PayPal headquarters
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Why PayPal’s changing its rates

Protocol Fintech

Hello and welcome to Protocol | Fintech! This Tuesday: what PayPal's fee changes say about the payments market, Goldman's crypto moves and the debate over "true lenders."

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The Big Story

Fee not so simple

When PayPal got its start over two decades ago, taking credit cards online was complicated, with monthly fees, minimums and confusing interchange rates. It responded by charging most sellers one blended rate: 2.9% plus 30 cents a transaction. (It's even there in PayPal's original S-1 from 2001, the first time the company went public — that's how long the fee structure's been in place.)

In early August, the company is changing its longstanding fees, raising some rates and dropping others.

Things aren't so simple anymore. Payments aren't just about web commerce, PayPal's in many different lines of business, eBay's gone off on its own and the company has a host of rivals.

  • The rate changes highlight PayPal's belief that "the wallet is of tremendous value; the card processing is commoditized," as executive Dan Leberman put it.
  • The new fee for most PayPal-branded transactions is 3.49% plus 49 cents. That includes payment buttons on websites, PayPal Checkout, Pay with Venmo, PayPal Credit, the Pay in 4 "buy now, pay later" product and Checkout with Crypto.
  • For merchants who just want credit- and debit-card processing services, the fees are 2.59% plus 49 cents. That's undercutting Stripe and Shopify, whose basic plans charge 2.9% plus 30 cents — and yes, that rate does sound familiar.
  • In-person transactions, where PayPal has struggled to get traction against Square, are dropping to 1.9% plus 10 cents for transactions over $10 or 2.4% plus 5 cents under that amount. That includes paying with a QR code through the PayPal or Venmo app.

It's the end of the blend. PayPal's business model used to be simple, as you can see in that 2001 SEC filing. It made a thin margin, about 1%, when people used credit or debit cards, and a lot more when they connected their bank accounts or used PayPal balances. It blended those to make for a nicely profitable business.

  • PayPal used to strongly encourage users to use their bank account to pay, boosting its profits. But that model was too complicated for the mobile world. Now, PayPal's value proposition is in its "One Touch" checkout — a wallet that remembers a consumer's preferred payment method and makes it easier for merchants to check them out.
  • PayPal is looking toward a future where it's no longer just processing payments but a financial "super app" that consumers use not just for payments but for banking, investing and money management.

Price matters, but so do conversions. The price hike could cost PayPal some retailer customers.

  • Ina Steiner at EcommerceBytes did the math: For a $7 item, the new fees amount to a 46% hike, and for a $25 item, it's a 32% increase. That will bite at a time when many retailers are suffering.
  • "It's going to come down to price," said Melody Brue, a senior analyst at Moor Insights & Strategy, noting that PayPal and its competitors make similar promises about security and other features: "I don't think those are things that differentiate them."
  • PayPal said customers who use PayPal are 60% more likely to convert, or complete a purchase, than customers who don't use it. It doesn't help if you keep more of a sale that never happened.

PayPal doesn't seem too concerned about losing customers. It has flourished during the pandemic as consumers moved online to shop. PayPal posted strong earnings in the first quarter as growth continued to rise.

Brue pointed out that PayPal may struggle to charge its new, higher rate if consumers don't show a preference for its wallet: "They're not a brand younger consumers are as aware of." Of course, PayPal has an answer for that: Venmo me.

— Tomio Geron


Every day the global financial markets create incredible amounts of new data that we need to consume. Our success is reliant upon our ability to make this data available to researchers — and available quickly. The most productive quants have the competitive advantage, and a huge amount of that productivity relies on fast access to massive amounts of data.

Learn more

From Protocol | Fintech

A moment of truth for "true lenders." Members of Congress and consumer advocates are pushing for rollback of a Trump-era "true lender" rule that supporters say has made consumer lending more competitive and critics say is just a new avenue for predatory lending.

California contemplates crypto rules. Meet Christina Tetreault, the new head of California's Office of Financial Protection and Innovation. If you're in crypto, she wants to talk.


  • "I go so far as to say that 90% of NFTs produced, they probably will have little to no value in three to five years."Coinbase co-founder Fred Ehrsam on the future of non-fungible tokens.
  • "There's a whole dynamic with the major banks that I've seen time and time again: safety in numbers. Once one bank is out there doing this, the other banks will have [fear of missing out] and they'll get on-boarded because their clients have been asking for it." Damien Vanderwilt, Galaxy Digital co-president, on Goldman Sachs's move into bitcoin futures trading through the crypto merchant bank.
  • "We reiterate that Alipay does not conduct or participate in any business activity related to virtual currencies and does not provide any assistant technical service or capability."Alipay's company statement after the People's Bank of China told the mobile payment services company and other financial services firms not to provide crypto services.

Need to Know

  • The "Dogecar" crashed at Nascar. A Chevrolet Camaro race car with the dogecoin Shiba Inu logo crashed during Nascar's Xfinity Series Race in Nashville. Coincidentally, dogecoin was down more than 36% on Monday, according to CoinMarketCap.
  • Bybit was targeted by the Ontario Securities Commission. The crypto marketplace has been accused of allowing residents crypto assets which are considered securities in the Canadian province.
  • Wise will go public in London. The cross-border payments company, formerly known as TransferWise, plans to make its public trading debut via a direct listing on the London Stock Exchange.
  • Blend made its IPO filing public. The mortgage technology company, which submitted its IPO registration confidentially in April, has made its filing public, revealing that its 2020 revenue rose to $96 million from $50.7 million in the previous year.
  • Nubank is reportedly planning a U.S. IPO. Reuters says the Brazilian digital bank is in talks with investment banks about an initial public offering in the United States.

Making Moves

  • Peter Cooper will join Fidesmo as the Swedish payments technology company's new chief security officer. Previously, he was vice president of information security at Adyen.
  • Jennifer Peve will become the head of strategy and business development at the Depository Trust and Clearing Corporation. She's been the managing director of business development and fintech strategy at the financial services institution.

Deal Flow

3 Questions With...

Chris Lotz, CEO, Goodcover

What fintech trend are you most excited about?

I have always been fascinated with smart contracts, NFT and the other non-fungible implementations of blockchain. I've even considered building features on these tools, but it's just not quite there yet for me. But it is getting there, and I'm cheering them on — lowering transaction barriers and creating trust without counter-parties would be great. Insurance is basically one giant spreadsheet — what if that spreadsheet didn't require permission from third parties to keep it up to date? We're a long way from that, but it's fascinating.

What fintech trend is most troubling for you?

Apps and pricing strategies that enable day trading. Almost all day traders lose money — I've seen research saying anywhere from 80% to 98% lose. I am all for democratizing investing — we need to broaden the base of people who own financial assets — but when they enable troubling gambling behaviors, I worry. And when day trading is supercharged by margin lending ... gambling debt kills, literally and tragically.

What's been your biggest professional blunder, and how did it help you?

The first line of business I was responsible for at AIG, where I used to work before Goodcover, failed big-time. We thought our insurance product and service were superior to anything out there, but it just wasn't what our distributors or potential customers wanted. That's where I learned that the most important person in your business is your customer. You need to listen to them and then make something people want.


Every day the global financial markets create incredible amounts of new data that we need to consume. Our success is reliant upon our ability to make this data available to researchers — and available quickly. The most productive quants have the competitive advantage, and a huge amount of that productivity relies on fast access to massive amounts of data.

Learn more

Data Point

$280 million

That's Revolut's 2020 loss, which doubled from the previous year, due to a spike in staffing costs as the company expands globally. The London-based fintech said its adjusted revenue rose 57%.

Thanks for reading — see you Friday!

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