Second Life Forums Archive - Paying using L$ versus paying using PayPal

Angel Fluffy

Very Helpful

Join date: 3 Mar 2006

Posts: 810

10-03-2006 07:56

Hiho. I just did some math comparing how much it costs, fee-wise, to take payment in L$ versus taking payments using paypal.

Here's what I found.

The following figures are for a single, 800 USD payment made from the USA to a UK bank account. The money is moving from the 'buyer' to the 'seller'.

* Option 1 : L$.
** Buyer uses the LindeX buy page to buy 800 USD's worth of L$. Ends up with 219458 Lindens.
** Seller gets L$ and puts them on the market for L$1 per USD less than what the lowest L$/USD conversion rate is right now. Example : if when selling L$ right now, you can get at most one USD per $275 Lindens, the seller puts his/her Lindens on the market for 274/1. They sell in a few days (unless the market is on the up and doesn't fluctuate), netting $772.90
** Seller pays L$ a 15USD cheque fee to get a cheque for $757.90 posted to him/her in the UK.
** Seller waits for cheque to arrive from USA. When it does, they cash it into their bank account.
** Out of 800 USD sent to the seller, $757.90 arrives. That means it costs 1-(757.90 / 800 )= 1 - 0.947 = 0.053 = 5.3% in fees.
** Total fees : approx 5.3% of money sent.

* Option 2 : PayPal
** Buyer sends 800USD to seller via paypal.
** 3.9% cross border USA->UK fee is applied.
** 2.5% currency conversion fee is applied.
** Total fees = 6.4%

Verdict: sending money via L$ costs 5.3% in feeds, but sending money via PayPal costs 6.4% in fees.

Notes :
1) I used a PayPal business account for the math here. Fees may be different for personal accounts. The reason I did this is that IMHO, having a business name, instead of your personal name, show on things like credit card statements is both better for your privacy and also better for your professional image.

2) Note that many of the fees here are based on the fact that it's a USA->UK transferral.
Doing the exact same calculations again, except without USA->UK fees and currency conversion fees, we find that L$ has a 3.4% fee rate, and so does Paypal!

3) Note that British and other banks may (and usually will) charge a currency conversion fee for handling forign exchange. However, you can avoid this fee by exchanging money at a post office, for example, or depositing the money into a US-based bank account.

4) Note that PayPal is *arguably!* more convenient than L$ as you can do automated billing with it.

5) Note that PayPal also has a huge website full of disgruntled ex-customers who are furious at how badly PayPal has treated them. So, they have a much worse reputation than LL in terms of trustworthyness.

Verdict : For payments to residents outside the USA, L$ is just over 1% cheaper, fee wise... assuming that your bank doesn't charge a currency conversion fee. For payments where both residents are within the USA, the price should be around the same. In this case PayPal might be a better idea as with PayPal you can set up automatic, reoccuring payments to automate the billing process. Unfortunately, this feature doesn't exist in SL yet *hint to devs!*.

Please comment on this. Math isn't my strong point so I've tried to show working here. I don't mind if I turn out to be wrong, but I would really like to know how the math stackes up in terms of which method is cheaper for getting payments

If you can think of cheaper ways of accepting payments, let me know. Similarly, if my math is wrong, let me know

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Jopsy Pendragon

Perpetual Outsider

Join date: 15 Jan 2004

Posts: 1,906

10-03-2006 08:39

From: Angel Fluffy

The following figures are for a single, 800 USD payment made from the USA to a UK bank account.

Would be nice to compare that to 8 and 80 USD... and find the price point at which one becomes better than the other, which looking at your math, I assume is the case.

Ceera Murakami

Texture Artist / Builder

Join date: 9 Sep 2005

Posts: 7,750

10-03-2006 09:16

Another factor to consider is where the money originally comes from.

Your analysis looks most informative, but assumes the $800 USD starts in someone's bank account, and ends up in another person's bank account. While for an amount that high, this is the likely case, you should also run the numbers for the money the payer provides starting as in-world Lindens. For example, if I build two sims for a sim owner, I might well earn more than L$219,458 for my efforts. So I wouldn't necessarily need to buy Lindens. In fact, it's been quite some time since I last purchased any at all. My in-world efforts cover all my expenses, without injecting more real-world cash.

I'll also agree that the numbers should be run at lower values as well, as some of the fixed fees, such as the fee for processing an overseas check, don't scale with the payment size. Personally, I usually cash out excess Lindens when I hit somewhere between $50 USD and $100 USD worth in my account, over and above the balance level that I like to maintain to cover in-world expenses, like keeping enough to cover my next month or two's worth of land payments and clothes shopping budget.

_____________________

Sorry, LL won't let me tell you where I sell my textures and where I offer my services as a sim builder. Ask me in-world.

Nowun Till

Anarchy in the UK Limited

Join date: 4 May 2006

Posts: 227

10-03-2006 10:10

Couple of points.

I am sure you have added the lindex fees on both transactions.

2. assumptions made in transfer of funds to paypal.

I am in the UK and can mitigate currency tranaction costs as I hold numerous currencies in my paypal accounts. (not appropriate if you are in need of £ not US$)

You have added the currency conversion fee as a 2.5% charge (it is infact a merely the same as a brokers commission on the actually transferred and not an additioanl 2.5% charge in addition to a currency conversion spread) and have not accounted for the fact that you will receive an exchange rate transfer in the UK (usually in the range of a spread of 4-9%), whether you use a fee based service or a non-fee service (the only difference being that the non-fee, have a worse exchange rate conversion). Allied to this, I regularly exchange currencies between accounts in paypal and have found their rates to be extremely competitive compared to UK banks (attested by comparison to XE.com, spot market rate). It would be a better comparison, to take the £ which arrive in your UK account, rather than the US$

Additionally, depending on your merchant level with paypal, transaction fees can be considerably lower than the figures mentioned.

In regard to US paypal fee rates, they are lower than the UK and additionally some paypal accounts qualify for interest on balances held on deposit, which would be a small sum, but still 5-10 days interest compared to a cheque.

I have just run a quick comparison....

xe.com mid market rate US$1 = £0.5299
Post office online buying £ US$1 = £0.4925 (difference 7%)
Paypal buying £ (includes the 2.5% used in the calculation) US$1= £0.5141 (3%)

ie. through the post office US$757.90 = £373.26

US$ 800 via paypal including the 3.5% fee and currency conversion fee is: £396.88

(800-3.5% = US$772.0) new sum (US$772 * 0.5141) = £396.88 there is no additional 2.5% commission to pay as it is included in the exchange rate spread)

If you are on a lower merchant fee rate this difference is more marked

You need to also consider LL are receiving a paypal charge for the funds hitting their account from paypal which is incorporated into their LindeX commission, (so would realistically be highly unlikely they could afford to make a lower charge than the paypal transfer fees + currency conversion. even at the lower merchant fee rate.)

edit. to the poll you could do with another option, as none of the above apply.

In my instance I use a merchant service processor and accept payments via credit/debit card. Others may use the other exchanges or cheques or a. n. other option.

Shirley Marquez

Ethical SLut

Join date: 28 Oct 2005

Posts: 788

10-04-2006 06:16

For US-US payments, the fees for using PayPal for large transactions are lower than using Second Life. (The basic fee is 2.9% plus $0.30, and there is no charge for electronic transfer of money to a US bank. Large merchants get lower rates.) And if the recipient of the money chooses to buy merchandise with it rather than take cash, the fees can be lower still; PayPal offers a debit card that under some conditions (basically, you have to be an active eBay seller, and PayPal must be the only online payment option you offer) gives you a 1.5% rebate on purchases.

On the other hand, Second Life is a solution to the micropayment problem, something that people have been trying to deal with for years. It is quite viable to sell very low-priced merchandise in Second Life, and actually make money at it without transaction fees taking everything. I know of a musician, for example, who sells MP3 files of his songs here. (When you buy them in-world, you get a URL for downloading them; they are not actually delivered in SL.)

Paying using L$ versus paying using PayPal
Angel Fluffy Very Helpful Join date: 3 Mar 2006 Posts: 810	10-03-2006 07:56 Hiho. I just did some math comparing how much it costs, fee-wise, to take payment in L$ versus taking payments using paypal. Here's what I found. The following figures are for a single, 800 USD payment made from the USA to a UK bank account. The money is moving from the 'buyer' to the 'seller'. * Option 1 : L$. Buyer uses the LindeX buy page to buy 800 USD's worth of L$. Ends up with 219458 Lindens. Seller gets L$ and puts them on the market for L$1 per USD less than what the lowest L$/USD conversion rate is right now. Example : if when selling L$ right now, you can get at most one USD per $275 Lindens, the seller puts his/her Lindens on the market for 274/1. They sell in a few days (unless the market is on the up and doesn't fluctuate), netting $772.90 Seller pays L$ a 15USD cheque fee to get a cheque for $757.90 posted to him/her in the UK. Seller waits for cheque to arrive from USA. When it does, they cash it into their bank account. Out of 800 USD sent to the seller, $757.90 arrives. That means it costs 1-(757.90 / 800 )= 1 - 0.947 = 0.053 = 5.3% in fees. Total fees : approx 5.3% of money sent. * Option 2 : PayPal Buyer sends 800USD to seller via paypal. 3.9% cross border USA->UK fee is applied. 2.5% currency conversion fee is applied. Total fees = 6.4% Verdict: sending money via L$ costs 5.3% in feeds, but sending money via PayPal costs 6.4% in fees. Notes : 1) I used a PayPal business account for the math here. Fees may be different for personal accounts. The reason I did this is that IMHO, having a business name, instead of your personal name, show on things like credit card statements is both better for your privacy and also better for your professional image. 2) Note that many of the fees here are based on the fact that it's a USA->UK transferral. Doing the exact same calculations again, except without USA->UK fees and currency conversion fees, we find that L$ has a 3.4% fee rate, and so does Paypal! 3) Note that British and other banks may (and usually will) charge a currency conversion fee for handling forign exchange. However, you can avoid this fee by exchanging money at a post office, for example, or depositing the money into a US-based bank account. 4) Note that PayPal is arguably! more convenient than L$ as you can do automated billing with it. 5) Note that PayPal also has a huge website full of disgruntled ex-customers who are furious at how badly PayPal has treated them. So, they have a much worse reputation than LL in terms of trustworthyness. Verdict : For payments to residents outside the USA, L$ is just over 1% cheaper, fee wise... assuming that your bank doesn't charge a currency conversion fee. For payments where both residents are within the USA, the price should be around the same. In this case PayPal might be a better idea as with PayPal you can set up automatic, reoccuring payments to automate the billing process. Unfortunately, this feature doesn't exist in SL yet hint to devs!. Please comment on this. Math isn't my strong point so I've tried to show working here. I don't mind if I turn out to be wrong, but I would really like to know how the math stackes up in terms of which method is cheaper for getting payments If you can think of cheaper ways of accepting payments, let me know. Similarly, if my math is wrong, let me know _____________________ Volunteer Portal (FAQs!) : https://wiki.secondlife.com/wiki/Volunteer_Portal JIRA / Issue Tracker : http://jira.secondlife.com (& http://tinyurl.com/2jropp)
Jopsy Pendragon Perpetual Outsider Join date: 15 Jan 2004 Posts: 1,906	10-03-2006 08:39 From: Angel Fluffy The following figures are for a single, 800 USD payment made from the USA to a UK bank account. Would be nice to compare that to 8 and 80 USD... and find the price point at which one becomes better than the other, which looking at your math, I assume is the case.
Ceera Murakami Texture Artist / Builder Join date: 9 Sep 2005 Posts: 7,750	10-03-2006 09:16 Another factor to consider is where the money originally comes from. Your analysis looks most informative, but assumes the $800 USD starts in someone's bank account, and ends up in another person's bank account. While for an amount that high, this is the likely case, you should also run the numbers for the money the payer provides starting as in-world Lindens. For example, if I build two sims for a sim owner, I might well earn more than L$219,458 for my efforts. So I wouldn't necessarily need to buy Lindens. In fact, it's been quite some time since I last purchased any at all. My in-world efforts cover all my expenses, without injecting more real-world cash. I'll also agree that the numbers should be run at lower values as well, as some of the fixed fees, such as the fee for processing an overseas check, don't scale with the payment size. Personally, I usually cash out excess Lindens when I hit somewhere between $50 USD and $100 USD worth in my account, over and above the balance level that I like to maintain to cover in-world expenses, like keeping enough to cover my next month or two's worth of land payments and clothes shopping budget. _____________________ Sorry, LL won't let me tell you where I sell my textures and where I offer my services as a sim builder. Ask me in-world.
Nowun Till Anarchy in the UK Limited Join date: 4 May 2006 Posts: 227	10-03-2006 10:10 Couple of points. I am sure you have added the lindex fees on both transactions. 2. assumptions made in transfer of funds to paypal. I am in the UK and can mitigate currency tranaction costs as I hold numerous currencies in my paypal accounts. (not appropriate if you are in need of £ not US$) You have added the currency conversion fee as a 2.5% charge (it is infact a merely the same as a brokers commission on the actually transferred and not an additioanl 2.5% charge in addition to a currency conversion spread) and have not accounted for the fact that you will receive an exchange rate transfer in the UK (usually in the range of a spread of 4-9%), whether you use a fee based service or a non-fee service (the only difference being that the non-fee, have a worse exchange rate conversion). Allied to this, I regularly exchange currencies between accounts in paypal and have found their rates to be extremely competitive compared to UK banks (attested by comparison to XE.com, spot market rate). It would be a better comparison, to take the £ which arrive in your UK account, rather than the US$ Additionally, depending on your merchant level with paypal, transaction fees can be considerably lower than the figures mentioned. In regard to US paypal fee rates, they are lower than the UK and additionally some paypal accounts qualify for interest on balances held on deposit, which would be a small sum, but still 5-10 days interest compared to a cheque. I have just run a quick comparison.... xe.com mid market rate US$1 = £0.5299 Post office online buying £ US$1 = £0.4925 (difference 7%) Paypal buying £ (includes the 2.5% used in the calculation) US$1= £0.5141 (3%) ie. through the post office US$757.90 = £373.26 US$ 800 via paypal including the 3.5% fee and currency conversion fee is: £396.88 (800-3.5% = US$772.0) new sum (US$772 * 0.5141) = £396.88 there is no additional 2.5% commission to pay as it is included in the exchange rate spread) If you are on a lower merchant fee rate this difference is more marked You need to also consider LL are receiving a paypal charge for the funds hitting their account from paypal which is incorporated into their LindeX commission, (so would realistically be highly unlikely they could afford to make a lower charge than the paypal transfer fees + currency conversion. even at the lower merchant fee rate.) edit. to the poll you could do with another option, as none of the above apply. In my instance I use a merchant service processor and accept payments via credit/debit card. Others may use the other exchanges or cheques or a. n. other option.
Shirley Marquez Ethical SLut Join date: 28 Oct 2005 Posts: 788	10-04-2006 06:16 For US-US payments, the fees for using PayPal for large transactions are lower than using Second Life. (The basic fee is 2.9% plus $0.30, and there is no charge for electronic transfer of money to a US bank. Large merchants get lower rates.) And if the recipient of the money chooses to buy merchandise with it rather than take cash, the fees can be lower still; PayPal offers a debit card that under some conditions (basically, you have to be an active eBay seller, and PayPal must be the only online payment option you offer) gives you a 1.5% rebate on purchases. On the other hand, Second Life is a solution to the micropayment problem, something that people have been trying to deal with for years. It is quite viable to sell very low-priced merchandise in Second Life, and actually make money at it without transaction fees taking everything. I know of a musician, for example, who sells MP3 files of his songs here. (When you buy them in-world, you get a URL for downloading them; they are not actually delivered in SL.)

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Paying using L$ versus paying using PayPal