The news: PayPal says it plans to change some of the fees it charges US merchants for its payment services. These changes, which will go into effect on August 2, are expected to mostly affect small and medium-sized businesses (SMBs), since larger merchants often negotiate pricing deals with PayPal.
Here’s a breakdown of the key changes:
How we got here: The pandemic helped accelerate PayPal’s growth as merchants leaned on the firm to facilitate transactions amid spikes in ecommerce and consumer adoption of digital and contactless payments. In Q1 2021, PayPal’s total payment volume (TPV) surged 46% year over year (YoY) on a constant currency basis to hit $285 billion—up from 19% YoY in Q1 2020.
The big takeaway: Increasing some of its merchant fees can help PayPal fund proprietary products and further drive revenues, which grew 29% YoY to hit $6.03 billion in Q1—a rate slower than volume growth. Meanwhile, lowering other fees may make PayPal more competitive with companies like Square and Visa, which offer their own payment processing services.
Though it's possible that the fee increases could result in some merchants leaving PayPal, the payment and retail solutions that it offers merchants likely outweigh these risks—especially considering that digital payment offerings like those offered by PayPal will become much more important as consumers continue shopping online and adopting contactless payment methods.