I am a freelancer. I write, translate and proofread for private clients. And I accept payments through bank transfer and PayPal.
Except I hate PayPal. That’s because I have to pay a fee to receive money through them.
Actually, that isn’t strictly true: PayPal doesn’t always charge a fee. It’s free to receive money if the sender chooses the Send to friends and family in the UK option:
Unfortunately though I have some clients who don’t know this or don’t care. They choose the evil Pay for goods or services option, which incurs PayPal’s fee:
Some clients can’t even be bothered logging into PayPal and they want me to send them a payment request. Payments sent this way incur a fee for me too.
How much is PayPal’s fee?
You will often hear that PayPal’s fee to receive money is 2.9% + $0.30. But this isn’t true – not for me at least. This is because that’s the fee in the US. The fee in the UK is higher: 3.4% + 20p.
Okay, so PayPal charge 3.4% + 20p. Got it. Except yesterday I received $150 Canadian dollars from a client in Canada and PayPal charged me $6.90. Wait a minute – that’s a fee of 4.6%! (6.9/150).
Why was this particular fee so high? Well, I did some research and came across the term “cross-border payment”. According to https://www.paypal.com/uk/webapps/mpp/cross-border-and-conversion-fees, payments between countries are more expensive than payments within countries. The fee for payments from Canada to the UK is 3.9% + $0.30.
So let’s run this calculation on the $150 my client sent me. 3.9% of $150 is $5.85. Add 30 cents and you’ve got a fee of $6.15. Yet PayPal charged me $6.90, which is more than $6.15.
So what calculation is PayPal using here? I’m not even angry, I only feel a detached curiosity, like a scientist picking apart a tapeworm.
I asked PalPal about it and they send me this reply:
The base fee is 3.4% + $0.30 CAD plus 1% Cross Border fee […] Thus, $6.90 CAD was deducted from the money you received.
So my problem was that I misunderstook the cross border fee. What I didn’t know is that the cross border fee is separate from the 3.9% + $0.30 fee, or 3.4% + $0.30 fee, or whatever it is PayPal is charging.
So, just to clear things up, PayPal applied three fees to the payment: a variable base fee of 3.4%, a fixed base fee of $0.30 and a 1% cross border fee. And I had to contact them to find this out. PayPal claims its fees are transparent but in fact it’s entirely the opposite.
Why does PayPal charge a fee at all?
Actually, I am angry. It pisses me off that PayPal even charges a fee at all. My bank never charges me a fee when I receive money. So why does PayPal charge me?
Okay, I’m being a little unfair. When I receive money into my bank account, it’s usually because the other person sent it by bank transfer, which is free because no card companies are involved. Whereas when PayPal charges me a fee, it’s usually because the person paid by debit or credit card, right?
But no. It doesn’t matter which payment method the buyer or client uses, PayPal will still slap on its cheeky fee. The client could pay me from their bank account or even their own PayPal account and PayPal would still charge its fee. That doesn’t seem right to me. What justification dos PayPal have for charging a fee in these cases? How can PayPal justify charging 2.9% + $0.30 to transfer money from one PayPal account to another?
PayPal always charges a fee “if you’re selling goods or services”. in other words, if the transaction is business related, PayPal slaps its fee on it. That doesn’t seem fair. A bank would never do that.
I think the reason PayPal gets away with it is that they have a monopoly on the online payments industry. Okay, there are other competitors, like Skrill and Venmo, but who actually uses these?
Alternatives to PayPal
Although I just said that PayPal has a monopoly on the online payments industry, there are actually viable alternatives to PayPal.
Let’s go back to the client who sent me $150. We saw that PayPal hit me with a 4.6% fee for this payment.
One alternative I had was asking my client to send me the money by bank transfer to my Canadian bank. (That’s right, I have a Canadian bank account.) Then I would have transferred the money out of my Canadian bank to one of my UK banks.
Actually, I do this already with some of my other clients. The last amount I transferred was CAD$1862.50 and I received £1,075.08. From these figures, we can calculate that my Canadian bank charged me a fee of 4.1% to transfer my money from Canada to the UK. (According to this site, 1 CAD was worth 0.6017 GBP on the day I transferred the money. With that exchange rate, I would have received £1120.67. However, I only received only 95.9% of that amount, which means the bank charged me a fee of 4.1%).
4.1% is still high, but not as high as PayPal’s fee of 4.6%. Plus you have to keep in mind that PayPal hasn’t even converted the Canadian dollars into pounds yet.
How much does PayPal charge to convert between currencies?
I can’t spend the CAD$150 my client sent me because I’m no longer in Canada. I have to convert it into something I can use, like euros or pounds.
So now let’s look at PayPal’s currency conversion service. PayPal can convert money between 23 currencies. However, it’s at a price. According to https://www.paypal.com/uk/webapps/mpp/cross-border-and-conversion-fees, PayPal’s currency conversion fee is “2.5% above the wholesale exchange rate.”
I tried converting CAD$100 just now with PayPal to see what kind of fee I’d get. Well, the fee was 0.97% (PayPal offered £58.15 GBP, whereas today’s interbank exchange is £59.89, and £58.15/£59.89 = 0.97%.) That’s… actually not bad. It’s a lot less than 2.5% at least.
However, I’ve found a much cheaper way to convert currencies: Revolut. This is a new German bank. You can open an account online from anywhere in Europe and you can convert between euros, pounds and American dollars for free. Zilch. Zero. Nada. It really is revolutionary. Unfortunately though Canadian dollars aren’t yet included, which means I’m stuck with PayPal’s currency conversion fees for now.
- A client paid me via PayPal yesterday. PayPal’s took 4.6% from the payment, which I thought was quite a large fee. I tried to discover the fee calculation but I couldn’t. In the end I had to contact PayPal’s customer services to find out how they calculated the fee.
- PayPal charges a fee for any business-related transaction, even if the client or buyer pays via bank transfer or with their own PayPal account. You would think these transactions would be free as they don’t cost PayPal anything.
- I recommend using Revolut instead of PayPal when exchanging between euros, pounds and American dollars as Revolut doesn’t charge any currency conversion fees.
Fuck you Paypal, you fucking leeches. You’re not my pal.