Note that in April 2020 things seem to have changed on PayPal’s end and they now allow adding a USD bank account based in Malta as well as permit a higher limit on debit card transfers, although I’m not sure what the new limit is.

In a recent development PayPal has implemented bank account withdrawals to people holding a PayPal account based in Malta. Prior to this development, the only possibilities for withdrawing money were the following:

• Withdrawing to a credit card
• Withdrawing to a US bank account

The big problem with withdrawing to a credit card is that it is limited to $2,500 at a time so it is very inconvenient for high volume sellers. Moreover there is a charge per withdrawal, so the fees quickly escalate.

PayPal’s automatic currency conversions (at disadvantageous rates) when withdrawing are another big issue. You’ll find many sites dedicated to PayPal-bashing because of this.

Since in Malta you cannot get a credit card for an account denominated in US dollars, sellers are stuck with automatic currency conversions (either on the PayPal side, or their own bank) from USD to EUR when withdrawing money to their credit card. Of course, I’m assuming that sales are being done in USD. Since the dollar is the de facto web currency, this is the case for most online shops.

With this new development I was hoping to open a USD bank account in Malta and withdraw USD from PayPal into this bank account, thus avoiding currency conversion altogether.

In my ideal scenario I would have then been able convert the money at will and possibly even bypass the bank’s charges by using TransferWise. Alas, this was not to be. After further questioning, the PayPal support agent informed me that the automatic currency conversion would still happen and they do not allow non-Euro denominated bank accounts from Malta to be linked to a Maltese user’s profile:

Do bear in mind that we would only offer the option to use an EUR denominated bank account at this time.  Which means that even if you add and use an USD based account, that it would automatically have funds converted to EUR upon withdraw.

For that specific matter, I cannot really recommend the use of an USD account, as you are not able to directly withdraw into it without otherwise having a double conversion take place.

So given the situation I’ll probably stick to withdrawing money to my card as with that method I can bypass the automatic currency conversion on PayPal’s side.

[Read more…]

In this post I’ll explain PayPal’s cross border fee system. But first, a short recap on the fees that PayPal imposes in general.

PayPal charges fees whenever a transaction takes place. The one charge that is always present is PayPal’s own fee which goes towards paying off the processing of credit card payments.

Visa, MasterCard and American Express charge PayPal for every payment they process, and so they need to pass this fee on to sellers to cover their costs. They also need to make a profit on each transaction so part of that fee goes towards that purpose.

To recap, these are three instances that will trigger PayPal charges:

1. When you receive money from a purchase.
2. When you receive payments from outside your country or region.
3. When you send personal payments using a credit card. The sender determines who pays the fee.
4. When you withdraw money to your debit/credit card.

I am mostly concerned about the accepting payments for your business with PayPal, so I won’t be discussing the third scenario. I’ve also discussed the fourth scenario in previous articles on this site.

We’ve already talked briefly about the first scenario above, and to give you an idea here’s what you would be paying if you were based in the following countries:

• US: 2.9% plus $0.30 USD per transaction
• UK: 3.4% + 20p per transaction
• Spain: 3,4 % + 0,35 EUR per transaction
• Malta: also a Eurozone country, so fees are identical to those of Spain

As a side note, note that is very advantageous to have your PayPal account based in the US from a fee perspective, you get to pay 0.5% less than your European counterparts on the value of the transaction and also a lower fixed fee per transaction.

Moreover, if you are based in Europe but the bulk of your customers are based outside Europe, you will also be paying the cross border fee on top of paying more in basic fees.

On top of that, if you are charging everyone in Euros, you would also be hit by a currency conversion fee from, for example, USD to EUR. More on that later in this article.

It is also worth noting that there are discounts based on volume, so lets take Spain as an example. The screenshot below shows the sales ranges and corresponding tariffs per transaction. It clearly pays to pass more transactions through PayPal every month.

As far as I remember, the bulk transaction discount won’t be automatically applied, you need to ask for it buy opening a support ticket with Paypal.

The above assumes that the sales were made within the same country that you have your PayPal account set up in. So for example a US seller selling to a US customer or a UK seller selling to a UK customer.

Cross border transactions, for example a UK seller selling to a US customer, trigger cross border fees, which is what I want to talk about in this article.

[Read more…]

Update August 2020: I now prefer Stripe over 2Checkout or Braintree. After moving to Stripe I saw a drastic reduction in abandoned carts (from 10% to 1.46%) and a corresponding rise in revenue.

Update Mar 2019: The pricing for Braintree is now cheaper, they charge 1.9% and 2.9% instead of the 2.9% and 3.9% mentioned below, which is a significant difference. I’ll probably try them again at some point soon.

Update June 2018: I have now switched to 2Checkout instead of Braintree. Unfortunately, I had a negative experience with Braintree. They decided to ban our account after receiving just 2 refund requests from a 100 sales, which seems nonsensical to me.

This week I’ve been implementing BrainTree card payments for our WordPress plugin WP RSS Aggregator. We had several reasons for making this move. Here’s a few of them:

• Some people didn’t have money in their PayPal account and it took 3 days to make the transfer from their debit card to PayPal, hence it was much more likely that they would look for another plugin that can be bought via a debit card rather than wait out the 3 days.
• PayPal payments cannot be done from all countries in the world. We’ve had potential clients from Pakistan and other countries in that region who had no way of paying us since they cannot use PayPal.
• Others just don’t like PayPal and prefer using the traditional way of purchasing by entering their debit/credit card information directly on our site rather than create a PayPal account.

Why BrainTree?

Initially I wanted to go with Stripe, however they are not available yet in Malta, so I had to find an alternative solution. Braintree fit the bill perfectly. On September 26, 2013 Braintree was acquired by PayPal, an eBay subsidiary, in a deal worth $800 million. Since we’re already using PayPal successfully, it also made sense to use Braintree.

The process was relatively painless. After a few to and fro emails to get us approved into the BrainTree system, I completed the implementation on the site in less than an hour. Since we are using Easy Digital Downloads as our e-commerce platform, I just had to buy the EDD Braintree add-on, fill in a few fields and activate everything.

Some Important Things to Note

• You can also take PayPal transactions through Braintree. They will cost whatever they cost through PayPal.
• With PayPal whenever you give a full or partial refund, PayPal refunds their commission to you too (excluding the fixed fee which they keep). In Braintree’s case, whether you issue a full refund, or a partial refund, they keep all the fees they originally collected on that transaction. So if you give out full or partial refunds on a frequent basis, you have to be careful with Braintree.

European pricing for Braintree is 2,9% + €,30 per transaction. There are no monthly fees, and you only pay for what you use — there’s no minimum transaction processing amount.The only fee you might see is if you incur any chargebacks (i.e. a customer disputes a charge). In that case you will be charged €15 for each chargeback incident. With PayPal there are no chargeback fees.

Braintree does not charge foreign exchange fees and European card transactions are not charged cross-border fees. Transactions on cards issued outside of these European countries will be billed at 3.9%. That is in addition to the standard €,30 fixed fee per transaction.

Now lets take a look at European PayPal fees (cross-border, taking a common example where most buyers are in the US and the seller is in the EU):

Here’s a practical example. If your product retails at $15.00 and a US customer bought a copy you will see this in your PayPal account:

Total amount:		$15.00 USD
Fee amount:		-$0.78 USD
Net amount:		$14.22 USD

Now the price per transaction varies as per the table above, but lets assume that your shop is clearing more than 10,000 EUR but less than 50,000 EUR per month, meaning that it will fall in the category of 3.2% + $0.30 USD.

3.2% of $15.00 = $0.48

Then lets add the $0.30 and we get $0.48 + $0.30 – $0.78 USD in total fees from PayPal. You take home $14.22 USD.

So for many vendors, I suspect that Braintree will work out cheaper, as their fee is the equivalent of PayPal’s 50,000+ EUR tier which is hard to reach for small businesses and individual freelancers.

All funds processed through Braintree are settled in daily batches (Monday-Friday) and are automatically sent to your business bank account within 48 hours. For European businesses Braintree require that this bank account is a European bank account.

You are able to choose the funds you would like to charge your customers in and receive funds in. If you would like to have a USD set-up and settle funds into your bank account in USD Braintree can do this without conversion. If you would like funds to be in EUR they can do this as well! It is more or less up to you how you would like it set-up.

Reconciliation Process for Braintree

An important thing you or your accountant will be doing at least every month is a full reconciliation of the transactions that have gone through Braintree and the debits and credits to your associated bank account.

The best way to reconcile your debits and deposits is to look at the Settlement Batch Summary and your monthly statement. The Settlement Batch Summary will show the net settlement for that day. This amount, minus fees, will be deposited or debited from your bank account, however fee totals are not available in the gateway.

For merchants on flat rate pricing, fees can be easily calculated using the Settlement Batch Summary totals. Merchants on interchange pricing models can view their fees on their monthly statement. The monthly statement will show the total aggregate fees for that month and the amount funded to your bank account. A statement guide is available here.

I’ll keep updating this post with more insights as I go along.

Update: 25/12/14

It’s been a few weeks since I’ve started using Braintree on my site and the results have been good. Here is some insight on these first few purchases that have gone through.

Visa card payments are exactly double those from Mastercard. These are the two cards I can accept at the moment through Braintree.

Around 40% of payments are now coming through Braintree and the rest come through Paypal. Before introducing Braintree all my transactions were processed by Paypal. This change has not brought about an increase in total sales yet, but I will have to revisit this at a later stage since December is traditionally a slow month. January and February should give us a better indication on whether introducing credit card payments actually boosted sales or not (which was mostly the whole point of introducing this facility).