PayPal
PayPal is the most recognized payment brand globally. Customers trust it, conversion rates are often higher, and setup is easy. But you pay a premium for that trust - PayPal is the most expensive mainstream processor.
On this page
When to Use PayPal
You should use PayPal if:
- Your customers ask for it specifically
- You're selling to older demographics (PayPal has high penetration with 50+ age group)
- You need instant credibility for a new brand
- You want to offer PayPal checkout alongside cards
- You're selling internationally (PayPal is recognized everywhere)
Skip PayPal if:
- You're price-sensitive (PayPal is 20-40% more expensive than competitors)
- You need custom integration (API is clunky compared to Stripe)
- You're doing high volume (fees add up quickly)
- You want reliable support (PayPal support is notoriously poor)
Pricing Breakdown
PayPal Checkout (Standard)
| Transaction Type | Rate | Notes |
|---|---|---|
| Online (domestic) | 3.49% + $0.49 | PayPal button or hosted checkout |
| Online (international) | 4.99% + $0.49 | Cross-border transactions |
| Card-present | 2.29% + $0.09 | PayPal Zettle/Here reader |
| Invoices | 3.49% + $0.49 | PayPal invoicing |
| PayPal balance | 3.49% + $0.49 | Customer pays from PayPal wallet |
| Disputes | $20 | Win or lose |
PayPal Payments Advanced (volume discount)
Available at $30M+/year volume ($2.5M/month):
- Typical discount: 0.2-0.5% off standard rates
- Still more expensive than Stripe/Square even with discount
- Requires negotiation
PayPal Here (Card-Present)
| Item | Cost |
|---|---|
| Chip and Swipe Reader | $24.99 |
| Chip and Tap Reader | $59.99 |
| Per-transaction rate | 2.29% + $0.09 |
Hidden Costs
| Fee | Amount | When It Applies |
|---|---|---|
| Micropayments | 5% + $0.05 | Transactions under $10 (opt-in) |
| Currency conversion | 3-4% | International customers |
| Instant transfer | 1.5% | Same-day to bank account |
| Chargeback fee | $20 | Win or lose |
| Monthly fee | $0 (standard) $30 (Pro) | PayPal Payments Pro |
Effective rate for most SMBs: 3.8-4.5% all-in for domestic online, 5.5-6% for international.
What PayPal Does Well
1. Consumer Trust and Recognition
PayPal has 400M+ active users globally:
- Customers feel safer buying from new/unknown merchants
- Conversion lift: 10-30% higher conversion when PayPal is offered
- Especially strong with older demographics (50+)
Reality: Adding PayPal checkout can increase sales enough to justify the higher fees.
2. One-Click Checkout
PayPal's guest checkout and one-touch experience:
- Customers don't enter card details
- Saved addresses and payment methods
- Faster checkout = higher conversion
Best for: Mobile shoppers (PayPal mobile checkout is smooth).
3. Buyer Protection
Customers get 180-day purchase protection:
- Easy disputes and refunds
- Confidence when buying from new sellers
- This trust translates to higher conversion
Trade-off: Easy disputes also mean higher chargeback risk for merchants.
4. Global Reach
PayPal supports 200+ countries and 25+ currencies:
- Recognized everywhere
- Local currency checkout
- Cross-border payments easier than most processors
Best for: International sellers, especially those selling to consumers globally.
What PayPal Does Poorly
1. Expensive Pricing
PayPal is 20-40% more expensive than competitors:
$100 transaction comparison (online):
- PayPal: $3.98 fee (3.49% + $0.49)
- Stripe: $3.20 fee (2.9% + $0.30)
- Square: $3.20 fee (2.9% + $0.30)
$100 transaction comparison (card-present):
- PayPal: $2.38 fee (2.29% + $0.09)
- Stripe: $2.75 fee (2.7% + $0.05)
- Square: $2.70 fee (2.6% + $0.10)
At $100K/month volume:
- PayPal fees: ~$3,980/month
- Stripe fees: ~$3,200/month
- Difference: $780/month ($9,360/year)
Reality: You're paying for brand recognition. Decide if conversion lift justifies the cost.
2. Account Holds and Freezes
PayPal freezes accounts aggressively and holds funds for 180 days:
Common triggers:
- Sudden volume spike
- High-ticket sales
- New account with rapid growth
- Customer complaints (even unjustified)
- Selling "risky" products (electronics, tickets, gift cards)
The freeze process:
- Account frozen without warning
- Email: "We're reviewing your account"
- Funds held for 180 days
- Limited appeal process
This is PayPal's #1 complaint. Search "PayPal account frozen" for horror stories.
3. Customer Support Is Terrible
PayPal support is consistently rated as the worst among major processors:
- Phone wait times: 30-90 minutes
- Email responses: 3-7 days
- Scripted, unhelpful responses
- No escalation path
Under $100K/month: You're in general support hell Over $100K/month: Slightly better, still frustrating
Reality: Plan to solve problems yourself using forums and documentation.
4. Clunky API and Integration
PayPal's API is dated compared to Stripe:
- Poor documentation
- Inconsistent error messages
- Webhook reliability issues
- Complex authentication
For developers: PayPal integration takes 2-3x longer than Stripe.
Pricing Comparison (PayPal vs Competitors)
| Processor | Online Rate | CP Rate | International | Disputes |
|---|---|---|---|---|
| PayPal | 3.49% + $0.49 | 2.29% + $0.09 | 4.99% + $0.49 | $20 |
| Stripe | 2.9% + $0.30 | 2.7% + $0.05 | 2.9% + 1.5% | $15 |
| Square | 2.9% + $0.30 | 2.6% + $0.10 | Not available | $15-25 |
Verdict: PayPal is the most expensive for online transactions. Card-present rate is actually the best among the three.
Who PayPal Is Best For
Perfect Fit
| Business Type | Why PayPal Wins |
|---|---|
| New e-commerce stores | Trust badge increases conversion for unknown brands |
| International sellers | Global recognition, multi-currency |
| Older demographics | High PayPal adoption in 50+ age group |
| High-value items | Buyer protection encourages big purchases |
| Secondary option | Add PayPal alongside Stripe/Square for 10-20% more sales |
Poor Fit
| Business Type | Better Alternative |
|---|---|
| Price-sensitive | Stripe, Square (20-40% cheaper) |
| High-volume | Any other processor (fees too high) |
| Subscription SaaS | Stripe (better recurring logic) |
| Needs support | Stripe, Adyen (better support) |
| Developer-led | Stripe (better API) |
Common Gotchas
1. The Fixed Fee Trap
PayPal's $0.49 fixed fee hurts on low-ticket items:
$10 transaction:
- PayPal: $0.84 fee (8.4% effective rate)
- Stripe: $0.59 fee (5.9% effective rate)
- Difference: $0.25 per transaction
At 1,000 transactions/month: That's $250/month extra ($3,000/year).
Micropayments option: For transactions under $10, PayPal offers 5% + $0.05. Better for very small transactions.
2. PayPal Balance vs Card Payment
Customer paying from PayPal balance still costs you 3.49% + $0.49:
- PayPal pays no interchange (no card involved)
- They still charge you full rate
- Pure profit for PayPal
You can't avoid this. Unlike Stripe where ACH is cheaper, PayPal balance costs the same as cards.
3. International Fees Stack
Selling to international customers:
- Base: 3.49% + $0.49
- International: +1.5% (so 4.99% + $0.49)
- Currency conversion: +3-4%
- Total: 7.99-8.99% + $0.49
Example: €100 transaction
- PayPal takes: ~$9-10
- Stripe takes: ~$4.50
Don't use PayPal as your primary international processor. Use it as a secondary option.
4. The 180-Day Hold
When PayPal freezes your account, funds are held for 180 days (6 months):
- No access to money
- No interest paid
- Limited appeal process
Workaround: Keep PayPal balance minimal. Transfer funds to bank daily.
Test to Run
PayPal effectiveness audit (if you're already using PayPal):
Week 1:
- Calculate PayPal's share of your transactions
- Calculate PayPal's share of your fees
- Is PayPal over-represented in fees? (It should be)
Week 2: 4. Check conversion rate: PayPal vs card checkout 5. Is PayPal conversion 10%+ higher? If not, it may not be worth the cost
Week 3:
6. Calculate: (PayPal fees - what Stripe would cost) vs (extra revenue from PayPal conversion)
7. If extra fees > extra revenue, consider dropping PayPal
Success criteria: PayPal conversion lift of 10%+ justifies the 30-40% higher fees.
Scale Callouts
Under $50K/month:
- PayPal makes sense as a secondary option
- Conversion lift often justifies higher fees
- Most customers have PayPal accounts
$50K-$250K/month:
- Calculate if conversion lift justifies extra $500-1,500/month in fees
- Consider A/B testing: PayPal vs no PayPal for a month
- If conversion is flat, drop PayPal
Over $250K/month:
- PayPal fees are too high for primary processor
- Use PayPal as checkout option only (not for card processing)
- Extra $1,000-3,000/month in fees needs strong justification
Over $1M/month:
- PayPal is unjustifiable as primary processor
- If offering PayPal checkout, route card payments through Stripe
- Only use PayPal for actual PayPal balance payments
Where This Breaks
-
Account freeze kills your business: If PayPal is your only processor and they freeze you, you can't accept payments for 180 days. Always have a backup processor.
-
No negotiation: Unlike traditional processors, PayPal won't negotiate rates. What you see is what you get.
-
High chargeback tolerance is low: PayPal's threshold is around 1% chargeback ratio. Over 1.5% = account restriction risk.
-
Restricted business list is aggressive: PayPal rejects businesses faster than most processors. Check their acceptable use policy carefully.
-
Venmo isn't included: If you want Venmo checkout, that's a separate integration (though owned by PayPal).
PayPal Pro vs Standard
PayPal offers "Payments Pro" for $30/month:
| Feature | Standard | Pro ($30/mo) |
|---|---|---|
| Hosted checkout | Yes | Yes |
| On-site checkout | No | Yes |
| Virtual terminal | Limited | Full |
| Recurring billing | Limited | Advanced |
| API access | Limited | Full |
Is Pro worth it?
- If you're doing under $50K/month: No, use Stripe instead
- If you're over $50K/month and need PayPal: Maybe, but consider Stripe + PayPal button
Most SMBs should skip Pro and use Stripe for primary processing + PayPal button for customers who prefer it.
The PayPal Strategy
Best practice for most businesses:
- Primary processor: Stripe or Square (2.6-2.9% rates)
- Secondary option: PayPal checkout button (for customers who want PayPal)
- Route intelligently: Card payments through Stripe, PayPal balance through PayPal
This gives you:
- Lower fees on most transactions (Stripe)
- Conversion lift from PayPal brand (10-20% of customers)
- Backup if one processor has issues
Don't use PayPal as your only processor. The account freeze risk is too high.
Next Steps
Considering PayPal?
- Add it as a secondary option, not primary processor
- Compare to Stripe for primary processing
- Review Buying Payments for multi-processor strategy
Already on PayPal?
- Run the effectiveness audit above
- Calculate if conversion lift justifies the fees
- Consider hybrid approach: Stripe + PayPal button
Switching from PayPal?
- Read Processor Switch Checklist
- Keep PayPal as checkout option even if you switch primary processor
- Don't burn the bridge - customers love PayPal
See Also
- Stripe - Better as primary processor
- Square - Better for card-present
- Adyen - Better for enterprise/global
- Processor Comparison - Full comparison table
- Buying Payments - Multi-processor strategy
- Checkout Conversion - PayPal conversion optimization
- Going Global - International payment methods