Fast Money brings up an interesting point tonight. PayPal works just like a debit card — it takes money from your checking account and transfers it to a merchant’s account. So is PayPal subject to the new rules that limit transaction fees for debit card transactions?
No one seems to know yet. PayPal, in a letter to the Fed, says it’s a merchant, but it’s referring specifically to the transactions for which you pay PayPal using a credit or debit card. If you have used PayPal, though, I am sure you have noticed the service urging you to pay from a checking account (or using your PayPal balance, if you have one), and most PayPal transactions are done this way. For these transactions at least, PayPal cannot be considered a merchant.
For the purposes of speculation, suppose that the new transaction rules do apply to PayPal. PayPal’s revenue would decline sharply when the new rules go into effect — by about $1 to $2 per transaction. At the same time, consumers’ online spending power would go up by the same amount — imagine how much more you could buy if it cost $1 to $2 less to buy and sell things online using PayPal.