PayPal micro payment rates

PayPal introduces micropayments pricing scheme

Online payments firm PayPal is cutting the processing fees it charges merchants for low cost digital purchases such as ringtones, video games, online greeting cards and music downloads.

The eBay subsidiary says its new micropayments pricing scheme is designed to enable customers to purchase low cost digital items without having to sign up for annual subscriptions or pre-funded payment accounts.

The new pricing is designed especially for payments less than $2. Under the new payments structure merchants will be able to process payments at a rate of five per cent plus five cents per transaction. PayPal says the new fees mean that merchants will pay 40% to 60% when processing low-cost payments, compared to the industry's current payment processing rates of two per cent plus 20 to 30 cents per transaction.

Peter Ashley, director of PayPal's micropayments business, comments: "With our new pricing tier for digital goods, merchants can affordably provide customers with what they are demanding - the opportunity to purchase the content they want without the need to sign up for subscriptions or pre-payments."

Merchants can opt for the new pricing structure or stay with PayPal's existing system. The firm's standard, volume-based transaction fees range from 1.9 to 2.9%, plus 30 cents per transaction.

More than 14 million US consumers purchased digital content costing less than $2 in 2004, an increase of over 10 million from 2003, according to research by micropayments firm Peppercoin and Ipsos-Insight released late last year.