3 Underhanded Ways PayPal Business Fees are Strangling Your Profits

Menacing, Cigar-smoking man holds his fingertips together

It seems like these days, there’s a new digital payment platform popping up every month — but somehow, PayPal is still a household name.

Is a PayPal business account easy to use? DUH. Is it useful? Absolutely. However, because it’s been the standard in online payment platforms for so long, many businesses use it without reading the fine print. Few entrepreneurs understand how PayPal business fees are eating away at their profits. We’re going to dig into it. Buckle up!

Let’s Talk about PayPal

PayPal, founded in 1998, is a California-based online payment system that allows instant money transfers. Think of a digital version of checks and money orders. The original business model was pretty close to what it is today: provide a platform where businesses and consumers can send and receive money instantly and digitally, for a fee. When PayPal offered a revolutionary way to buy goods and services virtually at the beginning of the 21st century, entrepreneurs and online buyers jumped at the chance to move money around with the press of a button.

As PayPal grew into a global phenomenon, they upped their fees while few businesses stopped to notice.

Benefits of PayPal Business Accounts

PayPal still has a huge fan club because people love these benefits:

  • It’s become a trusted name in the payment processor space.
  • It’s versatile. You can use it for all kinds and sizes of businesses — via app, online, or your phone.
  • It’s easy to set up. You can head over to the site and set up an account in less than 2 minutes.
  • Tax reporting is made simple and straightforward.
  • Did I mention it’s instant? One of the biggest value props here is that you can send money instantly, practically anywhere in the world. If you forgot to pay a freelancer or you need to get money somewhere ASAP, PayPal will do that for you.

A PayPal business account may seem perfect, but this is precisely why businesses fall into the PayPal trap. As an entrepreneur, you have too many things on your plate already. So even though you know there are many more digital payment gateways available now, you never seem to get around to checking them out to see which is the best one for your business. Consider this your wake-up call. You’re welcome. ?

3 Ways PayPal Business Fees Strangle your Profit

So, how do they do it? It can’t possibly be THAT bad, right? Not bad enough to outweigh the convenience of instant payment transfers, easy set-up, and straightforward tax reporting, right?

Not so fast. I’ve seen plenty of clients lose thousands of dollars over the course of a year because they are running on autopilot and handing PayPal their hard-earned money. Here are three major ways that PayPal business fees are strangling your profits.

1. Outrageous International Fees

PayPal has steep international fees at 4.4% plus a fixed fee (depending on the currency you’re using).

Now, it may not seem like a lot upfront. You might be thinking it’s worth the convenience of sticking with a product you already know and use. That’s the big thinking trap everyone falls into. Because, while it may not be a TON upfront, it adds up over time. Let’s play this out with a scenario.

Allie is a small business owner who uses PayPal to pay one of her freelancers in Europe. This freelancer works about 10 hours per month at $50/hour and asks that Allie sends her payments in two separate batches: the first payment for the first five hours and the second for the remaining five.

June payment #1: $250 + ($250 x .044) = $250 + 11 = $265

Then, that same payment goes out at the end of the month for June payment #2. That’s $22 per month that could have been avoided. It’s going straight into PayPal’s pocket and straight out of yours.

Still don’t believe me? Let’s amp this situation up a bit. Say your business starts taking off, and you need Allie’s help part-time, so she’s averaging 20 hours per week, 80 per month. The rate stays at $50/hour. Your first payment will be $2000 and your second will be $2000.

June payment #1: $2000 + ($2000 x .044) = $2000 + 88 = $2088

$88 twice a month is almost $200! Get it now? It’s not trivial. These international fees can make or break your business. Keep reading to learn how to avoid these shocking fees.

2. Questionable Exchange Rates

Most people think that sending money digitally means you’re avoiding the fees or inconvenience of sending money internationally. The latter of those two might be accurate, but PayPal doesn’t let you off the hook on your exchange rate fees. In fact, they’re actually pretty questionable.

The PayPal site provides little explanation about their exchange rate, see the excerpt from their website below:

Here’s how we set our exchange rate:

  1. We receive a wholesale rate quote from our bank twice a day and add a percentage to determine the retail foreign exchange rate to apply to transactions that involve a currency conversion.
  2. Our currency exchange rates are competitive with conversion rates used by banks and by currency exchanges.
  3. When you transfer from your PayPal account to your local bank account, we automatically convert the money into the local currency when the transfer is initiated.

There’s also been talk of PayPal tweaking exchange rates so that you end up paying more than you should. According to an independent study, PayPal lines their pockets with hidden fees added to their exchange rates. Sneaky!

The bottom line: these exorbitant exchange rate fees can be avoided. I hate it when companies hide fees! Why should the little guy pay more on top of already sky-high fees to transfer money internationally? Don’t let them get by with this!

3. Instant Transfer Fees

At this point, you’re probably holding on to the last source of redemption for PayPal: instant transfers. They’re convenient and quick, and they save you hassle and time. But do they save you money?

Bingo. Enter PayPal business fees for instant transfers. The instant transfer fee is 1% on the entire transaction. It’s not as steep as the international fees, but it still adds up. If you’re sending $1000, you’re paying $10 in instant transfer fees. Time after time, this robs you of your money!

Of course, you can avoid this fee by picking the non-instant transfer option. But hey, you’re a small business owner. No one’s got time for that! Plus, you never quite know when that non-instant money transfer will hit the bank, which is a nuisance to keep up with. Typically, you’re going to have to wait 3-5 days for your money to show up in your bank account.

What You Can Do About PayPal Business Fees

Now that you know that you might be losing out on profits let’s get to the good stuff: what you can do about it. I always implore clients to think outside of the box for their online payment processing needs, and I’ve found an alternative to PayPal that is simple, secure, and will save you BIG time:


Stripe is another California-based company that lets businesses process payments online. Stripe is a little different, though — IMHO, it’s way better! In fact, I recommend all my clients use Stripe! Why? Well, for one, international fees aren’t nearly as aggressive as PayPal’s — sitting at just 1%, versus the 4.4%, we’re used to with PayPal. The same goes for currency conversion, which is an additional 1% on top of the international fee. Case in point: Stripe’s international fee PLUS the currency conversion fee is less than the PayPal international fee alone.

Stripe is intuitive and user-friendly. Want your money moved fast and free? You’ve got it with Stripe! Plus, it’s secure and connects seamlessly with Shopify. Stripe also offers free invoicing up to one million dollars, recurring billing, lower chargeback fees, and the same low, flat rates for micropayments.

Although, some say that PayPal is even easier to use. Then again, it could just be a classic case of familiarity syndrome. We know PayPal and its interface, so we’re more inclined to love it. C’mon, everyone! Let’s mix it up. Besides, PayPal’s interface feels pretty early 2000s, amiright?


TransferWise’s mission is “building money without borders.” Their claim to fame is providing customers with the real exchange rate and transparent fees that are reasonable. If you own a truly global business, TransferWise is what I’d recommend, hands down. You can easily charge international bank accounts using their service, which saves you time and money. #Score! They are proud to say they save people and businesses $3 million every day! Another added benefit is you can use Apple Pay with your TransferWise debit card. What’s not to love?

When PayPal Business Fees Won’t Sock It To You

Now, some of you love PayPal. Still. And that’s okay.

I get it. Sometimes you’re attached to a company or brand because it’s what you know. Or perhaps you’ve tried out some of the alternatives, and you’re still loyal to PayPal. Here’s the thing: You need to know when you should and shouldn’t use PayPal. For some businesses, it simply doesn’t make sense. Go through this two-point test to see if PayPal is sucking up your profit.

  1. Your business is making less than $5k per month, and most of your business activities are within your country.In this case, you’re in the clear. And this is a reason why a lot of small businesses or freelancers love using PayPal. If you’re making less than $5k per month on PayPal, the net loss of fees is pretty minimal. That is, as long as most of your business is coming from within your country. Otherwise, you’re racking up those crazy-high international fees.
  2. All of your business transactions are within your country.
    Perfect! You’re avoiding all unnecessary international fees because all of your transactions are within your country anyway. You won’t have to worry about the 4.4% or the currency conversion rate, so there’s no need to change from PayPal if you really love it.

More Than PayPal

Good news: You figured it out. You now understand how PayPal business fees can crush your profits and know the solid alternative payment processing tool. Bad news: There are other things out there strangling your profits. I know it’s a bummer.

But we’re just getting started. Stick around for more tips, myth debunkers, and how-tos. And when you’re looking to get your financial house in order (everyone needs a little straightening up but may not know it), we’re here to help. Contact us today, and we’ll be on our way to money saved, lessons learned, and happier living.

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Michelle Cooper

Michelle Cooper is a powerhouse entrepreneur, CEO of Alchemy Accounting & Bookkeeping, author of Confessions of a Money Rock Star, Your MoneyDate Journal, and co-author of the collaborative book, Women Rising. She has helped many business owners climb out of entrepreneurial poverty into the land of profit.