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.
While PayPal can be used for international transactions or payments, many users don’t realize that PayPal can prove pretty bad value as the fees can be fairly steep. Plus, the PayPal exchange rate includes a ‘currency spread’ markup, 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.
Before you get started, a word.
Banks and money transfer providers often give you a bad exchange rate to make extra profits.
Wise is different. Its smart new technology skips hefty international transfer fees by connecting local bank accounts all around the world. Which means you can save up to 8x by using Wise when you send your money abroad.
Independent research has even shown that, on average US PayPal business users can save 8x more by using Wise. In the UK, those savings jump to an average of 9x.
Oh, and while you’re at it, check out Wise’s free Multi-currency Account. Where you can manage and send dozens of currencies all from the same account. With no monthly fees.
Now, back to what you came here to read.
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.
If you’re using PayPal for your international transfer¹, though, you have a few options:
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.
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.
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.
If you are using PayPal to either send or receive money internationally, fees can greatly depend on many factors. For this reason, we're showing you all the possible use cases and the fees that can influence the final cost of a transaction.
When initiating an international transaction with PayPal, there are two main ways of funding your transfer.
One option is funding your international transfer via PayPal balance or a linked bank account, which is generally the cheaper option.
But 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.
Let’s see what foreign transaction fees PayPal charges you, depending on which payment method you choose to fund your transaction with:
|PayPal balance or a linked bank account||Credit card or debit card|
|Cross-border transaction fee||5% (Minimum fee $0.99, maximum fee $4.99)²||5% (Minimum fee $0.99, maximum fee $4.99) + 2.9% + fixed fee based on currency²|
|Exchange rate||3% - 4% on top of the wholesale rate²||3% - 4% on top of the wholesale rate²|
|💡When sending money abroad with PayPal funded by your credit card, there is a fixed fee added on top of other fees charged. For US dollars, this fixed fee is $0.30 per transaction.³|
Receiving money from friends or family abroad
While there isn’t a base fee when you receive money from your friends and family via PayPal, keep in mind that there can be additional fees paid by the sender when currency conversion is involved. For example, if your family or friends send you money from the UK in pound sterling, PayPal first need to convert it to US dollars before the amount lands on your account.
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 markup of either 3% or 4%, depending on your scenario, which is applied to the wholesale exchange rate.³ This can mean that you might receive less money from your friends or parents than you’ve expected by looking at the mid-market rate.
The mid-market rate 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.
|💡 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.|
Receiving money from abroad as commercial transactions
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.)
For example, to receive a commercial transaction online, there is a 2.9% base fee involved. On the top of this, PayPal adds 1.5% for an international commercial transaction, plus the fixed fee for US dollars — $0.30 per transaction.³
This is not all, because we still haven’t included the currency conversion fee. If the payment isn’t sent in US dollars, then there is a 4% currency conversion fee to be paid as well.³
All in all, there are a lot of fees involved. So, using a PayPal fee calculator can come in handy to figure know how much are you supposed to pay after all.
Also, you might be wondering — rightfully so — if there’s a way to reduce PayPal international transfer fees.
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.
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with 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 in the publication is accurate, complete or up to date.
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