PayPal fees for dummies

I’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

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