“Customers want to be able to pay [for items] as they go,” Peter Ashley, director of PayPal’s micropayment business, said, adding that the new pricing tier will make it easier for merchants to offer goods on an a la carte basis without requiring customers to sign up for subscriptions.
Standard PayPal fees are based on percentages of the price of an item, which can run anywhere from 1.9 to 2.9 percent, plus a fixed transaction fee of 30 cents. The new scheme charges merchants 5 percent and a fixed rate of only 5 cents.
According to Avivah Litan, an analyst with Gartner Research, the lower flat-fee could save merchants 40-60 percent per transaction on average.
Dan Schatt, senior analyst at Boston-based research firm Celent, says that digital content sales are currently dominated by subscription-based services, most notably gambling and adult entertainment sites. The switch, according to Schatt, could have a major impact on the sale of one-off items priced less than $3, such as mobile phone wallpapers and ringtones.
“What PayPal can do by creating this new pricing structure is develop relationships with a lot of small- to mid-sized online merchants that want to ensure that they have as many options as they possibly can to facilitate payments by consumers,” Schatt said.
PayPal in recent years cut off adult transactions through their terms of service agreements. Nevertheless, some online adult companies, particularly those in the amateur market, still use PayPal with the risk of having their accounts closed and funds seized.