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PayPal and their Send Money fees

Lorne

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I thought about putting this in the Rants section, but it isn't one (it'll probably turn into one though).

I've used the Send Money feature in PayPal before, and never realized there are sometimes fees associated with the deal.

I only found out through reading about the terms, after the cork pad sales where I was dinged anywhere from 4% to 11% (depending on the value of the sale). I wised up part way through, and let later buyers know to send it as a "gift" or one of the other options, so nothing was deducted for fees.

For those that haven't read it:

"It's always free to send money to friends and family when you use your PayPal balance or bank account. Fees only apply if the sender uses a credit or debit card, or if you receive any payment for goods or services."

So the gist of it is; don't Send Money for Goods or Services, and preferably have money in your PayPal or bank account. If you do that, the money goes straight through with no fees deducted.

Nice racket they've got going, huh?
They certainly don't highlight the fees or how to avoid them, on the Send Money page.


PS: to those of you I've ever sent money to before through PayPal, sorry you got dinged fees - it won't happen next time.
 

Chuck(G)

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They've done that for years. FWIW, their card fees are competitive with merchant fees charged by the banks.

On the other hand, try to get a dollar-denominated check issued from a European bank cashed. With my bank, it starts at $75 and can go higher. I've been hit by this fee even when it's been a foreign-owned bank with branches in the US.
 

Unknown_K

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You would be much better off doing a bank transfer digitally or just taking a credit card using paypal. Banks charge a ton for simple currency conversion so people just use credit cards for overseas shopping and let VISA or Mastercard do the conversions for less.

Paypal is very cheap for doing business overseas with different currencies. I think it might even be cheaper then the fees smaller murchants pay for taking credit cards.
 

Chuck(G)

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You would be much better off doing a bank transfer digitally or just taking a credit card using paypal. Banks charge a ton for simple currency conversion so people just use credit cards for overseas shopping and let VISA or Mastercard do the conversions for less.

Paypal is very cheap for doing business overseas with different currencies. I think it might even be cheaper then the fees smaller murchants pay for taking credit cards.

True, but there are people overseas who simply don't believe that any bank could possibly charge that much. I lost a couple of sales when I informed the buyer that I could take credit cards or paypal, but checks would be (substantially) extra.

Which is ridiculous because overseas currency transfers happen between major banks in milliseconds.

But then, here in the US, a bank will charge a 3-5% merchant processing fee on a debit card transaction, even though the buyer's bank already has the cash on deposit.

All in all, Paypal isn't bad. If you're a merchant, you're more than aware that the banks have been escalating their charges and adding other little goodies (such as telling you that you'll need the new, improved model of their terminal for only $500 (an iPod is more complicated)) and that you can trash the one you bought from them only 2 years before).

The banks want the vig.
 

Ole Juul

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Here is a slightly edited cut/paste from the PayPal web site:

Purchase:
Pay: free
Get Paid: 1.9% to 2.9% +$0.30

Personal Transfer:
(Send and Receive)
Free when the money comes from PayPal balance
or bank account.

2.9% + $0.30 CAD
when the money comes from a credit card
(the sender decides who pays this fee).


* Free to open a PayPal account.
* Free to withdraw from your PayPal balance to your bank account.
* Free to add money to your PayPal balance from your bank account.

Their "standard pricing" looks like this:

$0 to $3,000 2.9% + $0.30
$3,000+ to $12,000 2.5% + $0.30*
$12,001+ to $125,000 2.2% + $0.30*
$125,001+ 1.9% + $0.30*

It's quite a complicated game to figure it all out. Frankly it's a bit beyond me. One thing I notice though is that when you transfer money, or pay from you bank account, then they hold the money for over 7 days. That means that pretty much 2% of their annual throughput is on hand for them to invest. That part would be pretty lucrative right there - let alone any fees they might charge.

When they say "free" to transfer money, that is a "specialized definition" (ie deceptive) of the word. It is not at all free in a financial sense of the word - unless you call lending someone money at no interest to be "free".
 

carlsson

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I lost a couple of sales when I informed the buyer that I could take credit cards or paypal, but checks would be (substantially) extra.
Hm, I thought checks were almost extinct on this side of the pond. Between European banks, most transfers happen through IBAN codes. While those more or less are the same as your bank account number which people generally are afraid of exposing (*), I think the number of frauds are very few so it is either an electronic wallet like PayPal, or direct transfer with IBAN. Writing checks or other means of payment still exist but are far from being promoted services. Perhaps the buyer knows you're in the United States of Checkmerica and thought it would be a nice gesture to send you money through a check, but in the end it turns out to be a costly experience.

(*) I don't understand why there would be any risks in exposing a bank account number. In order to withdraw money from one, you either need to go to your home bank office and ID yourself, or have access to an Internet banking service pre-wired to your account. The only kind of fraud I can think of is if someone launders money by putting them on your account, and three days later the bank or police find the money came from an illegal transaction and you as the account holder gets held responsible for it.

Keeping credit card and Internet bank details safe are different matters, with those you can actually conduct payments or money transfers.

Sometimes when I feel naughty, I like to think that in countries and banks where the bank account number is thought as a highly valuable number not to be exposed to strangers, those banks have close to zero security so pretty much anyone who knows your number could walk into any bank office and say: "Hey, I'd like to withdraw $500 from this number" and get the money in cash with very little or no ID checks. Surely no bank can operate in that manner today, 2011? Not even in the third world or among corrupted banks, that kind of transfer from a foreign bank could take place.
 

Ole Juul

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I agree that bank account numbers aren't something you need to keep private. It's the same as street addresses. It's just an address and you need to tell people if you want them to bring stuff there. Not a lot of people are lining up to put money in my bank account, but I'd be glad to give them the number should they wish to do so. :)

Cheques are still needed over here because we have quite a few poor people. You can't get a credit card unless you have over a certain annual income. Disabled people don't usually qualify. However people with low incomes still need to pay rent or property tax. Hence cheques aren't going away any time soon - at least as long as landlords or tax departments want to collect. lol

PayPal is interesting because they don't ask you any questions except your bank account number. It is available to everybody, and even the very poor have access to computers nowadays.
 

carlsson

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Hm, are you saying that bills usually are paid by check or credit card transaction directly to the recipient? Over here we use giro services which means you collect all your payment notifications, write them down one by one on a summary sheet, sign it and send to your bank. It can be done either by snail mail or through the Internet. Once the bank receives your payment order, it transfers each amount from the bank account connected to the giro service to the recipient's giro number, which can be in the same or a different bank. The giro number eventually is translated into a bank account number, but usually you make the payment through the giro number instead of the actual bank account number. Indeed the giro service costs some money, about ~$25-30 per year but at least you are not required to hold a debit or credit card to pay your bills.

Perhaps the checks work in a similar way as I describe, that instead of trusting the bank to correctly perform each transaction, you write a check to confirm each payment and then send in those to be executed. Pretty much the same amount of paperwork, but with the difference in a system using checks it is your own responsibility you didn't add one trailing zero too many.
 

PeterNY

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Cheques are still needed over here because we have quite a few poor people.

North America really needs to enter the 21st century and switch 100% to debit cards and wire transfers. There is no reason to use checks whatsoever.
 

PeterNY

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Perhaps the checks work in a similar way as I describe, that instead of trusting the bank to correctly perform each transaction, you write a check to confirm each payment and then send in those to be executed. Pretty much the same amount of paperwork, but with the difference in a system using checks it is your own responsibility you didn't add one trailing zero too many.

Checks need to be cleared and it is really an outdated system. Direct debit (either through giro or not) is the way to go. That is also how PayPal grew so fast (especially in North America): there is not really an alternative to it.
 

PeterNY

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Between European banks, most transfers happen through IBAN codes.

It would be great when the rest of the world would also integrate with IBAN. Mind you: most local banks in North America are not even integrated in SWIFT/BIC.
 

carlsson

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Yes, a couple of years ago they were talking about expanding the IBAN system to North America and possibly more markets. However in practise it doesn't seem to have happened. Perhaps bank managers are not so easy to convince, or the problem lies in licensing fees?

It should be noted though that an IBAN transfer usually takes 2-3 banking days before it is completed so for people who want instant confirmation about a payment, PayPal and similar services still are superior. Then again you may question their liabilities towards the seller and/or buyer in case either files a complaint. With banks it seems slightly more final, not as easy to cancel a payment sent.
 

mbbrutman

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With a commercial checking account I was able to process direct transfers (ACH) to or from a checking/savings account for $0.20 each transaction. With a larger number of transfers I'm sure that I could have gotten a better rate.

PayPal just hit me for almost $1 in fees on a $21 purchase. If the transfer came from a checking account the transfer probably cost less than $0.10. Give them some for operating expenses. I'm sure that they made a 200% profit on this transfer.

Yes, it adds up ....
 

Chuck(G)

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It should be noted though that an IBAN transfer usually takes 2-3 banking days before it is completed so for people who want instant confirmation about a payment, PayPal and similar services still are superior. Then again you may question their liabilities towards the seller and/or buyer in case either files a complaint. With banks it seems slightly more final, not as easy to cancel a payment sent.

My bank says that it will take 30 days to clear a foreign check.

My suspicion is that there's a lot of money being made by large commercial banking firms in banker's acceptance instruments.
 

carlsson

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30 days?! You could build yourself a small boat, sail across the ocean, pick up the money in cash and sail back home again before the check is cleared.
 

Ole Juul

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30 days?! You could build yourself a small boat, sail across the ocean, pick up the money in cash and sail back home again before the check is cleared.

I think they count on people not doing that. :)

My feeling is that there's a lot of money to be had by holding money. As I mentioned earlier it looks like PayPal is, at any one time, holding 2% of the money that comes through them. That's a huge loan and worth a fortune. They don't need to charge any "usage fees", because the holding time is in itself a usage fee. They're double dipping.
 

Ole Juul

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North America really needs to enter the 21st century and switch 100% to debit cards and wire transfers. There is no reason to use checks whatsoever.

I agree that NA needs to enter the 21st century, but would worry about the possible limitations of only having debit cards and wire transfers.

Things may work without cheques, but we certainly need to have hard cash available. At least in this country banks are private companies, and having them in control of all the money transactions might not be wise. To me it looks like we'd be on a slippery slope if we couldn't make a transaction (other than barter) which does not involve a 3rd party profiteer.
 

Chuck(G)

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IMy feeling is that there's a lot of money to be had by holding money. As I mentioned earlier it looks like PayPal is, at any one time, holding 2% of the money that comes through them. That's a huge loan and worth a fortune. They don't need to charge any "usage fees", because the holding time is in itself a usage fee. They're double dipping.

I don't think Paypal has made any secret of that--at least they didn't initially, back when they'd pay you $20 to open an account. I used to have an X.COM credit card as well.
 

Unknown_K

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Paypal is not a bank and doesn't have to follow banking rules. The money you have in your paypal acount is not federally insured, but they do pay more interest then a checking acount. When I joined I think Paypal offered you $5 (2001 or so).
 
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