Thanks to the new PayPal Adaptive Payments suite of APIs you can choose how you want to be paid online. But the real question is, how should that payment be processed?
PayPal recently launched a new service called PayPal Micropayments. This is a new type of account that you have to apply for (you can’t just accept micro payments on your standard account – not yet anyway!) So what’s the benefit of Micropayments then? Quite simply, it may offer offer lower transaction processing charges for you. And that’s the crux of the matter “it might” – it all depends on the amount of being charged per sale. Bear with me here, it’s about to get a bit technical…
PayPal’s normal processing fee (for the UK in £) is 3.4% + 20p per transaction. Now that seems relatively reasonable if you’re selling an item for £100, it would mean a total fee of £3.60… (or 3.6%) However, if the value of the item you’re selling is only £1, then your fee is 23.4p (3.4% +20p) which works out at a colossal 23.4% as a transaction fee. PayPal Micropayments charges a higher percentage, but a lower transaction fee (5% +5p). Clearly Paypal is better suited to larger amounts, BUT trying to find what the threshold was, had proved quite difficult – no one seemed to know for sure!
So, I spent a little time creating the attached graph (Please click here to download the original Excel doc). What this shows is the constant line of cost-per-value of Micropayments (the purple line) then above it, running left-right are lines showing the total fees for £, $ and €. Now, where each of these lines crosses the purple line, that is the threshold at which it’s better to switch from Micropayments to PayPal Standard.
So, for those of you who are arriving here from a Google search for “What is the threshold for using PayPal Micropayments”…
Welcome, the numbers you’re looking for are as follows:
UK (GBP) £9.38
*The Euro one is a slightly different as this figure is based on transaction fees of 3.4% + 0.35. From my research it seems this fee structure is the most common throughout the Eurozone countries, however there are some individual nations that are charged 3.4% + 0.25, so if you’re only selling to one EU nation state, then you’d be wise to check what rate that country is.
Of course, that’s not the only story though. Because PayPals fees are weighted depending on monthly volumes. However the break points are the same. So the first tier (which all these stats are built using) is based on a monthly revenue of between £0.00 – £1500.00 (for USD and EUR just swap the currency denomination, not the figures). The next tier is from 1.5k – 6k, then 6k – 15k, 15-55k and finally 55k+ at which point the percentage fee has reduced down to only 1.4%, meaning that on an individual sale of £100, the total processing fee would only be £1.60.
I’ll look forward to updating this post with a new graph based on 55k pcm sales as soon as I need it!