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Even though a policy change PayPal Inc. announced late last week will dramatically increase some online merchants’ acceptance costs for American Express transactions, their overall costs may remain flat or possibly decline, if the experience of one online retailer is any guide. “There’s at least a good chance it’s not going to affect people too negatively,” says Jon Kuhlmann, managing partner at Grapevinehill Inc., operator of online shoe retailer Grapevinehill.com.
That’s despite the fact that, starting Oct. 25, merchants using PayPal’s Website Payments Pro and Virtual Terminal services will have to have their own contractual arrangements in place with American Express Co. PayPal will continue to service AmEx transactions. The new AmEx policy goes into effect for new merchants even earlier– July 13. Up to now, Website Payments Pro users have been able to accept AmEx, along with Visa, Discover, and MasterCard, at a blended rate for all three card brands. The rate starts at 2.9% plus 30 cents for small-volume merchants and goes as low as 1.9% plus 30 cents for big merchants. Even at the high end of that range, merchants have been getting a big break on AmEx, which commands higher tickets than Visa and MasterCard and carries a premium rate.
With the new policy on AmEx, Payments Pro users face a sharp increase. Kuhlmann says Grapevinehill, which switched from Payments Pro to Chase Paymentech 15 months ago, is paying 3.3% for AmEx transactions. “It’s expensive,” he says. “But our average ticket with AmEx is probably triple what it is with Visa or MasterCard. We’re not going to walk away from that because of the 3.3% rate.”
Payments Pro is a non-hosted product PayPal rolled out five years ago to let merchants accept payment cards on its merchant account. It has had some success over the years marketing Pro not only to small merchants but also to some larger ones, like Grapevinehill, that already had their own merchant accounts but were attracted to the blended rate.
The new requirement that Payments Pro merchants deal directly with AmEx is one of three policy changes PayPal announced last week. It also said starting Aug. 10 it will retain its transaction fee, usually 30 cents, when it processes refunds. And starting Aug. 24, for U.S. merchants only, its chargeback fee will double to $20. This change doesn’t apply to eBay merchants using the PayPal Preferred program.
Asked about the new AmEx requirement and its possible impact on Payments Pro, Eddie Davis, senior director of SMB merchant services at PayPal, tells Digital Transactions News by e-mail that PayPal will not layer on any charges beyond the market rate from AmEx (SMB refers to small and medium-size businesses). “But we continue to charge for additional services like currency conversion and chargeback processing, when applicable,” he says. As for merchant reaction, “we already have a good number of Website Payments Pro merchants processing directly with American Express,” Davis says.
Kuhlmann says the sticker shock for Pro merchants that decide to deal directly with AmEx could be muted by a number of factors besides the larger ticket sizes. He says, for example, that Grapevinehill is winning far more chargeback disputes now that it has a direct contract with AmEx. That adds up for the retailer, he says, considering the 1.1 percentage points extra he now has to pay for AmEx payments. “That $200 pair of shoes that you won instead of lost, that goes a long way on a 1.1% differential,” he points out. “That represents the fees on $6,000 of charges.”
His verdict on life after Payments Pro is marginally positive, he says, when he does the math on his overall acceptance costs for all cards, including debit. “We’re definitely doing better overall,” he says. “Maybe by a tenth of a percentage point.”
