PayPal is a common way for many businesses large and small to pay influencers. Why? Everyone has a PayPal account and PayPal deals with tax compliance and reporting. Influencer Marketing Hub’s 2024 influencer marketing benchmark report found that  27.2% of brands and agencies cited PayPal as their preferred method to pay influencers. Lumanu gives influencers and other creators the option of receiving payments via same day ACH or INTL bank transfer (for free) or PayPal (covering the PayPal fee) and we see ~10% of influencers elect to receive funds from us via PayPal.

Given the ubiquity of PayPal and the ease of making a payment it makes sense that it is such a common payment method. But is PayPal a good idea as a brand scales their influencer program? In short, no. At some point the ease of making a single payment isn’t worth it. This blog post explores challenges with relying on PayPal as a platform for paying influencers and talent managers.

Operational Challenges of using PayPal for Influencer Payments

Each payment through PayPal requires manual setup, which can be labor-intensive, especially when dealing with a large number of influencers or complex campaign structures. This manual process increases the risk of errors and reduces the overall efficiency of the marketing team.

Paypal is not designed to handle specific needs of Marketing and Finance teams, such as permission levels, audit trails, or collaborative tools, making it challenging for team members to track and manage payments effectively.

For businesses with multiple people managing influencers, affiliates, UCG creators and other freelancers, the reconciliation of payments can become a logistical nightmare. PayPal does not offer a robust solution for payment tracking or reconciliation, making it difficult for marketing teams to match payments with campaign deliverables, track payment statuses, and ensure accurate financial reporting.

Funding a PayPal account also leads to challenges between Finance and Marketing, especially with scale. PayPal accounts need to either be funded via a bank account connection (high risk/ non starter for many companies) or credit card (along with fees fees).

“Using PayPal is one of the biggest headaches for us with our influencer program. Reconciliation every month across the several accounts my team uses takes hours of time. We need another solution to scale” Dustin E. - Vice President Marketing & Label Operations at Atlantic Records

Accounting and Finance Frustrations with PayPal

Reconciling a PayPal account isn’t as simple as reconciling payments made directly from a bank account (or from a Lumanu account). There is no clear and concise statement for a given time period to help quickly reconcile your account. A few common points of frustration for Finance and Accounting when using PayPal:

Multiple entries per payout: A single transaction can show up multiple times in PayPal, with things like authorizations, fees, and reversals all creating separate entries. This can make it confusing to match transactions with your records.

Holds and reserves: Sometimes PayPal holds onto funds before releasing them to a seller. This can cause temporary fluctuations in your balance that don’t always show up clearly.

Currency conversion: If you deal in multiple currencies, PayPal might show transactions in different formats than your accounting software, creating extra work.

Limited download options and customization: PayPal doesn’t always categorize transactions in a way that’s easy to work with in your accounting software, causing manual spreadsheet work.

Limitations with Talent Management Accepting PayPal

PayPal is widely accepted among individual influencers for its convenience. However, when it comes to talent managers and agencies, the acceptance of PayPal as a payment method is far from universal. Many talent management agencies can’t accept PayPal as a payment method as they do not have a company account and require a bank transfer formal payment channels that align with their accounting systems. Considering roughly 33% of all influencer payments are made via talent managers, most influencer teams will have to find an alternative answer to PayPal. Many have set up PayPal for receiving payments but find it as a necessary evil to support their brand partners.

PayPal per Payment Transaction Fees

An immediate concern for creators when receiving PayPal is fees. Each goods and services transaction incurs a fee, which brands typically cover by topping up the payout. Aside from the small annoyance of managing this process, 3% adds up quickly when managing multiple influencers and affiliates. These costs diminish the overall budget available for campaigns.

“Paypal does naturally charge fees in terms of what the creators are receiving. So we have to  compensate extra to offset it. You know, that adds up over time and I think just in general we wanted to move away from PayPal to have a centralized solution with better visibility and control” Wyatt L. - Sr. Director Performance marketing at Mary Ruth’s organics

Thinking about using PayPal Friends and Family? Think again

A common temptation might be to circumvent standard business transaction fees by using PayPal’s "Friends and Family" payment option. This method, while fee-free, is designed strictly for personal transfers between family and friends and not intended for business transactions, including payments to influencers or affiliates.

Legal and Compliance Risks: Using the "Friends and Family" feature for business transactions violates PayPal’s terms of service and can lead to account limitations or closures. This can disrupt ongoing campaigns and create significant operational setbacks for your marketing efforts. Your account may even be flagged if you pay a creator who typically follows the rules and receives mostly goods and services payments.

Tax and Accounting Complications: Friends and Family transactions are not accompanied by invoices or formal receipts, complicating accounting processes and potentially leading to issues during financial audits or tax assessments. It undermines the transparency and accountability that are crucial for professional business operations.

Lack of Support in Case of Errors

Mistakes happen, but the repercussions of errors like paying the wrong person or double payment are exacerbated with PayPal due to its limited customer support in such scenarios. Resolving these errors can be time-consuming and costly, with no guarantee of connecting with anyone at PayPal or recovery of funds.

Account holds and limitations

PayPal has a reputation for freezing or limiting accounts without much warning. These holds can last from a few days to several months. PayPal may place holds or reserves on funds received, especially for new or high-risk accounts. This can tie up funds that businesses need to make on time influencer payments, which may cause cash flow challenges.

Challenges with International Payments

When dealing with influencers and affiliates across borders, businesses must consider the complexities and costs associated with international payments. PayPal, although a global platform, poses specific challenges in this area that can affect the overall success of international marketing campaigns.

Unfavorable Exchange Rates: PayPal exchange rates are significantly worse compared to standard bank rates. This means that when influencers and affiliates receive payments in a currency different from their own, they often incur substantial fees due to unfavorable exchange rates.

Additional Fees: On top of high exchange rates, PayPal may also impose additional cross-border and currency conversion fees. These fees can significantly increase the cost of transactions, impacting the budget allocated for influencer marketing campaigns and reducing the actual payout received by the influencers.

Payment Delays: International transactions via PayPal can also face delays due to the need for security checks and compliance with international financial regulations. Such delays can frustrate influencers and affect timelines critical to the synchronized launch of global marketing campaigns.

Conclusion

While PayPal serves as a basic tool for transactions, its use in the context of influencer and affiliate marketing presents several significant challenges that can hinder the efficiency and effectiveness of campaigns. Brands looking for a more streamlined, reliable, and feature-rich payment solution might consider specialized platforms like Lumanu, which are tailored to meet the specific needs of influencer marketing workflows.