The PayPal Squeeze: Why Merchants Are Quietly Dropping PayPal at Checkout

In January 2026, outdoor gear retailer Mountain Collective quietly removed PayPal from its checkout page after three years as a payment option. The decision, confirmed to OPV by the company's CFO, was driven by a straightforward calculation: PayPal's fees were 20% higher than their next most expensive payment processor, dispute resolution consistently favored buyers over the company, and only 8% of their customers selected PayPal at checkout—down from 22% three years earlier. "We were paying a premium for a payment method that fewer and fewer of our customers even wanted to use," the CFO said.

Mountain Collective's decision reflects a broader trend that has accelerated through 2025 and into 2026. PayPal, which once dominated online checkout as the default alternative to credit card entry, is facing a competitive landscape that has fundamentally shifted. Apple Pay, Google Pay, and Shop Pay offer frictionless mobile experiences. Stripe and Square provide lower fees and faster settlement. Buy Now Pay Later services like Klarna and Affirm capture the financing-at-checkout market that PayPal Credit once owned. The result is a steady erosion of PayPal's merchant acceptance footprint that the company's earnings reports have only recently begun to acknowledge.

The Fee Problem

PayPal's standard commercial transaction fee of 3.49% plus $0.49 per transaction positions it as one of the most expensive mainstream payment processors. For a $100 transaction, PayPal takes $3.98, compared to $3.20 for Stripe and $2.70 for Square. On an annual basis, for a merchant processing $500,000 in sales, the difference between PayPal and Square amounts to approximately $6,400—a meaningful sum for small and mid-size businesses. PayPal offers volume discounts for large merchants, but these negotiated rates are not available to the small businesses that make up the majority of PayPal's merchant base. The fee disparity has widened in recent years, as PayPal has increased its base rates while competitors have held steady or reduced theirs.

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Settlement Speed and the Cash Flow Gap

Beyond fees, merchants increasingly cite settlement speed as a competitive disadvantage. PayPal's standard settlement timeline of 1-3 business days means merchants wait longer to access their revenue compared to competitors offering next-day or even same-day settlement. For businesses managing tight cash flows, the difference between receiving funds tomorrow versus three days from now can determine whether payroll is met or suppliers are paid on time. Stripe introduced instant payouts in 2023 for a small fee, and Square now offers next-business-day settlement as standard. PayPal's Instant Transfer feature exists but charges an additional 1.75% fee, effectively increasing the already-high transaction cost for merchants who need timely access to their own money.

PayPal's response to merchant attrition has focused on expanding its unbranded checkout processing and acquiring commerce tools rather than reducing fees. The company told OPV that it "provides comprehensive value beyond transaction processing, including fraud protection, buyer trust, and global reach." But for merchants like Mountain Collective, value is measured in dollars and cents—and the math no longer works. "PayPal built its brand on being the safest way to pay online," the CFO said. "But safe for whom? Not for the merchants paying the highest fees in the industry for the privilege of losing every dispute."