PayPal business fees: costs and cheaper alternatives

Key takeaways

• PayPal charges 2.9% + 30p for standard domestic transactions in the UK, but international payments can cost up to 5.9% after cross-border fees and currency conversion charges are added.

• Hidden costs like non-refundable processing fees on refunds, dispute charges (£14), and FX markups (typically 3-4% above mid-market rates) significantly increase PayPal's true cost.

• Airwallex offers transparent pricing with lower transaction fees and interbank FX rates, helping businesses save 30-50% on payment processing costs compared to PayPal.

Understanding PayPal's business costs

PayPal remains one of the most recognizable payment options for UK businesses, offering quick setup and broad customer acceptance. Many businesses start with PayPal because it's familiar and easy to implement.

But "familiar" doesn't mean "cost-effective." PayPal's fee structure—while appearing simple at first glance—includes multiple layers of charges that compound quickly, particularly for businesses with international customers or high transaction volumes. What looks like 2.9% often becomes 4-6% once all fees are factored in.

This guide breaks down exactly what PayPal charges UK businesses, where hidden costs emerge, and how to calculate your real payment processing expense. You'll learn when PayPal makes sense and when cheaper alternatives deliver better value.

How PayPal business pricing is structured

PayPal positions itself as an all-in-one payment solution where you can receive payments without a merchant account or payment gateway setup. The appeal is simplicity—create an account, add a button to your site, and start accepting payments.

However, PayPal's pricing differs from traditional payment gateways. Rather than just processing payments, PayPal acts as both the payment method itself (when customers pay from their PayPal balance) and the payment processor (when customers use cards through PayPal). This dual role means PayPal extracts fees at multiple points.

PayPal balance payments (when customers pay from funds already in their PayPal account) cost you the same as card payments—there's no discount for transactions that don't require card processing. This differs from payment gateways where bank transfers or direct payments typically cost less than card transactions.

The fee structure appears straightforward until you factor in international payments, currency conversion, refunds, and disputes. These additional charges can double or triple your effective rate, making PayPal significantly more expensive than headline pricing suggests.

Core PayPal business transaction fees

Here's what PayPal charges for standard UK business transactions as of 2025:

Domestic transaction fees

Standard rate: 2.9% + 30p per transaction. This applies whether customers pay from their PayPal balance, use a debit card, or use a credit card through PayPal. Unlike some processors, PayPal doesn't differentiate between card types.

Fixed vs percentage components

The 30p fixed fee matters more for small transactions. On a £5 transaction, you're paying 6% (30p) plus 2.9%, totalling 8.9%—far exceeding the headline rate. This makes PayPal expensive for businesses with low average transaction values.

Fees applied per successful transaction

PayPal charges only on completed payments. Failed or abandoned checkouts aren't charged. However, if a payment succeeds then later gets refunded or disputed, you've already paid the fee (and won't get it back).

PayPal fees by payment type

PayPal's fees should theoretically vary by payment method, but in practice they don't:

PayPal wallet payments

When customers pay from their PayPal balance: 2.9% + 30p. You'd expect this to be cheaper since PayPal isn't processing a card, but they charge the same as card transactions.

Card payments via PayPal

When customers use debit or credit cards through PayPal: 2.9% + 30p. Same rate regardless of card type or network.

Guest checkout

Customers paying without a PayPal account still cost you 2.9% + 30p. There's no additional fee for guest checkout, but equally no discount.

Recurring or subscription payments

Same 2.9% + 30p applies to every recurring charge. Unlike some payment processors that offer lower rates for predictable subscription volume, PayPal treats recurring payments identically to one-off purchases.

The consistency is simple but means there's no way to optimize which payment types you encourage. Whether customers use cards, PayPal balance, or guest checkout, your cost remains identical.

International and cross-border PayPal fees

This is where PayPal's costs escalate significantly.

Cross-border transaction fees

When you receive payment from a customer with a non-UK PayPal account, PayPal adds a cross-border fee ranging from 0.5% to 2% depending on the country. For most international payments, this adds 1.5% on top of the base 2.9% + 30p.

Currency conversion fees and FX markups

If the payment involves currency conversion, PayPal charges an additional 3-4% fee. But this isn't transparent—PayPal builds their margin into the exchange rate and then adds a percentage fee on top. You're paying an FX markup plus an explicit conversion fee, making PayPal's currency conversion one of the most expensive in the payments industry.

Real cost for international payments

A typical international transaction costs:

• Base fee: 2.9% + 30p

• Cross-border fee: +1.5%

• Currency conversion: +3-4%

• Total: 7.4-8.4% + 30p

This makes PayPal extremely expensive for businesses with international customers. What appears to be 2.9% becomes 7-8% after all fees compound—more than double Stripe's international rates and far exceeding specialist international payment methods.

PayPal fees for refunds, chargebacks, and disputes

Post-transaction costs are where PayPal's expense becomes particularly painful.

Refunds

PayPal doesn't refund the processing fee. Issue a full refund and you lose the 2.9% + 30p you originally paid. For businesses with return rates common in eCommerce (10-15%), these non-refundable fees represent substantial lost revenue.

Chargebacks and disputes

PayPal charges £14 per chargeback or payment dispute. This fee applies even if you win the dispute and the customer's claim is found unjustified. For businesses in sectors with high dispute rates or those dealing with international customers (where disputes are more common), these fees add significantly to total costs.

Example: You sell a £100 product and refund it. You paid £3.20 in fees initially and receive £0 back. Your net cost: £3.20 per refund. For a business with £50,000 monthly revenue and a 12% return rate, unrecoverable PayPal fees on refunds cost £2,304 annually.

Hidden and less obvious PayPal business costs

PayPal's advertised fees tell only part of the story.

FX margins vs interbank rates

PayPal's currency conversion uses their own exchange rates with a 3-4% markup above mid-market rates. This markup represents pure profit for PayPal and pure cost for you. Combined with their explicit conversion fee, you're effectively paying twice for currency conversion—once in the rate markup, once in the percentage fee.

Multiple fees on single transactions

An international customer paying in foreign currency triggers base fee (2.9%), cross-border fee (~1.5%), and currency conversion (3-4%). These compound rather than add linearly, meaning the effective cost exceeds a simple total of the percentages.

Withdrawal and payout considerations

PayPal holds funds for 1-3 days before releasing them to your bank account. Standard withdrawals to UK bank accounts are free but take 3-5 working days. Instant withdrawals (1% fee, capped at £1) are available but costly for high-value payouts. This delay impacts cash flow more than the fees themselves for many businesses.

Operational friction

PayPal's reconciliation can be cumbersome, particularly with refunds, disputes, and currency conversion all affecting final settlement amounts. The administrative time spent reconciling PayPal transactions represents a hidden cost that's rarely factored into total cost of ownership calculations.

Real-world examples of PayPal business fees

UK eCommerce transaction

• Transaction: £100

• PayPal fee: 2.9% + 30p = £3.20

• You receive: £96.80

International customer in foreign currency

• Transaction: $100 (USD)

• Base fee: 2.9% = $2.90

• Fixed fee: 30p (converted)

• Cross-border fee: 1.5% = $1.50

• Currency conversion: 3.5% = $3.50

• Total fees: ~$8.28 (£6.37)

• You receive: ~£70.51 (based on PayPal's rate)

Refunded order

• Original sale: £100

• Fee paid: £3.20

• Full refund issued

• Fee refunded: £0

• Net cost: £3.20 lost

Business with frequent small payments

50 monthly transactions averaging £15 each:

• Revenue: £750

• Total fees: 50 × (2.9% + 30p) = £21.75 + £15 = £36.75

• Effective rate: 4.9%

This final example shows how the 30p fixed fee disproportionately impacts businesses with low average transaction values, making their effective rate far higher than the advertised 2.9%.

When PayPal business fees make sense

Despite higher costs, PayPal remains appropriate in specific scenarios.

Low-volume or early-stage businesses benefit from PayPal's zero setup costs and no monthly fees. If you're processing under £5,000 monthly and want to start accepting payments quickly, PayPal's simplicity can outweigh the higher per-transaction costs during your initial growth phase.

Some customers strongly prefer PayPal due to buyer protection, familiarity, or not wanting to enter card details on every site. If your customer base demands PayPal, offering it alongside other payment methods makes sense despite the cost—though making it your sole payment option leaves money on the table.

PayPal makes sense when convenience and customer preference outweigh cost optimization, you're too small to negotiate better rates elsewhere, or you need genuinely instant setup without technical integration. For established businesses optimizing margins, PayPal typically represents one of the most expensive options available.

Cheaper alternatives to PayPal for businesses

Several alternatives offer lower costs with comparable or better functionality:

Payment gateways with lower domestic fees

Stripe, Square, and SumUp all charge significantly less than PayPal for domestic UK transactions. Stripe's 1.5% + 20p represents a 1.4% saving compared to PayPal's 2.9% + 30p.

Providers with better international rates

Even Stripe's international fees (roughly 3.9-4.9%) are substantially lower than PayPal's 7-8% effective rate. Specialist platforms like Airwallex reduce international costs even further with transparent interbank rates.

Bank-based or account-to-account options

Open banking payments and direct bank transfers cost significantly less (often under 1%) but require customers to interact differently than card payments. GoCardless for recurring payments offers rates as low as 1% + 20p.

The trade-off is acceptance—PayPal has strong brand recognition. But for most businesses, offering Stripe or similar alongside PayPal, then optimizing which you promote based on cost, delivers better economics than PayPal alone.

How Airwallex helps businesses reduce payment fees

Airwallex is built specifically to reduce the costs that make PayPal expensive for growing businesses.

What Airwallex delivers that PayPal doesn't:

• Lower baseline fees: From 1% + 20p for UK transactions vs PayPal's 2.9% + 30p

• True interbank FX rates: 0.3-0.8% spreads vs PayPal's 3-4% conversion fees

• Multi-currency accounts: Receive, hold, and pay in 23+ currencies without conversion

• Local payment collection: Accept payments like a local business in major markets

• No cross-border premium: International transactions don't incur PayPal's 1.5% cross-border fee

• Transparent pricing: See exactly what you're paying without hidden FX margins

Real savings for international business

For a business processing £50,000 annually with 40% international customers, PayPal costs approximately £2,900 in fees. Airwallex's same volume typically costs £1,200-£1,400, saving roughly £1,500-£1,700 annually. The savings grow proportionally with volume.

Airwallex makes sense for any business processing more than £10,000 monthly, businesses with any international customer base, companies tired of PayPal's high refund costs, or those wanting comprehensive global payment infrastructure. Rather than accepting PayPal's inflated fees as a cost of doing business, Airwallex provides modern payment infrastructure at significantly lower total cost.

For businesses serious about cross-border fees optimization, PayPal represents one of the most expensive options available. Airwallex isn't just marginally cheaper—it's fundamentally better value for businesses operating at any meaningful scale.

Conclusion

PayPal offers familiarity and quick setup, making it acceptable for very early-stage businesses processing minimal volume. But as transaction volume grows or international customers emerge, PayPal's fees quickly become one of the highest costs in your payment stack.

The 2.9% + 30p headline rate is misleading. Once you factor in international fees, currency conversion markups, non-refundable fees on refunds, and dispute charges, most businesses pay effective rates of 4-8% depending on their customer geography and transaction patterns.

For businesses processing meaningful volume or operating internationally, modern payment infrastructure like Airwallex delivers dramatically lower costs with better functionality. The difference isn't marginal—it's the difference between accepting inflated fees as unavoidable and actively optimizing one of your largest variable costs.

Ready to reduce your payment processing costs? Open an Airwallex account to access transparent pricing, lower transaction fees, and true interbank FX rates built for growing businesses.

FAQs

Does PayPal charge different fees based on where the buyer is located?

Yes. PayPal adds a cross-border fee of 0.5-2% (typically 1.5%) when receiving payment from customers with PayPal accounts registered outside the UK. This is in addition to the base 2.9% + 30p fee. If currency conversion is involved, add another 3-4% in conversion fees. This stacking effect makes international PayPal payments extremely expensive compared to alternatives.

Does PayPal charge fees on failed, cancelled, or reversed payments?

PayPal doesn't charge fees on payments that fail initially. However, if a payment succeeds then later gets refunded, reversed, or charged back, PayPal keeps the original processing fee (2.9% + 30p) and may charge additional fees for disputes (£14). This means you lose the processing fee on every refund, which significantly impacts businesses with return rates typical in eCommerce.

How predictable are PayPal business fees month to month?

PayPal fees are relatively predictable if your business is purely domestic. But if you have international customers, currency fluctuations and varying cross-border fee rates make costs less predictable. Additionally, unexpected disputes or refunds create unpredictable fee costs. Businesses with stable domestic customer bases find fees predictable; those with international or variable customer geography experience more cost volatility.

How do PayPal fees affect cash flow and payout timing?

PayPal holds funds for 1-3 days before releasing to your bank account. Standard withdrawals then take 3-5 working days to reach your account, meaning you're typically waiting 4-8 days from customer payment to accessible funds. This delay impacts cash flow more than the fees themselves for many businesses. Instant withdrawals (1% fee, £1 cap) are available but add cost, particularly for high-value payouts.