PayPal Inc., the payment processor, plans to introduce a cheaper way for businesses to handle online transactions that are less than $10, a company executive said.
BusinessWeek reports that PayPal will let companies accumulate so-called micropayments until a certain volume is reached, at which point PayPal will charge merchants a single processing fee, Francesco Rovetta, director of the San Jose, California-based company’s mobile unit, said in an interview. The new plan will be rolled out later this year, he said.
The popularity of digital music, videos and e-books has exploded in the past decade as consumers migrate to the Web. Merchants have been reluctant to accept credit cards for some of these items, which sell for as low as 79 cents, because fees make up a high percentage of the value of the transaction, reducing profit. Changing the fee structure will allow merchants to sell these goods more profitably, Rovetta said.
PayPal’s standard fee for processing a transaction is about 3 percent of the transaction plus a flat rate of 30 cents. For purchases less than $10, it charges 5 percent plus 5 cents.
That means when a consumer buys a 99-cent song online, the merchant would pay PayPal about 10 cents, or 10 percent of the transaction. Under the aggregation model, PayPal wouldn’t charge the merchant until consumers bought, say, 10 or 20 songs, thereby reducing the percentage of the transaction the merchant is charged.
Photo by PayPal.