| November 21, 2010, 3:47 PM |
marco
Moderator
Accepting Micropayments with Paypal
We have just implemented the option to let sellers have dual Paypal email accounts associated with there accounts. The reason for this is to allow you to save as much as possible on Paypal transaction fees by using Paypal’s Micropayment system when it is financially beneficial.
A little history, Paypal's Micropayments system has been around for years, but not many digital sellers know about this feature that will allow you to save a nice amount of coin on Paypal transaction fees.
Normally when you create a standard Paypal account you are automatically put into the 2.9% + $0.30 transaction fee schedule. The unadvertised option for those that frequently receive small payments (also known as micropayments) is that you can opt for Paypal's micropayments transaction fee schedule.
A closer look at the transaction fees for Paypal accounts:
Paypal Business/Premier: 2.9% + $0.30
Paypal Micropayment: 5% + $0.05
Download Bay has set the micropayment threshold at $11.90. So if your product is at or below $11.90 we will send the payment transaction to your Paypal Micropayment account. If the payment is over $11.90 the payment transaction will be sent to your regular Paypal account. By doing this we make sure that you pay the least amount of transaction fees possible. Of course you will need to have a Paypal Micropayments enabled account to take advantage of these savings, otherwise the payments will sent to your ordinary Paypal account.
Why $11.90 as a payment threshold?
Take a look at the transaction fees purely from the standpoint of mathematics and solve for x to see where each fee schedule meets:
2.9%(x) + $0.30 = 5%(x) + $0.05
x = $11.90
Now Paypal on their website has more generously (for themselves) indicated that a cutoff point of $12 as the recommended threshold for deciding whether to accept payment with your standard account or your micropayment account. The amount of money that Paypal might gain from this is nominal in the amounts of tenths of 1 cent, but it still favors Paypal. At $11.90 the transaction fees will always favor you.
In the $10-$12 price range, your saving may not be that substantial, but at lower amounts such as below $1.00 your savings will skyrocket. For example
Payment received on standard Paypal fee schedule
$1.00 x 2.9% + $0.30 is equivalent to $1.00 - $0.33 (fees) = $0.67 (profit) or 33% paid in fees to Paypal
Payment received on micropayment Paypal fee schedule
$1.00 x 5.0% + $0.05 is equivalent to $1.00 - $0.10 (fees) = $0.90 (profit) or 10% paid in fees to Paypal
You can use this online Paypal calcuator to see examples of these savings: http://www.rolbe.com/paypal.htm
If you don''t have a Paypal micropayments account you can get one by creating a new Paypal account dedicated to Micropayments here:
http://www.paypal.com/activate_micropayments_5pct_plus_5cents_new_account_pricing
or
You can convert an existing Paypal account into a micropayments account here:
http://micropayments.paypal-labs.com/
Quote from Paypal's website:
"Merchants who receive both macro and micro payments should maintain two separate accounts:
1. An account to apply their standard rate to macropayments.
2. An account to apply the micropayments rate to their micropayments.
Each PayPal account is associated with only one merchant processing rate...."
Your Paypal account can be set up to receive standard payment or micropayments but not both (at least not at this time, hopefully this will change in the future). For Download Bay use we recommmend creating a second Paypal account just for accepting micropayments. You can create this account in minutes and start accepting micropayments immediately even without adding a bank account to the micropayments Paypal account. When you receive micropayments you can send money from your micropayment account to your standard account so that you can have access to your funds.
Sign up for a Micropayments Paypal account here: http://www.paypal.com/activate_micropayments_5pct_plus_5cents_new_account_pricing
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