PayPal’s growing popularity in the US for Cross-Border Transactions

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When it comes to paying and getting paid, “overseas” suddenly seems further away than ever. Here, we take a look at whether PayPal is an effective tool for overcoming the main pain points.

Rik Snuiverink

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Today’s world seems like a smaller place in a lot of ways. We can travel anywhere in a matter of hours, we can spend hours on video chat with friends and family thousands of miles away at no cost, we can watch live sport from North America or Europe or Asia whenever we like.

We can also do business with both customers and suppliers across the globe, and that applies equally to global corporations and small lifestyle businesses. That, however, is when things can get rocky. Sure, we can chat with our potential business partners all day on skype or Zoom. But when it comes to paying and getting paid, “overseas” suddenly seems further away than ever. Here, we take a look at whether PayPal is an effective tool for overcoming the main pain points.

Biggest pain points with cross-border transactions

Respected business consultant Ming-Chieh Lee wrote in a recent blog post that the four main pain points associated with international payments are as follows:

  1. It can get expensive. For example, a bank wire can cost anything from $15 to $40 depending on where you are sending it. Then there is the currency exchange to factor in. Banks buy and sell currency at different prices, and there is only ever one winner. When the receiving bank also adds a fee, the overall cost can really mount up.

  2. It is slow. Typically, a wire transfer takes 2-4 days business days. When a weekend intervenes, it can end up taking closer to a week.

  3. Transparency is poor. Money always seems fast to leave the payer’s bank but can then spend as long as a week in a black hole before arriving with the payee. We’ve all had occasion to spend hours on the telephone trying to find out where it is, which is usually a futile effort. Fees are another area that need better transparency.

  4. Accessibility is poor. Sending a wire transfer is not always available on internet or mobile banking, meaning the hassle of standing in line at a branch.

  5. Language can be a barrier. Different countries have different requirements and different names for things. When different languages are involved too, transfers can be delayed even longer, or ultimately returned to sender after two weeks of stress.

The rise of PayPal – from Ebay to Casinos to the world

PayPal is one of the oldest online payment platforms. It first went live in 1998, but became a global phenomenon when it was acquired by eBay in 2002. 13 years later it spun out of eBay, but continued to grow, both by acquisition, including iZettle for $2.2 billion and Hyperwallet for $400 million within six weeks of one another in 2018.

It also grew organically by entering new markets. One of the most significant was the online casino sector in the US and some other countries. In earlier years, PayPal had steered clear, leaving the market open for alternative providers like Netent and Skrill to build a presence. But as the iGaming industry matured, PayPal decided to move in and there are literally dozens of PayPal casino options for US gamblers.

PayPal has since become a popular choice for cross-border peer to peer transactions of every kind, from paying freelance subcontractors for digital services to sending money as a birthday gift to faraway family and friends.

Why PayPal is so popular

People put a lot of faith in brands. PayPal is one of the most trusted online businesses because it is so familiar. About four out of five adult Americans have a PayPal account, and in an area like cross-border transactions, trust is vitally important.

PayPal is also everywhere. It’s available in more than 200 countries and regions, and 25 currencies are available at the time of writing. It’s hardly surprising that Americans are turning to it in record numbers as a way to send money overseas.

Is PayPal really the best option for cross-border transactions?

But how does it really stack up against those pain points? To take the points in reverse, sending money by PayPal is very easy, on either mobile or desktop it takes seconds. Transparency is better than bank wire, too, as long as you are sending funds directly from your PayPal balance.

PayPal is also fast. Funds are usually available instantly, although delays due to anti-fraud checks are commonplace. These seldom take longer than 24 hours are well communicated.

That brings us to the question of price. PayPal fees vary from one currency to the next. As a ballpark, you can expect to pay a currency conversion fee in the region of three percent and a transaction fee of about five percent for cross-border transactions.

That can still be quite a sting, although it is still cheaper than a bank wire. Other challengers like Wise and CashApp are cheaper, and PayPal might need to watch its back in the medium to long term. Right now, however, Americans are happy to pay the price for the convenience and comfort of PayPal.