Australian sole traders and businesses are being stung by a new PayPal fee that they allege amounts to anticompetitive conduct.
In recent weeks, the payment giant has been smacking Australian users with a new 3% fee for simply transferring US dollars to non-PayPal accounts, despite no currency exchange actually taking place.
James Rose is the co-founder of digital tool Content Snare. He says that coming in the midst of the COVID-19 pandemic, the extra cost is taking a major bite out of the bottom lines of Australian businesses.
“Bear in mind that all money transferred through PayPal has already been charged at a 2.9%-plus fee, so this is an additional 3% just for taking your money out of the account,” Rose told Business Insider Australia.
“6% of revenue is a significant hit. That’s top line revenue too. If you assume a 30% profit margin, that 6% of revenue becomes 20% of profit [that PayPal is taking].”
PayPal for its part says the fee is justified by the value it offers clients and that the new “fee is only applied when customers outside of the US withdraw USD balance to a US bank account.”
However, the fee is actually far more wide-ranging than that would suggest.
For one, US dollars stand as the ubiquitous currency of the online world. While many Australian business don’t have US bank accounts per se, they do capture revenue in US dollars before transferring it back to their own currency.
For most, PayPal, the $251 billion payments giant, has become the default option to complete the first part of that equation.
Many, like Rose, however chose to avoid it for converting the money back into Australian dollars so as to avoid “PayPal’s horrible exchange rates”.
Instead he and others choose to use direct PayPal competitors in order to receive more of their revenue.
TransferWise and Airwallex are but two examples, both undercutting PayPal on FX fees. It has proved a happy hunting ground for them, with TransferWise moving $8 billion internationally each month with Australia ranking as one of its largest markets.
“I guess PayPal worked this out which is why they are adding the 3% fee,” Rose said.
By taking a large cut of every transfer out of a PayPal account, customers are now forced to either cough up in FX fees or pay the 3% fee to take their money somewhere cheaper.
The issue goes beyond Australia as well, with a PayPal spokesperson confirming that the fee is now active in around “three dozen different countries”.
Australian businesses are scrambling
The impact is already being felt.
Australian guitarist and songwriter Plini says the fee is taking a huge bite out of his digital music income from iTunes and Spotify.
He said he’s had to restructure his entire business as a result.
“I’m releasing my next album through a different digital distributor based in Aus and paying in AUD and moving my entire catalogue to them too, to avoid this totally unnecessary fee,” he told Business Insider Australia.
“Annually, 3% will add up to a significant amount of money, and could be much more useful put toward producing new music or for advertising and marketing expenses.”
Others are yet to come up with a solution.
Mitch Bruzzese is a musician with a different kind of income, broadcasting live shows from his Sydney home twice a week and setting up a streaming company on the side.
He says he’s been researching how to get around the fee but so far has found no good alternative.
“It really has me stuck. PayPal has got it all sowed up in a way that means you can’t really avoid the fee,” Bruzzese said. “I’ve figured out that this one change is already going to cost me around $3,000 a year which really hurts.”
“PayPal is already slugging me for every transaction coming in as well. So every time I make money, there’s a percentage on that and now I have getting slugged again, for taking my money out in order to use it. It’s atrocious.”
It comes at the end of what has already been a particularly difficult 12 months for musicians, in which live gigs have dried up and incomes have had to be recovered online.
“This is just one more thing musicians have to deal with at the end of a very tough year,” Bruzzese said.
PayPal has refused to explain why the fee had been introduced, nor whether it was intended to prevent customers going elsewhere.
However, Business Insider Australia has learned that upset customers are being told by PayPal representatives that the fee is due to the “increased costs” and “increased popularity” of US transfers.
It’s unclear what extra costs PayPal needs to pass on, especially coming hot off the back of the largest quarterly growth figures in the company’s history.
The growth of US transfers on the other hand is obvious. In part, it has been accelerated by online revenue growth, which in turn has flowed out to PayPal’s competitors.
“They wouldn’t be losing revenue to other services if they hadn’t been gouging people in exchange rates for years,” Rose said, noting PayPal’s FX fee worked out to be about 4%.
While the ACCC, Australia’s competition watchdog, doesn’t comment on complaints or potential investigations, a spokesperson said it is concerned when business conduct “has the purpose, effect or likely effect of substantially lessening competition.”
TransferWise told Business Insider Australia that plenty of its customers have been in touch to flag the “unfair” charge, which erodes the fintech’s competitive margins.
“The lack of transparency from PayPal about how and why these new fees are suddenly being applied to customers accounts is disappointing and concerning,” TransferWise Australia and New Zealand manager Tim Cameron said.
“Some customers have reached out saying they are considering drastic moves like changing the structure of their company simply to avoid these new fees. That’s shocking and these customers deserve better, including an honest and clear explanation from PayPal on why.”
This article originally appeared on Business Insider Australia.