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PayPal’s Usage-based Billing helps you charge customers based on their actual usage of your products or services. This solution is ideal for businesses with variable, scalable, or on-demand offerings, and for merchants who want to align costs with customer usage and provide transparent billing. This solution works well for SaaS products, including AI-focused software, where customer usage varies. Companies offering AI language models, cloud storage, analytics platforms, and communication services can implement Usage-based Billing effectively. This solution is especially useful for businesses that offer products or services whose usage is measured in tokens, API calls, or processing units.

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Key features

  • Usage-based charging: Boost revenue and retain customers by charging customers based on how much they use your product, instead of fixed fees.
  • Automatic billing: Predict cash flow with automatic billing cycles, real-time usage data, and flexible payment options.
  • Pay-as-you-use pricing: Attract customers by offering clear prices that remove cost barriers and build trust.
  • Automated operations: Scale operations with automatic invoice creation, batch data handling, and APIs that work with your current systems.
  • Flexible credit management: Improve customer satisfaction through promotional grants. Reduce payment friction and get paid in advance through prepaid credits.

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Use cases

  • SaaS platforms billing for API calls, storage, or compute time.
  • Marketplaces charging sellers based on transaction volume or listing activity.
  • Digital service providers offering pay-as-you-go features (such as streaming or cloud storage).
  • Telecom businesses, energy providers, and cloud service providers billing for actual usage.

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How it works

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Setup

  1. Merchant:
    • Activates Usage-based Billing for their PayPal Business account.
    • Defines metrics - what to measure (for example, API calls, storage GB) and how to aggregate the data (for example, count, sum, max, and so on).
    • Creates pricing plans that combine metrics with pricing models (standard, graduated, volume, package, percentage) and includes fixed recurring fees, minimum commitments, and trial periods.
    • Offers the plans to customers.
  2. Customer: Signs up for a plan and optionally purchases prepaid credits.
  3. Merchant: Registers the customer in the PayPal system, securely vaults their payment method, creates a subscription linking them to a pricing plan, and configures digital wallets for prepaid and promotional credits management when needed.

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Usage tracking and monitoring

  1. Customer: Uses the feature or service, performing actions that generate billable events (for example, makes API calls).
  2. Merchant:
    • Records and sends usage data to PayPal as multiple single events or in batches.
    • Creates usage alerts with thresholds to monitor customer consumption.
    • Monitors customer usage charges through frequent API calls (polling) or through webhooks subscriptions.
    • Processes webhook notification payload and notifies customers.

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Billing and payment

  1. PayPal:
    • Aggregates usage data based on metrics and calculates charges using the assigned pricing models and plan configurations.
    • Generates invoices based on actual usage during the billing period.
    • Captures payment.
  2. Merchant:
    • Handles payment exceptions through payment retries.
    • Reconciles billing and issues credit notes for refunds, billing adjustments, or dispute resolutions.

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Eligibility

Available country: Currently, Usage-based Billing is only available for merchants in the United States. Account type – PayPal Business account: To use Usage-based Billing, your account must be approved for Expanded Checkout. When you sign up for a PayPal business account with PayPal Expanded Checkout as your product and complete all onboarding steps, PayPal reviews and approves the account creation request.
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