For the first time in 21 years, PayPal finally pulled the trigger to make pricing adjustments for US SMB merchants. It's worth noting that the changes are only applied to those merchants who pay the listing prices. The pricing for larger merchants is much lower. The most significant change is to increase the price of PayPal branded online checkout (PayPal Checkout, Pay with Venmo, Pay in 4, etc.). PayPal believes the branded products offer merchants many value-added services, therefore, deserve premium pricing. They highlighted some metrics to support the price hike:
Higher conversation rate: consumers who choose PayPal as a payment method are 60% more likely to convert.
Less shopping cart abandonment: ~3x more likely to complete purchases.
~19% increase in unplanned purchases and ~13% increase in repeat purchases.
Pay in 4 (PayPal's BNPL solution), despite very new, has led to a ~15% lift in payment volumes for merchants.
Our back-of-the-envelope calculation shows it's a roughly 27% increase to justify all the additional benefits offered by the branded checkout. Well, that spells the confidence of the management team.
Meanwhile, PayPal also changed the pricing for non-branded credit/debit payments, in which they compete with Stripe and Visa (Authorize.net), etc. It might read like a fee cut, but as we show below, PayPal cuts the take rate but increases the transaction fee, breaking even at ~$61 (transaction size). Merchants only see the benefits for transactions larger than $61.
Last but not least, PayPal cut the price for in-store transactions to grow its offline market share. Regarding transaction volumes, the gap with bigger players like Square is still vast, and PayPal has a lot of catching up to do.
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