PayPal Holdings Inc will increase the business costs of its branded payment products and reduce the costs of behind-the-scenes processing of some Visa and Mastercard transactions, a bold move in an increasingly competitive digital payments industry.
The strategic shift reflects PayPal’s growing power in online transactions, which increased during the COVID-19 pandemic. As consumers and businesses flocked to the market-leading company during the shutdown, its active accounts rose to 377 million, more than double the number in 2015.
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The company said the move reflected the value of its proprietary services, with consumers nearly three times more likely to complete a purchase when PayPal products are available at checkout, while users of the new buy now pay later spend. an average of 15% more.
“We are changing pricing to help our customers understand even more clearly where we provide value,” Dan Leberman, PayPal’s senior vice president for small and medium businesses and partners, said in an interview.
“The wallet has tremendous value; card processing is a commodity.”
PayPal shares rose 2.5% on Friday afternoon.
PayPal will charge sellers 3.49% plus 49 cents to process transactions made through its proprietary products, including its button on merchants’ websites and its digital wallet, according to material the company shared with Reuters.
The higher rate applies to products such as PayPal Checkout, Pay with Venmo, PayPal Credit, and the new Buy Now Pay Later Pay in 4 offer.
PayPal has 392 million active accounts, including 31 million merchants worldwide, and it also owns Venmo, Braintree, and iZettle.
It will be difficult for merchants to know how much additional value they are getting from PayPal features in exchange for the higher fees, said Ben Dwyer, founder of cardfellow.com who analyzes the processing offers offered to merchants.
“PayPal wants to be a comprehensive payment solution, but it is difficult to achieve this by selling for value over price.”
Merchants will pay 2.59% plus 49 cents for PayPal to process, without consumers seeing, online payments made with other companies’ Visa and Mastercard credit and debit cards.
In the past, PayPal charged sellers 2.9% plus 30 cents for payments for most online transactions, regardless of their role.
Lowering basic transaction processing fees helps PayPal compete with rivals like Stripe and Authorize.net. PayPal hopes to acquire customers because of the discounts, Leberman said.
“We think it’s a bold price,” he said.
Since large traders tend to negotiate one-time deals, rate hikes will hit small and medium-sized businesses heavily, some of which have lost confidence this year due to labor shortages across the country and inflation concerns.
The changes largely reflect the services PayPal has developed since it split from eBay Inc in 2015.
Although most of your transactions are done online, PayPal will also lower the prices of in-person transactions through its network, which should help it compete with Square Inc.
For most of those purchases over $ 10, PayPal will charge 1.90% plus 10 cents. For cheaper purchases, the rate is usually 2.40% plus 5 cents.
PayPal’s business grew during the pandemic as more homebound consumers spent online. It processed $ 285 billion in payments in the first quarter, 49% more than in the same period last year.
“It’s more than just setting prices,” said Aaron Press, an analyst at research firm IDC. “They are making sure that the market understands that they should think of PayPal as a comprehensive payment strategy and not just a form of payment.”
“Especially after a pandemic, that has become very, very important.”