In an era of unprecedented globalization, the world economy is more interconnected than ever. Advancements in technology have made it easier for businesses, big and small, to connect with international clients, customers, and partners.
One of the most critical developments has been the creation and adoption of money transfer services like PayPal. In contrast to traditional bank transfers, PayPal offers a relatively cheap, fast, and easy solution for businesses to make international payments to partners outside of the United States.
Can PayPal be Used for International Transactions?
The short answer is… yes! PayPal is available in over 200 different countries, giving companies the option to make cross-border payments and transfers via the app or website at PayPal.com. However, the process differs slightly depending on whether or not both the sender and recipient have a PayPal account.
If both users have a PayPal account, the transaction can be processed through PayPal. If the recipient does not have a PayPal account, the payment can be sent directly to their personal account (depending on the country they are in) via Xoom, another payment service owned by PayPal.
Both options offer relatively fast payment and Xoom conveniently links with your PayPal to make tracking payments easier.
What Fees Does PayPal Charge?
PayPal offers two different payment methods for international money transfers and each has its own fee structure. When sending money directly to another PayPal account, PayPal charges 5% of the transaction with a minimum fee of $0.99 and a maximum fee of $4.99.
This assumes the transfer is funded by a PayPal balance. If the transfer is funded by a credit card, debit card, or PayPal credit, a funding fee of 2.9% plus a fixed fee (based on the currency used) is also applied.
PayPal Currency Conversion Fee
Additionally, if the sender needs to convert to a different currency before sending, 3.5% is the PayPal currency conversion fee to US dollars or Canadian dollars, whereas 4% is the currency conversion fee for other currencies. PayPal also charges a 4.5% for conversion service, so it’s important to factor this cost in as well to any currency conversion you do.
See the table below to better understand how these fees are applied.
On the other hand, in order to transfer directly to a recipient’s bank account, you’ll need to send the payment via Xoom. Because Xoom is owned by PayPal, the two work seamlessly together and the transfer can be funded from a PayPal account or linked bank account.
Unlike the fixed percentage fee for transferring to another PayPal user, Xoom adds a mark up to the current market rate.
For example, if the currency exchange rate from EUR to USD is 0.913, Xoom might offer to process the transfer at a slightly lower rate of 0.902. This means the recipient will receive less than the market exchange rate and the sender will have to factor that into their payment.
PayPal Fee Structure for International Transfers
| Transaction Fee | Additional Charges | |
| Transferring to another PayPal Account | 5% of the transaction amount$0.99 minimum$4.99 maximum | 2.9% funding fee + a fixed fee based on the currency used when using a credit card, debit card, or PayPal credit to fund transaction. Conversion fee if converting currency before sending. As of September of 2019, the current currency conversion spread is 3-3.75%. |
| Transferring directly to a bank account via Xoom | Mark-up on exchange rate that varies by currency. | Added fees when using a debit card or credit card. Fees vary based on currency and transaction amount |
How Do I Avoid PayPal Fees?
PayPal is free only for personal payments made to friends and family within the United States. For international transfers and business transactions, there are transfer fees as described above as well as merchant fees for goods and services.
Depending on the size and frequency of international transfers, the cost starts to add up. While there isn’t a way to avoid PayPal’s transaction fees altogether, there are ways to mitigate cost:
Fund transactions using your PayPal account.
This is the easiest way to reduce the different fees charged by PayPal. Funding transfers with a Paypal account avoids the additional fees tacked on when using credit cards and debit cards.
For one-off situations, this might not make a major impact, but over time, those fees add up.
Make larger payments.
When transferring money directly to another PayPal account, the fee is capped at $4.99. This means that sending $100 costs the same as sending $1,000 dollars and so on.
Making fewer payments in larger amounts keeps the relative cost low. Xoom, on the other hand, is not capped in this way.
Factor PayPal costs into pricing.
When working with international partners, the cost of payment should be factored into the pricing of the service, especially when transactions are large and/or frequent.
It’s important to work the details out beforehand. The frequency of payments, transaction amounts, and exchange rates should all be factored into the cost of the service. That way, there are no surprises down the road.
Deduct fees at tax time.
PayPal and other payment processing fees are considered a necessary cost of doing business and can be deducted from your taxable income at the end of the year. While this doesn’t necessarily reduce the cost of using PayPal, some of that loss can be recouped in the form of tax savings.
Are There Other Options?
It’s hard to beat the convenience of PayPal because of it’s global popularity, but there are a number of options available for transferring money abroad. Companies like Transferwise offer competitive alternatives to PayPal and Xoom. Factors like transfer amount, frequency, and the currency used can all greatly affect the cost of sending money, so it’s important to take this into account when deciding which money transfer service is most cost-effective.
