PayPal Hikes Prices for Merchants: Will Increased BNPL Fees Cause Friction?

PayPal will be ushering in the new year with a series of price increases for merchants who elect to partner with it, according to Payments Dive. The move comes on the heels of particularly challenging 2022 and 2023, as Forbes detailed, wherein PayPal elected to slash payment services prices in the former year in order to stave off competition.

Now, as PayPal repositions itself with price hikes across the board — ranging from alternative payment methods and advance card charges to its buy now, pay later (BNPL) offerings — will the blue-and-white brand be able to hold fast (or even see growth) when pit against a host of rising competitors in the space?

PayPal Sees Opportunity To Grow via Price Increases, Citing Competitor Pricing

Now being helmed by CEO Alex Chriss, who spent nearly two decades at Intuit prior to taking the reins at PayPal in September 2023, the company is poised to hike prices in order to achieve greater profitability.

Chief among these increases: a move to charge merchants offering its BNPL service a rate of 4.99% plus 49 cents. That's up from the 3.49% plus 49 cents rate that is currently in place.

In an email exchange with Payments Dive, PayPal spokesperson Nicole Cutler underscored the reasoning behind the planned increases.

"We regularly review our pricing structure to align with broader economic factors, industry shifts, and the impact our products provide for our customers,” Cutler wrote. “Over the past few years, PayPal has launched new innovations and features to better support merchants and help enable growth."

Another attractive avenue for PayPal is the fact that the other key players in the BNPL space — Klarna and Afterpay, more specifically — already charge significantly higher fees than PayPal does. Even after the planned increase takes effect, both of the aforementioned services are still costlier, per Payments Dive, than PayPal.

"The new pricing for PayPal Pay Later options is still lower than other notable providers in the industry," Cutler concluded.

Afterpay currently charges 6% plus 30 cents per BNPL transaction, and Klarna is estimated to charge approximately the same.

PayPal Points to Macroeconomic Pressures as Impetus for Price Hikes

Citing macroeconomic pressures currently straining the U.S. economy, Cutler indicated that beyond seeking opportunities for growth in the payment processing space, inflation itself was at least partially responsible for a renewed price schedule.

“To better align with changes in the economic landscape, while incorporating the enhanced features delivered for customers, we have updated our U.S. pricing, applicable to U.S. PayPal business accounts and U.S. Braintree accounts,” Cutler wrote.

In addition to the increased BNPL fees, PayPal will be increasing the amount charged for use of its virtual terminal to 3.39% from 3.09%, as Payments Dive reported. Furthermore, charges for alternative payment methods and advanced card charges will move upward to 2.89% from 2.59%.