by offloading fraud analysis to PayPal. Starting August 2, 2021, merchants will be able to enroll* from within their account through the Manage Risk tab. After you enroll, if a chargeback occurs, PayPal will refund the disputed amount on eligible transactions. (Subject to additional fees). 

*Merchants can enroll in Chargeback Protection from within their PayPal account. Merchants simply need to click on the 'Manage Risk' tab at the top of the page and select Chargeback Protection. Terms apply.

Will you consider enrolling in Chargeback Protection?

And, will you be raising prices, or will you absorb the higher fees?