NEW YORK, June 18 (Reuters) – PayPal Holdings Inc (PYPL.O) will increase merchant costs for its branded payment products while lowering costs for behind-the-scenes processing of certain Visa and Mastercard transactions, a bold move in a context increasingly competitive digital payments industry.
The strategic change reflects the growing power of PayPal in online transactions, which has increased during the COVID-19 pandemic. As consumers and businesses flocked to the company, a market leader, during the lockdown, its active accounts stood at 377 million, more than double the level in 2015.
The company said the move reflects the value of its proprietary services, with consumers nearly three times more likely to complete a purchase when PayPal products are available at checkout, while users of the new buy now-pay option. later spend on average 15% more.
âWe are changing the prices to help our customers understand even more clearly where we are delivering value,â said Dan Leberman, PayPal’s senior vice president for Small and Medium Business and Partners, in an interview.
âThe portfolio has tremendous value; card processing is trivialized. “
PayPal shares were up 2.5% late Friday afternoon.
PayPal will charge sellers 3.49% plus 49 cents to process transactions made through its proprietary products, including its button on merchant websites and its digital wallet, according to information the company shared with Reuters.
The higher rate applies to products such as PayPal Checkout, Pay with Venmo, PayPal Credit, and the new Buy-now-pay-tard Pay in 4 offer.
PayPal has 392 million active accounts, including 31 million merchants worldwide, and also owns Venmo, Braintree, and iZettle.
It will be difficult for merchants to know how much additional value they are getting from PayPal’s features in exchange for the higher rates, said Ben Dwyer, the founder of cardfellow.com who analyzes the processing offers available to merchants.
“PayPal wants to be a complete payment solution, but it’s hard to do that by selling on value over price.”
Sellers will pay 2.59% plus 49 cents to have PayPal process online payments made with other companies ‘Visa and Mastercard debit and credit cards without consumers’ knowledge.
In the past, PayPal charged sellers 2.9% plus 30 cents for payments on most online transactions, regardless of its role.
Lowering basic transaction processing rates help PayPal compete with competitors like Stripe and Authorize.net. PayPal expects to acquire customers because of the discounts, Leberman said.
âWe think this is a bold price to release,â he said.
As large traders tend to negotiate one-off deals, the rate hikes will largely affect small and medium-sized businesses, some of which have lost confidence this year due to a nationwide labor shortage and inflation fears. Read more
The changes largely reflect the services PayPal has developed since its separation from eBay Inc (EBAY.O) in 2015.
While most of its transactions are online, PayPal will also lower prices for in-person transactions through its network, which should help it compete with Square Inc (SQ.N).
For most of those purchases over $ 10, PayPal will charge 1.90% plus 10 cents. For cheaper purchases, the rate will generally be 2.40% plus 5 cents.
PayPal’s business exploded during the pandemic, as more homebound consumers spent online. It processed $ 285 billion in payments in the first quarter, up 49% from the previous year.
âIt’s more than just pricing,â said Aaron Press, analyst at research firm IDC. “They make sure the market understands that they should view PayPal as a complete payment strategy, not just one form of payment.”
“Especially after the pandemic, it has become very, very important.”
Reporting by Anna Irrera and David Henry; Editing by Lauren Tara LaCapra and Jan Harvey
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