Today the payment service PayPal announced that it was changing the way it processed merchant transaction for amounts less than $10. The new fee structure would make it considerably less expensive for digital content sellers, like virtual goods businesses, to let their customers pay via PayPal.
The new fee structure lets merchants accumulate microtransactions until they've reached a certain threshhold, at which time PayPal will charge a single fee for the total cost of all microtransactions to date. Previously, PayPal charged fees on individual transactions less than $10 that could account for substantial amounts of the transaction's total value.
The new service is intended to make PayPal a payment method friendlier to sellers of digital media, like videos, music, and ebooks, according to Business Week. PayPal is also a very popular payment option for social games that sell users virtual goods and currency, though, and it's not unusual for virtual items to have price tags substantially cheaper than PayPal's $10 threshold.
Under PayPal's original price structure, the service took a 5% cut of transactions under $10, along with a flat $.05 fee. So a user spending $.99 to purchase a song or ebook (or virtual goods) through PayPal would send the merchant only $.89 and PayPal $.10, a full 10% of the cost of the transaction.
Under the new transaction rules, PayPal would not charge the merchant until a substantial number of transactions had processed. This would substantially reduce the size of PayPal's cut, but would hopefully encourage more merchants to accept the service as a form of payment for cheap digital goods.
According to Francesco Rovetta of PayPal's San Francisco-based mobile division, PayPal has not worked out how many transactions at a time will be bundled together before the company charges its service fee. PayPal hopes the move will help the $30 billion market for digital goods expand more quickly.
It's worth noting that $1.6 billion of that market is accounted for by sales of virtual goods, which could see considerable lift if PayPal becomes a more attractive payment option.
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