PayPal is ending fee-free Friends & Family payments for business accounts

Illustration by Alex Castro / The Verge

PayPal is putting new limits on a feature in its payment system that allows people to receive money without paying extra fees, the company recently announced. Starting July 28th, only personal PayPal accounts will be able to get funds via Friends & Family, a transaction method intended for trusted recipients.

There are two ways of sending money on PayPal: Friends & Family and Goods & Services. F&F is intended for paying your friend back for dinner, for example, or giving your kid some birthday money — you know who’s receiving the funds and what you’re paying them for. There’s typically no fee involved, but it also drops protections for issues that might come up, like refunds or scams.

G&S is intended for purchases, and money sent this way is subject to PayPal fees. Everyone hates fees! But with G&S, if the thing you buy isn’t as described, it’s damaged when it arrives, or it just never gets to the buyer, you can often easily get a refund for the purchase.

Many businesses handle transactions using a PayPal business account and take payments for goods and services through F&F, even though you’re technically not supposed to. The buyer might not realize the difference or care, or the business and the customer could agree to send cash that way to avoid seller fees. This is fairly common in many informal transactions, like people selling things on social media platforms — perhaps the buyer knows the seller personally and trusts that they’ll deliver. Sometimes sellers insist on F&F to avoid transaction fees, which causes problems if something goes wrong down the line.

The change is already causing frustration on the part of some creators, who use PayPal to run their business and will now be subject to additional transaction fees.

With this new change, US business accounts won’t be able to accept fee-free personal payments, and people who use PayPal for their company will need to create a personal account to receive money fee-free from friends and family.

PayPal didn’t immediately respond to questions about whether it changed the rules to crack down on miscategorized purchases but said in the announcement the tweak will “drive consistency on [the] platform” and “[remove] confusion around which payments are eligible for buyer and seller protections.”

In the same announcement, PayPal also said the transaction fee structure for goods and services would change beginning later this month. Currently, sellers pay 2.89 percent plus $0.49 per transaction, but starting July 28th, that will change to 2.99 percent without an additional flat fee.