PayPal is an online payment and checkout platform used by ecommerce businesses worldwide. As a popular option for ecommerce brands of all sizes, PayPal is familiar to its 400 million active users – who may have their address or credit card details saved. With PayPal, these users can checkout in just a few clicks – and faster checkouts means fewer cart abandonments, which could lead to better sales. 

Why PayPal is a Smart Choice for Ecommerce Entrepreneurs

Although PayPal’s fee structure may be relatively high in comparison to other merchants (depending on the use case), it might still be worthwhile to offer the option. PayPal is a fast payment or checkout option, especially if you’re having trouble getting orders across the finish line. Customers can select a saved card or saved address and proceed immediately to clicking ‘confirm’ – which is why many PayPal merchants choose PayPal to provide a friction free, familiar, and safe checkout experience to customers. 

PayPal Transaction Fees for Ecommerce Sales

PayPal charges between 1.9% and 3.5% in transaction fees on each sale, plus a fixed fee ranging from 5 cents to 49 cents. This is charged on each transaction through the payment gateway, and whether it's on the higher or lower end of this range will depend on how the sale went through. 

For example, a website uses PayPal checkout to accept standard credit or debit card payments. The website also uses a PayPal click-thru link, which allows customers to connect their PayPal account and pay. Based on PayPal’s stated terms for the United States, the customer paying via standard credit card payment costs 2.99%. The customer who clicks the PayPal button and pays with the same credit card, this time via their connected account, costs 3.49%. Note that both examples include the fixed fee.

In this example, even a guest checkout that is effectively performing the same task (payment via credit card, with no PayPal account) costs more. While having the PayPal button (and customer’s peace of mind) might well be worth the extra spend, ecommerce brands should be aware of these transaction differences when setting up the store. The difference between 2.99% and 3.49% could be very material when considering transactions in excess of $10,000 per month or more! 

PayPal Blended Pricing and Interchange ++

One option for ecommerce brands looking to reduce or better track PayPal fees is Interchange ++  (IC ++) pricing. This is an option for ecommerce brands looking to keep on top of PayPal fees, although it might not be cheaper in every case. 

The pricing model described in the previous example is called “blended pricing.” The 3.49% fee charged on the transaction actually includes 3 parts. PayPal’s fee includes the interchange fee, sometimes called the “swipe fee,” charged by the bank (ie. Bank of America or Chase). PayPal’s fee also includes the card network fees, like those charged by Visa. Finally, PayPal charges a markup for the service, since PayPal was in charge of processing the card. In the normal PayPal pricing model, these fees are “blended” together a total 3.49%, regardless of the payment card that the customer will use. 

In IC++, these fees are kept separate and come out of each sale individually – say, 1.5% to Chase, 0.5% to Visa, and 1% to PayPal. 

In this scenario, the merchant might pay less in PayPal fees, although the cost of IC++ plans will depend on the kinds of cards your customers use. Payments can be slower to settle, but they are more transparent (and sometimes cheaper), especially if the ecommerce business processes a lot of transactions and has robust accounting software to handle them. 

Evaluating PayPal Fees in 2024

PayPal remains a reliable and user-friendly option for ensuring customers complete their purchases. Its transparent fee structure allows ecommerce businesses to accurately estimate costs using online calculators from sources like Wise, The Fee Calculator, and NerdWallet.

Checking Out

Understanding PayPal’s fee structure is crucial for ecommerce businesses looking to optimize their payment processes. While PayPal may have higher fees, its convenience and familiarity can lead to increased sales and customer satisfaction. By choosing the right pricing model and utilizing available tools, businesses can effectively manage their costs and leverage PayPal’s benefits.