PayPal Holdings Inc will raise merchant fees for its branded payment products while lowering fees for behind-the-scenes processing of some Visa and Mastercard transactions, a bold move in an increasingly competitive digital payments sector.

The strategic shift reflects PayPal’s growing power in online transactions, which grew significantly during the COVID-19 pandemic. During the lockdown, consumers and businesses flocked to the market leader, resulting in 377 million active accounts, more than double the number in 2015.

According to the company, the move reflects the value of its proprietary services, with consumers nearly three times more likely to complete a purchase when PayPal products are available at checkout, and users of the new buy-now-pay-later option spending 15% more.

“We’re changing prices to help our customers understand even more clearly where we provide value,” said Dan Leberman, PayPal’s senior vice president of small and medium business and partners, in an interview. “The wallet is extremely valuable; card processing has become commoditized.” Late Friday afternoon, PayPal shares were up 2.5 percent. PayPal will charge sellers 3.49 percent plus 49 cents per transaction processed through its proprietary products, which include its button on merchant websites and its digital wallet.

The higher rate is applicable to products such as PayPal Checkout, Pay with Venmo, PayPal Credit, and the new buy-now-pay-later option Pay in 4. PayPal has 392 million active accounts worldwide, including 31 million merchants, and also owns Venmo, Braintree, and iZettle.

According to Ben Dwyer, the founder of, who analyzes merchant processing deals, it will be difficult for merchants to know how much extra value they are getting from PayPal features in exchange for the higher rates. “PayPal aspires to be a comprehensive payment solution, but it is difficult to achieve this by emphasizing value over price.”

Sellers will pay 2.59 percent plus 49 cents to PayPal to process online payments made with Visa and Mastercard debit and credit cards from other companies, which will go unnoticed by customers.

Previously, regardless of its role, PayPal charged sellers 2.9 percent plus 30 cents for payments on most online transactions.

Lowering basic transaction processing rates allows PayPal to compete with competitors such as Stripe and According to Leberman, PayPal expects to gain customers as a result of the discounts. “We think it’s a daring price to put out,” he said. Because large merchants tend to negotiate one-of-a-kind deals, rate increases will primarily affect small-to-medium-sized businesses, some of which have lost confidence this year due to a nationwide labor shortage and inflation concerns.

The changes largely reflect services developed by PayPal since its split from eBay Inc in 2015. Despite the fact that the majority of its transactions are online, PayPal will reduce prices for in-person transactions via its network, which should help it compete with Square Inc. PayPal will charge 1.90 percent plus 10 cents on most purchases over $10. For lower-priced purchases, the rate is typically 2.40 percent plus 5 cents. During the pandemic, PayPal’s business grew as more homebound consumers spent money online. It processed $285 billion in payments in the first quarter, a 49 percent increase over the previous year.

“It’s more than just pricing,” said Aaron Press, an analyst with IDC. “They are ensuring that the market understands that PayPal should be viewed as a comprehensive payments strategy rather than just one form of payment.”

“Especially in the aftermath of a pandemic, that has become extremely important.”