Why PayPal exchange rate is lower
The PayPal exchange rate is lower because PayPal adds a markup, typically 3% to 4%, on top of the wholesale or base exchange rate when it converts your money.
Why the converted amount comes out lower:
- Conversion spread: PayPal does not convert at the mid-market rate, which is the interbank rate shown on Google. It applies a percentage markup instead, so the fee is built into the rate rather than shown as a separate charge.
- Revenue model: Currency conversion is a major source of income for digital payment platforms, and the markup compensates them for the cost and risk of handling many global currencies.
A general PayPal overview of fees rarely makes this markup obvious, so compare the rate you are offered with the mid-market rate before converting. These approaches can reduce how much you lose to conversion:
- Billing in your local currency: If you receive payments from clients abroad, ask them to pay in your own currency instead of USD or EUR so that your bank handles the conversion.
- Withdrawing in the original currency: Where possible, link a multi-currency account and withdraw funds in the currency they were sent in, instead of letting PayPal convert them to your local currency automatically.
- Choosing the seller's currency: When paying for a purchase, opt to be billed in the seller's currency and let your credit card or bank issuer convert it, after checking whether your bank charges foreign transaction fees.