PayPal, a leading digital payments platform, has announced plans to increase fees for US merchants using certain services, effective January 13, 2025. Since Alex Chriss became CEO in September 2023, PayPal has focused on profitable growth. PayPal merchant fees are expected to rise in 2025, and the company justified the decision by stating that the updated pricing aligns with the value provided to merchants.

The updated pricing will affect the merchant using Braintree and PayPal services – including buy now, pay later (BNPL) payments, virtual terminal payments, debit and credit card payments, and other alternative methods.

Key Takeaways

• Fee Increases Across Services: PayPal will raise fees for specific services starting January 13, 2025, including Buy Now, Pay Later (BNPL), Virtual Terminal, and Advanced Credit/Debit Payments.
• BNPL Fees See the Largest Hike: The fee for PayPal’s BNPL service will increase to 4.99% plus $0.49 per transaction, reflecting the rising demand and value of flexible payment options among consumers.
• Impact Varies by Merchant Size: Larger merchants may negotiate customized rates to minimize the impact, while smaller and mid-sized businesses may face more direct effects due to standard pricing.
• Competitive Context: Despite the increases, PayPal’s BNPL fees remain competitive compared to rivals like Afterpay and Klarna, which charge merchants higher transaction rates.

PayPal Merchant Fees: Raise in 2025, Citing Improved Services and Changing Market Conditions

Last week, PayPal announced its plans to renegotiate fees for U.S. merchants using specific services, effective January 13, 2025. PayPal spokesperson Nicole Cutler stated that to adapt to shifts in the economic environment and include new features for customers, PayPal has revised its pricing for U.S. PayPal business accounts and U.S. Braintree accounts.

PayPal justifies these fee increases by pointing to the additional features and innovations it has introduced to support merchants and promote growth.

Cutler stated that PayPal routinely assesses its pricing to reflect current economic conditions, industry changes, and the value its products offer customers. In recent years, PayPal has introduced new features and innovations to improve merchant support and facilitate expansion.

The upcoming changes will affect several of PayPal’s services:

• PayPal Pay Later: The fee for merchants offering PayPal’s BNPL service will rise from 3.49% plus $0.49 per transaction to 4.99% plus $0.49. This adjustment reflects the growing popularity and value of BNPL options among consumers.
• Virtual Terminal: The cost of using PayPal’s virtual terminal will increase from 3.09% to 3.39%. The virtual terminal allows merchants to process credit card payments without the physical card present, facilitating phone or mail orders.
• Advanced Credit/Debit Payments and Alternative Payment Methods: Fees for these services will increase from 2.59% to 2.89%. This change aims to represent better the enhanced features and support PayPal has introduced in recent years.

BNPL has gained popularity, enabling them to spread the cost of products and services into manageable payments over time. Companies like Afterpay and Klarna, which started providing these options to merchants, have become significant figures in the payment industry over the last ten years. The company notes that, despite the increases, its BNPL fees remain competitive. For instance, Afterpay, owned by Block, charges merchants 6% per transaction plus $0.30, while Klarna’s rates are around 5.99% plus $0.30.

These fee revisions will influence merchants differently based on their operational scale and transaction frequency. Larger enterprises often possess greater bargaining authority, allowing them to lessen the consequences of standard rate hikes. On the other hand, smaller and mid-sized businesses may feel a more pronounced effect due to their reliance on standard pricing structures.

Businesses employing PayPal’s BNPL options could encounter increased per-transaction costs tied to these adjustments. Still, enduring consumer interest in adaptable payment methods may offset these expenditures through expanded sales volume and stronger client loyalty.

In 2021, PayPal raised its fees for online transactions to 3.49% plus a fixed fee of $0.49. This adjustment applies to payment services such as PayPal Checkout, Venmo payments, etc.

What Should Merchants Consider?

Merchants should evaluate how these fee changes will affect their operations and consider strategies to manage potential cost increases:

• Assess Service Usage: Review the current PayPal services and determine if they remain the most cost-effective options for the business.
• Explore Negotiation Opportunities: Larger merchants may have the opportunity to negotiate customized rates with PayPal, potentially mitigating the impact of fee increases.
• Consider Alternative Payment Processors: Exploring other payment processors with competitive rates might be beneficial depending on transaction volumes and business needs.

About PayPal

PayPal Holdings, Inc. is a leading technology platform focusing on digital payments, serving consumers and merchants worldwide. The company offers various products, including PayPal, Credit, Venmo, Braintree, Zettle, Xoom, Honey, Hyperwallet, and Paidy. These products support a variety of transactions, such as purchases and personal transfers across multiple channels. Customers can access these services using payment methods like bank accounts, PayPal balances, credit lines, and credit cards.

Founded in 1998 and based in San Jose, California, PayPal operates across about 200 markets globally and handles a large volume of payment transactions. By the end of 2023, the company reported having over 426 million active accounts for consumers and merchants, with a total payment volume of more than $1.53 trillion for that year.

In addition to payment processing, PayPal offers financial solutions such as working capital and business financing, further establishing its role as a full-service financial services provider. PayPal’s commitment to innovation and customer service remains a key factor in its position as a leader in the digital payments industry.

Conclusion

PayPal’s planned fee increases for 2025 reflect its focus on aligning pricing with the value of its enhanced services and adapting to evolving market conditions. While larger merchants may have opportunities to negotiate rates, smaller businesses could face more significant impacts from these changes.

To mitigate costs, merchants should assess service usage, explore alternative providers, or negotiate with PayPal where possible. As consumer demand for flexible payment options like BNPL grows, businesses may find that the benefits outweigh the added costs. PayPal’s decision highlights broader industry trends, where service upgrades and competitive pressures drive pricing adjustments among payment processors.