PayPal announced to merchants that as of October 1st, it will be increasing merchant processing rates to a flat 2.9% + 30 cents on domestic transactions. This is one of PayPal’s first big moves to increase revenue since its split from eBay last July.
While the increase will affect only a small portion of PayPal’s portfolio, it is projected to increase annual revenue by $10 million. The change affects the “middle class” of businesses, touching neither the largest nor smallest merchant accounts. This middle class often pays a heftier volume of transaction fees as a percentage of sales; they are large enough to be processing a significant volume of credit card transactions, but not large enough to be able negotiate lower rates with a behemoth like PayPal.
What can a business do that is affected by this increase in merchant fees?
The most obvious action is to look for alternatives to PayPal, specifically with a solution and pricing model that’s right-sized for small to medium-sized businesses. More and more merchant-service processors like Square and PayPal are rolling out these simple flat rate plans. This simple model works well with the smallest of businesses and makes it easier to know the rate paid for each transaction. However, this up-to-70-bps hike from 2.2% to 2.9% even on a portion of transactions could put a big ding on the bottom line of medium-sized companies.
It’s never an easy decision to raise prices, no matter how big the organization. Ultimately, it’s up to your business to decide if the new pricing still works or if it’s time to look for a new way to accept payments.