I never would have thought that eBay could make PayPal look good!
PayPal was founded in 1998 as “Confinity,” went public in 2002, was acquired by eBay later that year, but then spun off in 2015.
Starting in late 2020, eBay began issuing propaganda that their new managed payments system would save sellers money and simplify the selling process. I’ve been selling on eBay for a long time. So when they rollout a change like this it impacts me.
The truth is eBay Managed Payments is no good. The result is higher fees (which are essentially paid by the seller instantly) and slower payouts. I should clarify it is no good for sellers. I’m sure it’s great for eBay’s bottom line.
1) Sellers Pay More
The fees have increased in most situations. The irony is that eBay spouted what I believe are untruths about how fees would go down. In some specific cases the fees are lower so perhaps they are clinging to that as justification for their assertions.
Let’s look at two examples with the first using PayPal. Then the same sale transacted through eBay’s Managed Payments.
eBay with PayPal
Let’s say there is an item sold for $191. Buyer pays shipping. They also have to pay 8% sales taxes to their state.
Shipping is $9.45 via the US Postal Service (USPS). eBay charges a 10% “final value fee” on the sale price plus any shipping charged. 10% of $200.45 is $20.05.
It costs the seller probably a little less than that just for the shipping to the USPS because eBay does provide a discount, but when you include packaging it costs at least what the seller paid, if not a little more.
Finally, PayPal charges 2.9% plus $0.30, so they get $6.58.
Note: In this case eBay charges 10% on the final value fee plus the shipping but the 10% was NOT charged against the taxes. PayPal charges the 2.9% plus $0.30 on the item, shipping, plus the taxes.
So you can see that eBay gets $20.05, PayPal gets $6.58 and the seller gets $164.38. Now I didn’t include the cost of the item for the seller. I also didn’t include the costs for eBay or PayPal (since I don’t know them).
So these aren’t profits. In order to calculate profits you’d need to know host much the item costs the seller and how much eBay and PayPal have to spend per transaction.
eBay with eBay Managed Payments
Let’s look at the same sale, only conducted with eBay Managed Payments. The Final Value fee is increased to 12.35% plus $0.30 per transaction. However, eBay now charges this on the sale price, shipping AND the taxes paid by the buyer.
This is interesting because the seller has to pay a fee for eBay to collect the taxes sent to the state. Is this worth it to have eBay handle sales tax collection? Definitely not for smaller sellers who by law in most state aren’t required to collect sales taxes if their revenue or transaction count is below a certain threshold. (Disclaimer: I’m attorney and this is not tax or legal advice).
So the eBay fees jump up to $27.04. The PayPal fee goes away since they aren’t involved. The seller gets $163.96.
So now eBay’s fees have increased 34.86%! Not bad for eBay! PayPal’s fees have dropped 100%, and the seller gets about 0.25% less. Now 0.25% less isn’t a lot. But it is less.
This is NOT what eBay was communicating to sellers. Here is an email I received from eBay:
Perhaps “most sellers” only sell in states that don’t collect sales taxes? It doesn’t make any sense to me.
In some categories, the fee is less than 12.35%. But in some categories it is more. In “Most categories” the fee is 12.35%.
Do eBay Managed Payments result in the seller paying less?
If sales taxes aren’t collected then yes.
But that doesn’t happen often. eBay collects sales taxes in 42 states plus the District of Columbia and Puerto Rico. So unless the buyer is in Alaska, Delaware, Florida, Kansas, Missouri, Montana, New Hampshire or Oregon, Managed Payments costs sellers more.
But this is a win for eBay since they collect much more in fees.
2) Seller Payouts are Slow
With PayPal, payments were basically instantaneous.
Now payments are “processed” for 2 days before being paid out to the seller’s bank account.
“We will initiate payouts within two business days of payment confirmation.” – eBay
Depending on how quick or slow your bank is, it could take 3-5 days to get paid. I’m sure eBay could initiate sending the payments to the bank instantly if they wanted to (with payments only delayed by the bank). Managed Payments is basically going back to 1997 technology payment processing speed.
When the buyer pays I’m confident that it goes to eBay at the same speed it did before. The delay is only to the seller. But by having access to the money longer this is a win for eBay.
3) Seller Fees are Instant
While the payouts are slower for sellers the fees are are paid instantly. Prior to Managed Payments, eBay collected fees on a monthly basis. So seller had a month to come up with the fees. Now eBay gets the fees instantly, as soon as the buyer pays.
So the payouts are slower and the fees are instant.
eBay’s Managed Payments is No Good
Often higher fees, slower payouts and instant fees means that eBay’s Managed Payments leaves sellers worse off. But this is definitely a win for eBay since they will be able to collect more fees faster.
But eBay is a Private Company and if you Don’t Like it you Can Leave!
Very true! I’m not saying eBay did anything illegal, I’m not saying they did something they don’t have a right to do. But that doesn’t change the fact that eBay Managed Payments has made selling on eBay worse for sellers like me than it was before.
However, it seems very likely to me that when eBay wrote “Most sellers will pay the same or less than before” they were being deceptive and unethical. I don’t understand how eBay’s statement can be true.
I have chosen to continue to sell on eBay for now because the fees aren’t that much higher and eBay still has a lot of buyers that I haven’t found a better way to get access to. But I hope that the free market will step in and provide some better alternatives to eBay.