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what is paypal and how does paypal work

What Is PayPal and How Does PayPal Work
Pay Money, Shop and Send Money Online

  1. What Is PayPal
  2. How Does PayPal Work
  3. How Does PayPal Work With Your Other Accounts
  4. How PayPal's Services Work
  5. How to Open a PayPal Account
  6. Choose from Three Types of Accounts at PayPal
  7. What Does PayPal Charge for an Account?
  8. How to Check Out Using Your PayPal Account
  9. How to Check Out If the Merchant Doesn't Accept PayPal
  10. How to Send Money Online With PayPal
  11. How Security Works for Your Account at PayPal
  12. How Online Sellers Make Money With PayPal
  13. How PayPal Works for Subscription Sales
  14. How PayPal Works With MicroPayments
  15. How PayPal Discount Coupons Work
  16. How a PayPal Student Account Works
  17. How PayPal Was Started
  18. Where Is PayPal Located?
  19. How Does PayPal Make Money
  20. Is PayPal a Bank?
  21. What Are the Future Plans of PayPal

what is paypal and how does paypal workWhat Is PayPal

PayPal is the most popular online payment service in use today. Here we explain how PayPal works and how to use it. PayPal has 222,000,000 accounts worldwide, and is adding a million new accounts each month. You could call PayPal a middleman or an escrow service, a broker for financial transactions, or an online payment processing platform. Their service is the electronic alternative to cash and checks. PayPal is the foremost example of a payment intermediary service that facilitates worldwide e-commerce.

PayPal is owned by the online auction company eBay, a publicly traded company. PayPal has become such a convenient and trusted way to transfer money online, 95% of the purchases at eBay auctions go through PayPal.

what is paypal and how does paypal workHow Does PayPal Work? is an online company payment service that transfers money electronically for individuals and businesses. You might call it the billfold of the Internet. You can use PayPal to pay for online shopping purchases. You can use PayPal to make donations to charity, and to send money to someone else.

If an online merchant has a PayPal button on the checkout page, you can pay for your purchases via PayPal. The merchant will never know your credit card number or your bank account. PayPal keeps your bank account number and credit card number on file for you, so the online merchant cannot access them. PayPal acts as a financial intermediary. The service charges your purchase to your credit card or bank account. At the same time PayPal credits the merchant's account with money from the sale.

what is paypal and how does paypal workHow Does PayPal Work With Your Other Accounts

Your PayPal account works easily with your bank account and your credit cards. To add money to a PayPal account, you can authorize an electronic debit from a bank account or a charge to your credit card. To withdraw money from a PayPal account, the recipient of a PayPal transfer can either request a check from PayPal, establish their own PayPal deposit account or request a transfer to their bank account.

what is paypal and how does paypal workHow PayPal's Services Work

PayPal offers many services that work to make online payments more secure, convenient and easy to use. There are many ways you can use PayPal. You can use PayPal for all your online shopping. Parents can set up a Student Account at PayPal to provide online spending money for a child. You can send money home from almost any part of the world quicker than Western Union. You can use PayPal to convert currency from dollars to pounds and so forth. Gamers can use a PayPal Micropayments account to pay for virtual goods offered by other gamers. Buyers at online auction sites like eBay can settle up with the seller after a successful auction. The office secretary can collect birthday money using PayPal. Charities can receive online donations from their contributors through PayPal. You can collect money for your sports team, your church, or your next group club outing. Now you don't have to mail checks or buy stamps and money orders. You need not worry about the schedule of the postal service.

what is paypal and how does paypal workHow to Open a PayPal Account

As an individual or a merchant or a business, you can open an account at You only need a valid email address and a valid credit card or a valid bank account. Your email address will be your PayPal account ID, Enter your personal information, address and email address. PayPal will ask you to confirm the email address by sending you an email with a link to click and confirm. If you enter your credit card number with your account, you can charge your purchases to your credit card. You can also link your PayPal account to your bank account by entering your bank account number. PayPal will ask you to confirm that the bank account is yours. When PayPal deposits into your bank account two small amounts of money, you can confirm the account by telling PayPal the correct amount of the deposits. And the money from PayPal is yours to keep. With a confirmed bank account, you can sweep funds from your PayPal account to your bank account and vice versa at any time.

what is paypal and how does paypal workChoose from Three Types of Accounts at PayPal

There are three types of PayPal accounts: Personal Account, Premier Account and Business Account. All three accounts have the same basic capabilities at PayPal, the ability to send money, to send a request for money, to make online payments, and to move money to the Money Market. They all include Account Insurance. Personal accounts have a lower limit on the transaction amount, and are suitable for individuals who shop online. Personal accounts can receive money from other PayPal accounts, but they cannot receive credit card or debit card payments. Premier accounts can be registered with a business, group or individual. If you are an Internet website or store you'll want to use a Premier account. Premier accounts and Business accounts can accept unlimited credit card payments, subscription payments and mass payments. Business accounts are registered under a business or group name and can handle multiple users.

what is paypal and how does paypal workWhat Does PayPal Charge for an Account?

What does PayPal charge for an account? The basic PayPal account is free. When you use PayPal to pay for your online shopping, you are not charged a fee. The online store, the merchant, pays the fee which is deducted automatically from the proceeds of the transaction. This fee is comparable to other merchant fees for offline transactions. This fee replaces the charge a conventional store pays to the card processor to handle credit card payments. The fee PayPal charges the seller is always less than 3% of the transaction, and is usually smaller, depending on the amoung of the transaction.

what is paypal and how does paypal workHow to Check Out Using Your PayPal Account

You can use your PayPal account to check out at any online store that accepts payments via PayPal. Proceed to the store Checkout Page. Click the Pay with PayPal button. You will link to PayPal, where you can log into your PayPal account, using your email address and PayPal password. Next, confirm your the sales price and authorize the payment. You will immediately receive a confirmation on the screen and in your email. You can pay for online purchases by using your credit card, funds in your PayPal account or money in your own bank account.

what is paypal and how does paypal workHow to Check Out If the Merchant Doesn't Accept PayPal

If a Web site accepts credit cards, but not PayPal, you can still pay using PayPal. When you are ready to checkout at the store, return to your PayPal account, and log in. Use the PayPal Debit Bar to get a virtual MasterCard number. Then return to the store checkout and enter the PayPal virtual MasterCard number as your credit card number. The money will be paid from your account and the service is free.

what is paypal and how does paypal workHow to Send Money Online With PayPal

Sending money online with PayPal, even international money transfer, is as easy as sending an email. You can send money to anyone in 55 countries, 290 markets and 24 currencies, to anyone who has an email address. You can send funds to anyone with an e-mail address, whether or not they have a PayPal account. They'll get a message from PayPal about the funds, and then they just have to sign up for their own account. PayPal allows its account holders to send, receive, and hold funds in 19 currencies worldwide. If you use PayPal to send money to someone, the sender is not charged a fee. But the recipient of the money does pay a fee, which is deducted automatically from the money transferred. The fee for a money transfer is 2.9% of the amount plus $.30. For example, when you send $1000, the receiver will pay a fee of $29.30.When larger amounts of money are sent, the fee is a smaller percentage of the amount, between 1.9% and 2.9%. For a new account, PayPal has a limit on the amount of money you can send. Instead of old-fashioned moneygrams and expensive wire transfers, today over 99 million Internet users prefer PayPal to send money to each other via email.

PayPal Fees to Send Money Online
Amount of MoneyPayPal Fee to Receive Transfer
Under $3000 USD2.9% + $0.30 USD
$3000.01 to $10,0002.5% + $0.30 USD
$10,000.01 to $100,0002.2% + $0.30 USD
over $100,0001.9% + $0.30 USD

what is paypal and how does paypal workHow Security Works for Your Account at PayPal

Using PayPal when you buy, sell and send money online provides an extra level of security. Your personal data, including credit card numbers and bank account numbers, remain in only one place and are never seen by the online stores. All transactions on the Internet are also encrypted for your security. And whenever a transaction is made in your account, you receive an immediate email notice. The money in your bank account is never touched by PayPal, until you authorize a transfer. PayPal offers pass-through insurance to protect users in the event any bank it uses fails.

PayPal guarantees 100% protection against unauthorized payments from your account. Naturally, PayPal has other security precautions in place for your protection to make PayPal as safe as any online bank.

Additional security for your transactions is available as a PayPal Security Key. These hand-held devices generate a new six-digit code every 30 seconds. When you authorize a transaction, you key in the displayed code so that PayPal can verify it. No one can authorize a transaction from your account without the correct code from your Security Key. Banks often use this type of security for online transactions. The charge for a PayPal Security Key is $5.

what is paypal and how does paypal workHow Online Sellers Make Money With PayPal

Small online sellers and stores online make money with PayPal services. With PayPal, they avoid the need to set up a merchant account through a credit card company. They can also use PayPal checkout service and shopping cart. It's easy to incorporate PayPal into a website, because PayPal provides a few lines of HTML code to copy and paste into your web page. With this technique the seller can add a clickable Buy Now button, a PayPal shopping card, a Donate button, a Subscribe button, and more. When these button are clicked, PayPal handles the transaction.

Because sellers can rely on the security and recordkeeping at PayPal, sellers avoid the responsibility of dealing with sensitive customer information.

PayPal can convert foreign currencies to the U.S. Dollar. This allows your online store to reach a larger group of international customers. PayPal exchanges the following currencies: Canadian Dollar, Euro, Pound Sterling, Yen, and Australian Dollar. The fee to the merchant for a currency conversion is 2.5% of the transaction amount.

PayPal also offers a shopping cart for sellers to use. Buyers add items to the shopping cart as they browse the store, and PayPal handles the checkout for the seller. PayPal provides two levels of shopping carts, the Standard and the Pro. The Standard cart uses PayPal's site to complete the checkout, while the Pro shopping cart is set up right on the merchant's site, with PayPal operating in the background. The Pro shopping cart requires more setup work, but it converts well.

what is paypal and how does paypal workHow PayPal Works for Subscription Sales

PayPal has tools to make subscriptions sales work easier. Online vendors use PayPal to manage subscription sales. When customers join an online forum or a club, or when they sign up for a greeting card service, they agree to pay a small amount regularly for the continuing service. Subscription sales usually include recurring periodic payments. PayPal keeps track of the subscribers, their passwords, and the terms of their subscription, and emails them renewal notices, all automatically. This PayPal feature, called Aria Systems, makes subscription sales easy to manage.

what is paypal and how does paypal workHow PayPal Works With MicroPayments

PayPal offers Micropayment accounts for sellers with very inexpensive merchandise. In the virtual world online, many sites offer virtual merchandise for sale. You can buy land in Second City. You can buy weapons in World of Warcraft. You can buy virtual toys for Pokemon. Believe it or not, these are actual business opportunities online. Naturally, the price tag for virtual merchandise is less than for physical purchases. PayPal has a way to run your micro-business, with a PayPal Micropayments Account. If your average sale is less than $12, the virtual entrepreneur will save money with a Micropayment account. When funds are received into a Micropayments Account, the transaction fee is 5% of the amount plus $.05. Compare this to the rate for a Premier or Business account, which is 2.9% plus $.30.

what is paypal and how does paypal workHow PayPal Discount Coupons Work

Online coupon sites may sometimes offer PayPal Discount Coupons. PayPal Discount Coupons are either paper coupon mailers or electronic discount coupons offered as a business promotion. PayPal also occasionally sends discount coupons by email or snail mail to promote its service. The coupons usually offer a discount if you pay for your online purchase by using PayPal at a website. To use the PayPal Discount Coupon, you are instructed to enter the discount coupon code at the time of checkout at an online store that offers PayPal. A very popular coupon incentive is the offer of free shipping if you pay using PayPal. Like any coupons, the PayPal Discount Coupons have an expiration date and terms of use. And like some other coupons, they are non-transferable, and cannot be sold, bought or exchanged. Online coupon codes are often misused to scam the buyer, and, more often than not, the coupon code is invalid. At any rate, PayPal Discount Coupons are not available very often and I have never myself seen one a valid one.

what is paypal and how does paypal workHow a PayPal Student Account Works

The PayPal Student account works as a convenient way to provide online spending money for a young person. The student can never spend more money than you put into the account. An adult must open the Student account and add money to it. You will also be notified when the account balance is low or if unusual spending occurs. If you lend your credit card to a teen, you might worry about its possible misuse. But the PayPal Student account gives you peace of mind. As part of the Student Account, PayPal also can provide a teen debit card for shopping in the non-virtual world.

what is paypal and how does paypal workHow PayPal Was Started

PayPal was founded in 1999 by Peter Thiel and Max Levchin under the name Confinity. Max brought his idea for a mobile money-transfer device to Peter as a possible investor. Their goal was to provide a way to move funds online from person to person. Early employees came from their contacts at the University of Illinois and Stanford University. The service grew quickly as a favorite of both buyers and sellers. In 2002 in a successful IPO, PayPal offered its shares to the public at $15.41 per share. The online auction company, eBay, realized that PayPal was preferred over the eBay inhouse payment service called Billpoint. eBay purchased PayPal later in 2002, with a stock payment worth $1.5 billion, and made PayPal its in-house auction payment system. Now the overwhelming majority of eBay auction buyers choose PayPal to handle their payments. And, important for the future growth, the majority of PayPal earnings now come from non-eBay transactions.

what is paypal and how does paypal workWhere Is PayPal Located?

PayPal corporate headquarters are located in San Jose, California. The operations center is located near Omaha, Nebraska, where the company employs more than 2,000 people. PayPal also has facilities in operations in Omaha, Nebraska; Scottsdale, Arizona; Austin, Texas; Chennai; Dublin; Berlin; and Tel-Aviv.

The headquarters of PayPal's European operations are in Luxembourg, Belgium. PayPal international headquarters are located in Singapore. The company also recently opened a technology center in Scottsdale, Arizona, and Chennai India.

The company also has significant operations in Omaha, Nebraska; Scottsdale, Arizona; and Austin, Texas in the U.S., Chennai, Dublin, Berlin and Tel-Aviv.

what is paypal and how does paypal workHow Does PayPal Make Money

PayPal makes its money from the transaction fees it charges. It also earns interest on the balances held in members accounts at PayPal. PayPal earns nothing on the money you keep in your bank checking account.

PayPal is owned by eBay, the publicly-traded online-auction company. In coming years, PayPal is expected to grow faster than its parent. For second quarter 2010, PayPal revenue increased 22% to $817 million, while transaction volume grew 28% to $21.4 billion. PayPal brings in about one-third of all eBay revenue.

PayPal has many competitors in the field of online payments. They offer some of the services available from PayPal. Competitors of PayPal include Google Checkout, Wirecard, Moneybookers,, CCNow, Kagi, ProPay and Paymate. PayPal is by far the largest and most dependable of the online payment processors.

what is paypal and how does paypal workIs PayPal a Bank?

Is PayPal a Bank? In the United States PayPal is classified as a "money service" rather than a bank. Each state licenses PayPal to conduct business in the state. PayPal does not accept deposits the way a bank does, does not hold any physical money and does not have a bank charter. Because of its method of operation, PayPal will not fail the way a bank might fail. In 2002, the Federal Deposit Insurance Corporation ruled that it is not a bank. But PayPal does abide by federal rules and regulations, including Regulation E for consumer protections, the Gramm-Leach-Bliley Act regarding private personal information, and the Patriot Act for counterterrorism.

In Europe, PayPal is a bank registered in Luxembourg, Belgium, the center for its European operations.

what is paypal and how does paypal workWhat Are the Future Plans of PayPal

The future of PayPal in online commerce looks bright. PayPal stays on the cutting edge of technology and trends. PayPal is active in mobile e-commerce and payments. Now that almost everyone has a cell phone, mobile shopping is the next big thing. Sales to a mobile phone are likely to reach $200 billion by 2012. PayPal allows you to send and receive money from mobile phones with its Mobile Express Checkout service for smartphones. Retailers at bricks and mortar stores will also allow customers to make mobile purchases quickly and safely with their cell phones and PayPal.

After a 2010 agreement with the bank card association in China, PayPal become available to Chinese consumers who want to shop online.

PayPal recently expanded the scope of its influence. PayPal has partnered with Facebook so that advertisers can pay for Facebook ads by using PayPal. PayPal can also be used to buy Facebook credits which pay for virtual goods on the Facebook site. This expands the PayPal sphere of influence as an online payment service. No doubt, PayPal will extend its reach to other sites online.

To reach more online customers, PayPal has created software tools for online developers. The PayPal goal is to become the "electricity" of Internet commerce. PayPal encourages developers to build innovative payment applications on top of its technology. The second PayPal X Developer Challenge is a contest for developers who can win up to $150,000 in prizes.

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