How to avoid US PayPal fees on international payments

6 minute read

It’s hard to imagine life before Paypal. Globally, there are over 200 million active PayPal users, who make billions of transfers and payments annually. There’s no denying that PayPal played a huge role in the e-commerce revolution, and can be a convenient way to make and receive payments online.

However, what many users don’t realise, is that PayPal can prove pretty bad value as soon as you’re making an international transfer or payment. Depending on how you structure your transfer, the fees can be fairly steep, and the PayPal exchange rate includes a ‘currency spread’ mark up, which means it’s not always the best value for customers.

If you’re planning on making an international payment or transfer with PayPal, it’s important to understand the charging structure. Even better, if you do a bit of homework, you might even find that there are some ways you can reduce the fees applied to your payment. This article focuses on US-based PayPal accounts. For more information on the fees applied on UK-based PayPal accounts, check out this great article instead.

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Now, back to what you came here to read.

What options are there to fund a PayPal transfer?

If you need to make an international transfer with PayPal the first decision you must make, is how to fund the payment. Different funding options incur different fees - so it is important to understand which works best for your situation. And when your international payment involves a business on either side, the costs jump up. A lot. (Check out real life case studies to see for yourself how much international transfers cost with PayPal business.)

If you’re using PayPal for your international transfer, though, you have a few options:

Use PayPal balance

If you already have a cash balance in your PayPal account - because other people have transferred you money using the service before, for example - you can use this to fund your payment.

Use a linked bank account

You can fund your transfer with a bank account you have linked to your PayPal account, so the money moves directly from your bank account, through PayPal, and on to the recipient.

Use a credit or debit card, or PayPal credit

You can fund your transfer in full or part using a debit or credit card, or the PayPal credit option. This is the route that usually incurs the highest fees, so if you’re considering it, it’s worth reading the small print before you commit.

(Source 1, Source 2, 4 February 2018)

US PayPal fees for transfers funded by PayPal balance or a linked bank account

You save a bit by fully funding your international transfer via PayPal balance or a linked bank account. But the moment you add in payment via PayPal credit, or your own debit/credit card, the fees go up. (More on that in the next section.)

On PayPal’s fees pages, your costs for a transfer funded by PayPal balance and/or a linked bank account are:

  • Cross-border transaction: 0.3% - 2% of transaction amount depending on destination country
  • Fixed fee for transfer: Varies depending on currency, generally less than $1.
  • Exchange rate: Depending on the type of the transaction, 2.5% or 3% on top of the wholesale rate

You can easily calculate PayPal fees for merchants with this free PayPal calculator.

(Source 1, Source 2, 4 February 2018)

US PayPal fees for transfers funded by credit or debit card

If you choose to fund your transfer in full, or in part, using a credit or debit card, or PayPal credit, then there are higher fees involved than if you don’t.

On PayPal’s fees pages, your costs for a transfer partially or fully funded by PayPal Credit and/or debit/credit card are:

  • Cross-border transaction: 3.4% or 3.9% of the transaction amount depending on destination country
  • Fixed fee for transfer: Varies depending on currency, generally less than $1.
  • Exchange rate: Depending on the type of transaction, 2.5% or 3% on top of the wholesale rate

(Source 1, Source 2, 4 February 2018)

PayPal exchange rates

Of course, it’s not only the flat fees which you have to take into account when you process an international payment with PayPal. As you already saw above, exchange rates are a factor, too.

Once PayPal has removed any relevant fees from your transfer amount, the remaining funds are converted to your destination currency for the transfer to proceed. Usually PayPal does this conversion themselves - although if you’re funding your payment with a credit or debit card you might have the choice to have your card provider make the conversion instead.

If PayPal converts your funds, there’s a mark up of either 2.5% or 3%, depending on your scenario, applied to the wholesale exchange rate, which can mean that the recipient receives less than you might expect if you’ve been looking at the mid-market rate.

The mid-market rate is important, because it’s the only real exchange rate. It’s the rate you’ll find if you Google your currency pairing - and the one banks use to sell currency to each other. The rate applied to money transfers and currency conversions often includes a mark-up on top of this mid-market rate, as the provider adds their own margin (also called spread) in the rate they offer.

However, the mid-market rate is always the best rate to use as a benchmark, to check the rate you’re offered is fair.

When you process your transaction with PayPal, you’ll be shown the exchange rate they’re using before you commit to the payment. Don’t forget you can always compare this with the real, mid-market rate with a quick Google search, or by using a currency converter online. If you don’t think the exchange rate is fair, you can then cancel the transaction, and try a different money transfer provider like Wise for your international transfer.

(Source 4 February 2018)

How to reduce PayPal fees on international payments

Honestly, first and foremost, one of the easiest ways to reduce PayPal fees on international payments may just be to use another transfer service like Wise.

But if you’d like to use PayPal, it’s useful to know that they use a different exchange rate for balance transfers and for payments. A balance transfer is where you convert cash which is already held in your PayPal account to a different currency within your account. A payment is where you simply use PayPal as a means of transferring the payment, so the cash passes directly through your account without actually being held there.

If you convert money as a balance transfer within your PayPal account, you can get a better exchange rate. That means, that for many PayPal users, the best idea is to transfer funds from your USD-linked bank account in the States, which is usually free, into your Paypal account. If you then convert this cash as a balance transfer to your destination currency within your PayPal account, and then use the new currency balance to make your international payment, you end up saving.

All in all, it may be a much better bet to check out other money transfer providers like Wise, who does offer the real mid-market exchange rate, to see if you can get a better deal when you transfer your money abroad. Just make sure, when you’re comparing the fees and total costs, to check that the exchange rate you’re offered is fair.

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| This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date. |

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