Lowest Fee On Micropayments? $11.90 and Paypal Micropayment Explained

Posted by on Sep 29, 2009 in Merchant Solution | 0 comments

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Paypal’s Micropayment system has been around for years, but not many digital sellers knew about this – I certainly didn’t!  I wish I did because it would have saved me a bundle on Paypal transaction fees!

When you sign up for a standard Paypal account, you are automatically put on the 2.9% + $0.30 transaction fee schedule.  But what they don’t tell you is that you if you frequently receive small amounts (aka micropayments) then you can opt to be put on their Paypal Micropayment fee schedule.

First, let’s compare the transaction fee schedule for the different account types:

Paypal Business/Premier: 2.9% + $0.30

Paypal Micropayment: 5% + $0.05

Anyone with basic algebra skills can solve the equation, $11.90 is the answer.

If you set the two transaction schedule to be the same:

2.9%(x) + $0.30 = 5%(x) + $0.05

x = $11.90

What’s so magical about $11.90?

$11.90 is the transaction amount cutoff for deciding whether you should accept the money via your Business/Premier account, or your Micropayment account.

If the transaction amount is less than $11.90, you are better off sending the transaction to your Paypal Micropayment account.

If the transaction amount is more than $11.90, your fee will be lower if you send the transaction through your Paypal Business/Premier.

Want to verify this?  Just plugin a number into the 2 fee schedules, and you will see why.

Now, it’s quite simple to convert your Business/Premier account to a Micropayment account.  However, before you do I would suggest that you open a new Paypal account, and convert your 2nd account to Micropayment.  This way you have the flexibility of saving on Paypal fee for any transaction amount.

To convert your Paypal account to receive micropayments, simple go to:

http://micropayments.paypal-labs.com/

It will take about 2 business days before your accounts get converted.

I hope this will help you save a bunch on Paypal fees, especially those of you who are running $1 free trial offers – you are talking about the difference between netting $0.679 versus $0.90, and imagine the savings on 1,000 such transactions!

Now a brain teaser: What if the transaction amount is exactly $11.90, should you use your Paypal Business/Premier or Micropayment account to accept the payment? :)

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