PayPal overhauls U.S. rates as payments competition heats up

NEW YORK, June 18 (Reuters) - PayPal Holdings Inc will lift merchant costs for its branded payment products while cutting those for behind-the-scenes processing of some Visa and Mastercard transactions, a bold move in an increasingly competitive digital payments sector.

The strategic shift reflects Paypal’s increasing power in the marketplace for online transactions, which surged during the COVID-19 pandemic. As consumers and businesses flocked to the company during lockdown, its active accounts mounted to 377 million, more twice as many as in 2015.

The company said the move reflected the value of its proprietary services, with consumers nearly three times as likely to complete a purchase when Paypal products are available at checkout, while those who use the new buy-now-pay-later option spend an average of 15% more.

“We are changing prices to help our customers understand even more clearly where we provide value,” Dan Leberman, PayPal’s senior vice president for small and medium business and partners, said in an interview.

“The wallet is of tremendous value; the card processing is commoditized.”

PayPal will charge sellers 3.49% plus 49 cents to process transactions that happen through its proprietary products, including its button on merchant web sites and its digital wallet, according to material the company shared with Reuters.

The higher rate applies to products like PayPal Checkout, Pay with Venmo, PayPal Credit and new buy-now-pay-later offering Pay in 4.

It will cost sellers 2.59% plus 49 cents for PayPal to process, unseen by consumers, online payments that are made with Visa and Mastercard debit and credit cards from other companies.

In the past, PayPal charged sellers 2.9% plus 30 cents to process payments on most online transactions, regardless of its role.

Lowering rates for basic transaction processing helps PayPal compete with rivals including Stripe and PayPal expects to acquire customers because of the discounts, Leberman said.

“We think it’s a bold price to come out with,” he said.

As large merchants tend to negotiate unique deals for their businesses, rate hikes will largely affect small-to-medium sized businesses, some of which have already seen a hit to confidence this year due to a nationwide labor shortage and inflation worries.

With 392 million active accounts, including 31 million merchants globally, PayPal is one of the largest digital payment companies. It owns Venmo, Braintree and iZettle, as well as its namesake application.

The changes largely reflect services that PayPal has developed since splitting from eBay Inc in 2015.

Although most of its transactions happen online, PayPal will also reduce prices for in-person transactions through its network, which should help it compete with Square Inc.

For most of those purchases over $10 the company will charge 1.90% plus 10 cents. At $10 and under, the rate will usually be 2.40% plus 5 cents.

PayPal saw business boom during the pandemic as more homebound consumers spent money online. The company processed $285 billion in payments in the first three months of the year, up 49% from the first quarter of 2020.

“It’s more than just pricing,” said Aaron Press, an analyst at research company IDC, commenting on the changes. “They are making sure the market understands that they should be thinking of PayPal as a comprehensive payments strategy and not just one form of payment.”

“Especially post pandemic, that has become very, very important.” (Reporting by Anna Irrera and David Henry; Editing by Lauren Tara LaCapra and Jan Harvey)