PayPal Says Its New Pricing Should Cut Costs for Most Sellers

PayPal Inc., the online payment processor owned by Internet auction powerhouse eBay Inc., is set to roll out new transaction fees Aug. 6 that it says will slash payment costs for most of its sellers. Merchants doing very large volumes will see the greatest benefit, while mid-tier sellers will see some reduction and the smallest-volume sellers will see no change. In a major restructuring of its fees, San Jose, Calif.-based PayPal will introduce four pricing tiers based on dollar volume in the previous month, instead of the current two tiers based on average volume over a three-month period. To receive the new pricing, merchants will have to submit an application to PayPal after Aug. 6, using a form on the processor's Web site. The new pricing structure, which PayPal calls “performance-based” pricing, was announced in e-mails sent this week to PayPal accountholders and applies to both online merchants as well as sellers on eBay. PayPal is making the pricing change, a spokesperson says, “to be as competitive as possible in the marketplace and to attract new merchants.” It is the company's first pricing change in three years. Under the new pricing schedule, PayPal's best rate for merchants doing business with domestic buyers will be 1.9% plus 30 cents per transaction. To qualify for this rate, merchants must generate more than $100,000 in sales in the previous month. Merchants with sales between $10,000.01 and $100,000 will pay 2.2% plus 30 cents; those between $3,000.01 and $10,000 will pay 2.5% plus 30 cents; and those under $3,000 will be levied 2.9% plus 30 cents. Currently, PayPal charges two rates. Sellers that maintain a three-month average of more than $1,000 pay a so-called merchant rate of 2.2% plus 30 cents; those under $1,000 pay the standard rate, 2.9% plus 30 cents. Although the new structure seems to impose higher fees on merchants that do more than $1,000 but less than $10,000.01 in sales per month, PayPal says that as a practical matter the bulk of these merchants will also see a cost reduction if they apply for the new pricing, since less than 5% of PayPal merchants eligible for the current merchant rate apply for it. “Most are paying 2.9% plus 30 cents for whatever reason,” says a PayPal spokesperson, “so most will see a price decrease.” Also, she says, merchants that already receive the current merchant rate will be grandfathered at that rate until August 2005, when the new rates will apply to them. The new pricing structure splits the existing single merchant rate into three volume tiers, and raises the threshold for qualification for merchant rates from a monthly average of more than $1,000 to more than $3,000 in the previous month. In this way, sellers using PayPal for payment will get pricing breaks at more points along the way as their businesses grow. “We want to help reward businesses that grow their business with PayPal,” says the spokesperson. PayPal will adjust each merchant's fee every month depending on the volume generated the previous month. But merchants eligible by volume for merchant rates must apply to PayPal to receive them. Thereafter, they will receive the rates whenever eligible, without having to re-apply. The new pricing structure leaves unchanged the special rate of 2.5% plus 9 cents PayPal introduced last December for song downloads. The rate is available only for music costing $5 or less, and sellers must perform at least 3,000 transactions a month to qualify.