I’m going to be a smarty-pants and say that this announcement was no news to me.  I first heard of PayPal MicroPayments accounts a couple of years back, investigated getting one, then never followed through - shame on me.  It’s also the reason I didn’t rush to publish this post, preferring to give you all something truly useful to read …

For those of you with no idea what I’m gibbering about, PayPal US have announced in their blog, and via the eBay ChatterBlog, that they are making fully public worldwide, the option to sign-up for a PayPal MicroPayments account.  It still hasn’t hit the official eBay Announcements Board at the time of writing.  Does anyone else find it incongruous that eBay are utilising the blogs more frequently to announce service and product changes, rather than official announcements?  Are they trying to disperse attention to what they are up to?

MicroPayments is a type of PayPal account for those who frequently receive very small payments through PayPal, and suffer high percentage overheads when using a regular PayPal account.  It’s been available to US and UK users only for a couple of years, but is now being made public and available worldwide.  You need a second PayPal account to convert to MicroPayments, and remember the terms of the PayPal User Agreement restricting you to a maximum of two PayPal accounts, so if you already have personal and business accounts, you’ll need to sacrifice one of them if you want a MicroPayments account.

It’s a “great news” announcement as far as I’m concerned.  Although my sceptical head asks why they’re only doing this after pretty much banning digital delivery goods on most eBay sites - because they led to “feedback manipulation“.  See this thread in the BuildaSkill forums to find which eBay countries still permit Digital Delivery products - forum registration required.  Add into that, that the UK this year banned sub-99p items (BuildaSkill was first to blog it) because they too caused “feedback manipulation“, and that the minimum Buy Now price on the US site is now 99cents, and it seems incongruous to globally launch micro-payments now (making it cheaper to manipulate feedback?).

Or is it?  In the secondary eBay countries (pretty much anywhere except North America and the big European countries) it’s still possible to list multi-item Buy Now items with penny prices, or Ha’pennies, or farthings (see this earlier blog post on BuildaSkill).  However, the story doesn’t end with just that.

The savings being promoted by PayPal are particularly for the “little people”.  If you have a “payments received volume” over certain levels (varies from PayPal site to PayPal site) then you can apply for PayPal volume discounts, and automatically get them thereafter.  The volumes required are high enough to keep out the hobby sellers.

The catch is that you must apply for them, and when you apply, you must have had at least one month with receipt volume over the first thresh-hold level.  Getting those discounts on your standard PayPal account can make a significant difference to fees, as this table shows.

Be careful how you read that table - the first column is a raw value that can be either dollars or Pounds Sterling.  Therefore the breaks when standard PayPal is cheaper than PayPal MicroPayments appear skewed in favour of the US site, but in fact they are skewed in favour of the UK site.

• On PayPal US, the switchover for cost effectiveness is at $12.00 exactly.
• At today’s exchange rate on XE.com that $12.00 is worth £7.39 ($1.00 = £0.615645 as of 2 minutes ago while writing this).
• Therefore the UK’s switchover point of approximately £9.25 ($15.01) is actually over 20% higher, in real terms, than that of the USA.

If however you are getting the PayPal volume discounts, then at the first discount break point (£1,500.00 in a calendar month) your fee rate drops to a little under the standard US rate and becomes 2.9% + £0.20 (not + $0.30) and that will bring your switchover point to exactly £7.00 ($11.36).

As you can see from the table, if you’re on PayPal UK’s best discount rate, the switchover point is around £4.33 ($7.03) and the additional administrative cost of running a second PayPal account may make it cost ineffective unless you already have the staffing to accomodate managing two accounts, which at those volumes, you are likely to have already.

Conclusion? PayPal MicroPayments could be a boon to the small guys dealing in penny products and John Donahoe’s much-loathed “flea market” goods … on eBay.  Off eBay, it depends entirely on your business model.  Without the eBay fee overhead, reducing your PayPal fees could be welcome relief, but remember the fee applies to the total transaction value, so you need to factor in shipping.  You also need to beware of having too many multiple item sales that push each transaction total over the switchover points.

If you’re considering PayPal MicroPayments, you’ll need to look back over past transaction history and identify product ranges or market channels where your invoice values are predominantly below the switchover points, and also assess how many are over them (and their values) for the effect on fees - you might find that having even just 5% of transactions in the big money bracket will push your fees into negative territory against retaining a standard PayPal account.  You also need to assess if moving those small invoices to a MicroPayments account will deteriorate your standard PayPal volume and lose you existing discounts.

Assessing this option might be a job for your accountant.  However, it might also open doors for new ranges on new channels, that you previously had not thought about.

And that’s my 1.4 / 2.9 / 3.4 / 5.0 percent worth

Ed