PayPal fees for dummies

PayPal Fees for DummiesI’m posting this not because it’s terribly difficult to figure out, but because at least six others had the same question I had when I was implementing money handling on microPledge:

How exactly does PayPal calculate fees for international and cross-currency transactions?

Skip down to the summary of PayPal fees.

PayPal’s 15-odd help pages on fees answered some of my questions, but they also made me confused. How and when is the currency conversion fee applied? And who pays it? Their help on the subject is as lucid as the back window of a car after 100 kilometres on a gravel road:

If your transaction involves a currency conversion, it will be completed at a retail foreign exchange rate determined by PayPal, which is adjusted regularly based on market conditions. This exchange rate includes a 2.5% spread above the wholesale exchange rate at which PayPal obtains foreign currency, and the spread is retained by PayPal. [link]

Apparently this means:

If the other guy’s paying you in a different currency than you asked for, PayPal will charge him 2.5% (on top of all the fees they charge you).

Pretty simple — but like you, I’m not sure how you’re supposed to get that from their blurb. I had to ask a PayPal admin guy.

I also struggled with how they round fees. This is important, because some maths libraries do bankers’ rounding by default, in which case you’d sometimes be one cent out. It doesn’t seem to be written down anywhere, but it turns out PayPal does arithmetic rounding, the method you learn in school.

In other words, $4.505 rounds to $4.51, not $4.50. Not surprising that PayPal chooses this method over the slightly more even-handed one … all those half-cents must add up after a while. :-)

Case in point for the importance of rounding: The Fee Calculator gets it wrong. Type $100 into the first box. The result should be $103.30, but they show $103.29 (the fee for the latter is $3.30, so you’d only end up with $99.99). I’ve mentioned this to the author, so hopefully he fixes it.

I found PPCalc quite helpful for some of this stuff. It’s an online PayPal fee calculator — useful, but not perfect, and of course it doesn’t have an API. Hmmm, I wonder if there’d be lots of people who’d use an online API that just calculated PayPal fees for various scenarios?

The juicy summary

So, in short, assuming you have a U.S. PayPal account:

The basic fee when people pay you is 2.9% + $0.30. The percentage goes down if your monthly sales are over $3000.

The international fee when non-U.S. people pay you is 3.9% + $0.30. Again, reduced percentage for high sales volume.

These fees are charged to the you, the seller. To calculate the total if you’re passing on the fee to the buyer, just re-arrange the formula like so (rate is 0.029 or 0.039):

total = (amount + 0.30) / (1 - rate)

PayPal charges the buyer a 2.5% currency conversion fee if he’s paying you in a different currency than you asked for. You as the seller don’t have to worry about this.

MassPay fee. If you’re using the MassPay feature or API call, PayPal charges you 2% of the amount you’re paying, but it’s capped at US$1.00.

Rounding. PayPal fees are rounded using arithmetic rounding. So $4.505 rounds to $4.51, not $4.50.

The end

Still reading? Incredible. Just a few final words:

Yes, I think PayPal’s API is nasty. Yes, their help is poor. Yes, their website is ugly and hard to navigate. But they provide a useful service, and they do what we wanted where other players didn’t (credit cards, money in, money out). There are enough people who moan about how PayPal sucks, so I won’t add to their number.

But I will say that I’m looking forward to Amazon FPS becoming a bit more widespread and internationally-friendly …

16 August 2007 by Ben    21 comments

21 comments and pings (oldest first)

Elad 16 Aug 2007, 19:11 link

Useful post. Thanks.

Clive (Max) Maxfield 22 Aug 2007, 03:49 link

Very interesting — this explains a lot — thanks — Max

PS There are way more rounding techniques than you might expect – if anyone is interested check out an overview “wot I wrote” at http://www.diycalculator.com/sp-round.shtml

Ben 22 Aug 2007, 09:52 link

Thanks, Max. Your site now has three links from this page. :-) I found your articles really helpful when I bumped into non-arithmetic rounding the first time a while back. “You mean there’s more than one way to round?!” Little did I know … so good stuff!

Kelly 9 Oct 2007, 13:46 link

Thanks… I always wondered why my money didnt get there in the correct amount I wanted.. The Fee Calculator doesnt work that well…

Ben 20 Jan 2008, 11:40 link

Hey, thanks for the post – I was confused by the PayPal terms as well and found this entry to be very helpful!

Jon 22 May 2008, 14:33 link

Hi thanks for this paypal fee Calculator it’s really good to have something like this. I use paypal for my Rummage Bucks store, now I can keep prices low :)

Cool deal….

Ejik 30 May 2008, 12:43 link

You may find this useful: http://3n9.org/tools/paypal.html – PayPal Fee Extension for FireFox.

David Turner 18 Dec 2008, 15:28 link

Very useful, thanks for the clear explanations.

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Mark 21 Sep 2009, 15:32 link

PayPal Fee Calculator that will do multiple line items and calculate the Paypal fees at once. Simple and adjustable by margin, gross profit dollars and to your payment level. Simple yet complicated.

[…] they'd probably do Paypal, but again that is 3.5% or so. (An older post has it at 3.9% plus $.30) PayPal fees for dummies :: The Brush Blog While, a vendor may be willing to do CC charges at the event, you'd probably do better if you […]

ForexPaypal 12 Apr 2010, 01:16 link

It good to get all information on paypal fees for dummies.

With Regards, Mr.Hillary

Charm 1 Oct 2010, 13:33 link

Thank you so much. I have been scouring the web for information about Paypal cross-border transaction fees. I had a nosebleed trying to figure out their “Fees” page. Your explanation was exactly what I’ve been looking for.

Miller 4 Jan 2011, 12:46 link

Paypal charged me a fee of 2.9% no 3% to give a buyer his money back including postage for item lost in the post. Can anyone explain if you pay for an item with your debit card it is instant transfer but it takes 5 days to clear when you transfer it back to your bank.

wikipedia writers 27 Sep 2011, 03:32 link

Is there any way to skip the currency conversion fee? I consider 2.9% to be quite a lot.

Rob 18 Dec 2011, 23:22 link

I’m actually planning on traveling to Asia soon. For personal international wire transfers, isn’t it totally free to wire money? At least that’s what paypal’s webpage seems to suggest. For example, if I’m in Asia somewhere (e.g., the Philippines, Thailand, or Taiwan) and want to send some money back home to the US, wouldn’t it be free to transfer money through paypal even if the initial money I send is in a foreign (Asian) currency?? Don’t I just need to have a PayPal balance if I’m in Asia-no matter the currency type-in order to send money for free to family members in the US?

-Thanks

Matthew 8 Mar 2012, 17:42 link

Does paypal charge for putting in money and using it to purchase something for US purchases.

AmyGoh 26 Dec 2012, 15:08 link

Me too had came across this problem when I purchase item online using PayPal n tat was my 1st n last time using PayPal to pay for purchasing online. There’s a service deducted from my bank account n staff from the bank told me PayPal do have service charge??? So is PayPal really safe n totally free for we buyer to use it???? Thanks for advice.

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Vaishali 2 Jan 2016, 18:47 link

If I am charging people in Indian Rupees and the amount is to be deposited in my Indian bank account in Rupees what will be the charges? Rs -> PayPal ->Rs

Catherine Tomy 21 Mar 2016, 15:43 link

Thank you a lot for sharing this. I was very confused in the terms of paypal procedures. Now I have got a much better idea after reading this.

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