The True Costs of PayPal

When you look at PayPal Here’s website, you see their main selling point of how ‘straightforward’ and simple this solution is for your business. However, we’ve taken the liberty to dig a bit deeper where, not surprisingly, we see a lot of asterixes and small print. You`ll be shocked at how many hidden rates you may find yourself subject to.

Face-to-Face Payments

If you want to use their card reader, the machine itself will set you back £75 before you’ve even taken your first payment. Fair enough, they tell you this right away and that rates go from 2.75% to as low as 1.50% if you have between £15,000 - £55,000/month in turnover. Though 1.50% when you have £55,000 in turnover can hardly be called a good deal. Then there is the advertised flexibility of the card reader, you can take payments using contactless, magnetic stripe, Chip+PIN or even manual entry. What they don’t tell you is that they’ll charge the different options at different rates.

Any card payment accepted via swiping the magnetic stripe or manual entry will cost you 3.40% + 20p, or the Interchange Plus rate of interchange (see table below) + 3.15% + 20p. The latter simply means you risk being charged the interchange rate (0.2% - 2%) on top of the 3.15%, where PayPal does not know what the rate will be at the time of the transaction so you risk paying quite a bit.

Do you accept AMEX? You might want to reconsider as PayPal will always charge AMEX payments taken via Chip+PIN and signature or contactless at the 2.75% rate, regardless of your turnover.

Accepting cards from outside the UK? I’d reconsider. You will end up paying 3.80% - 7.20% on top what you already pay per transaction. This means, if you have a Brazilian customer for your business where you turn over £5,000 per month and you take the payment via the magnetic stripe, you will end up paying a 3.40% fee plus 7.20% on top, making your total cost for the transaction 10.60%. Don’t believe us? Have a look at their breakdown of international payments.

In fact anyone turning over less than £6,000 per month will be charged 2.75% on all transactions.

True cost of paypal

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Over the Phone Payments

As with Face-to-Face payments, here they introduce the blended fee and the interchange rate plus fee structures. With the blended fee structure you will be charged 3.40% + 20p per transaction and with the interchange rate plus fee structure you will be charged the interchange rate on top of a set percentage, which PayPal sets to 2.90% in their example, but does not clarify whether this always applies or if it changes.

Paypal Here fee structure
true cost of paypal

Sending Invoices (Paylinks)

PayPal does let you send invoices to your customers where they can either pay via their PayPal account or with a debit/credit card. This is also a costly alternative as their rates start from 3.40% and doesn’t really look good until your turnover is past £15,000 per month. Even if you turn over £14,500 per month, PayPal will hold you to a 2.40% + 20p transaction rate for letting your customer enter their own details via the invoice you’ve sent them.


PayPal started as a service for sending money via email, not as a payment provider. This shines through in their efforts to create pricing structures, where there are so many different price points, percentages and fine prints it’s impossible to keep track when you have your everyday business to worry about. Though there will always be those who swear by PayPal, we would recommend you stick to one of the companies who initially intended to be processing your card payments.

Don’t take it from us, take it from Elon Musk, who merged his company with what was to become the modern day PayPal:

“I mean, it’s so ridiculous that PayPal today is worse than PayPal circa end of 2001. That’s insane. None of these start-ups understand the objective. The objective should be - what delivers fundamental value. I think it’s important to look at things from a standpoint of what is actually the best thing for the economy. If people can conduct their transactions quickly and securely that’s better for them. If it’s simpler to conduct their financial life it’s better for them. So, if all your financial affairs are seamlessly integrated in one place it’s very easy to do transactions and the fees associated with transactions are low. These are all good things. Why aren’t they doing this? It’s mad.”

Elon Musk, (Vance 374-375, 2015)

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