PayPal Raises UK/EU Fees
Accepting credit card payments can be an expensive necessity. One way to avoid chargebacks and other card-related expenses is to accept alternative payment systems like PayPal, but these systems come with their own costs. While it can be beneficial to offer a wide range of payment options and reduce your reliance on payment cards, merchants need to know just how much alternative payments are costing them.
This year, PayPal is increasing their fees on transactions between businesses in the UK and the EU. Why is PayPal raising fees on transactions between the UK and the rest of Europe, and how much more should merchants expect to pay?
By internet standards, PayPal has been around forever, providing businesses and individuals with a way to send and receive money since the days when “never give out your credit card number online” was a common admonition.
The world of e-commerce and its attendant payments ecosystem have changed dramatically in the subsequent years, but PayPal has hung on as one of the most widely-used electronic payment platforms. There are more than 24 million merchants using PayPal, and for some small ventures it may be the only payment platform they use.
Needless to say, when PayPal raises their rates it has a big impact on merchants—even when the increase is confined to a particular geographic region. The increase set to take effect this year pertains to transactions between businesses located in the UK and the European Economic Area. Stateside merchants may not be affected by these new rates, but it’s always worth knowing when and why such changes are taking place.
What Changes are Being Made to PayPal’s Transaction Fees?
Effective November 10, 2021, PayPal will be raising the fees it charges businesses to send funds between the UK and the EEA. The UK side of the transaction includes Gibraltar, Guernsey, the Isle of Man and Jersey, and the other side includes every country that the EU has designated as belonging to the EEA.
While there is considerable overlap between the EU and the EEA, EU member states are not automatically included in the EEA and some non-EU states—Iceland, Liechtenstein, and Norway.
The EEA provides a single market for businesses operating in Europe, allowing for the free exchange of money, goods, and services. Spain, Germany, France, and other EEA states can send each other money without any regulatory barriers or added costs, because they’re effectively sharing a single domestic market together. Transactions that involve parties outside the EEA, however, are a different story.
The old merchant fee for transactions between the UK and the EEA was 0.5% of the transaction amount. When rates go up in November, that rate will more than double, increasing to 1.29%. Within the EEA, the EU puts an upper limit on these types of transaction fees, but if one of the parties is located outside of the EEA, those limits do not apply.
Why is PayPal Raising These Fees?
Any time you hear news that the status quo between the UK and Europe is changing, it’s a safe bet that Brexit is the reason why—and this situation is no different. Now that Brexit has taken effect, the UK is no longer a part of the EU and is no longer in the EEA. That means they no longer participate in the same domestic market as their continental neighbors, and are no longer bound—or protected—by EU regulations.
So one reason PayPal is raising these fees is because they can, now, but it would be fair to say that their own costs have been impacted by Brexit.
Visa and Mastercard announced increases to their own interchange fees for transactions involving both the UK and the EEA, which will take effect in October.
Many PayPal transactions do rely on payment cards as a funding source, so they are directly affected by rising interchange fee rates. PayPal’s official explanation for the rate increase is that they are doing it to make up for the additional costs they are now incurring, including the higher interchange fees.
How Will These Rate Increases Affect Merchants?
Since the credit card networks are also raising their interchange fees, this rate hike isn’t really a PayPal-specific issue. Rather, it is part and parcel of the fears many expressed about Brexit, now being realized, that the UK’s departure from the EU would put the pinch on small businesses that depend on sales from outside of their home country. With shipping delays and rising costs in play, 23% of UK businesses have stopped selling the EU for now.
While it’s understandable that merchants would be unhappy about any increase to the fees they’re required to pay, it should be noted that the new rate of 1.29% is still well below the 1.99% transaction fee PayPal charges in most other regions.
Merchants who process the bulk of their sales through PayPal may need to adjust their budgets or look into diversifying their payment options. In the meantime, the UK is pursuing trade agreements with other countries, and future developments may cause further adjustments to interchange rates and their derivative fees.
Conclusion
For merchants who want to grow their business and appeal to a broader customer base, it’s never a bad idea to look into expanded payment options. While these platforms can also introduce new fees and other costs to worry about, the end result can still be a net positive if your sales go up because more customers can use their preferred payment methods with you.
One thing to keep in mind is that additional payment options can complicate your chargeback defense strategy. Some payment platforms have their own internal dispute management systems, others can still give you chargebacks if the customer funded their “alternative” payment with a traditional credit card transaction.
Don’t be afraid to add new platforms, but choose them carefully, based on customer and market research, and make sure you allocate resources toward platform-specific dispute prevention measures. With the right approach, you can use alternative payment systems to your advantage.
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