Updated · May 30, 2023
Updated · Feb 07, 2023
PayPal is one of the most popular payment services on the Internet today. Individuals use it for personal transactions and businesses to receive worldwide payments.
In fact, PayPal is integrated into hundreds of shopping cart software apps and used by millions of people worldwide.
But, how does PayPal work? This guide will explore their intricacies and guide you through using the platform.
PayPal is an online financial service that helps users buy goods or services online. It allows you to send and receive money from your bank account, credit card, or other forms of payment. The platform doesn’t require a merchant account to process payments either.
The PayPal service system uses encrypted and secure technology, so all payments are reliable.
The company was founded in 1998 by Elon Musk, the visionary behind innovative companies such as Tesla Motors, SolarCity, and SpaceX.
Today, PayPal is the world's largest payment processor. It has 184 million active accounts in 26 currencies. It’s also one of the more popular options for online and offline merchants to allow consumers to pay for items. It’s estimated that over 2 billion people worldwide have a PayPal account.
PayPal is accepted at various places - from restaurants to department stores to medical offices.
However, how does this widely used payment platform operate?
PayPal enables users to make and request easy and quick payments online. All you need to do is sign up, add your bank account and credit or debit card details. You can add multiple payment methods as well.
When shopping online, a participating merchant's website will display the PayPal logo. To pay using this service:
So, how does PayPal work when receiving money?
It allows personal account users to receive money from family and friends. All they need is your email address. As soon as the sender makes the payment, PayPal will notify you via email. The amount will be reflected in your account. Once your PayPal wallet is funded, you can use the money to buy something or transfer the funds to your bank account.
To send money to another PayPal user, all you need to do is:
But is PayPal free?
Receiving money into your account costs a fee. However, most of the other uses and services are free. You won’t be charged as long as the transaction doesn’t require a currency conversion.
Now that we've explored how it works, the next step will be creating a PayPal account.
Creating a PayPal account is free. You’re only required to provide your full name, phone number, address, and email. You’ll also need to input your credit or debit card details as well as your bank account information. In addition, PayPal requires proof of identification to verify your account once set up.
This app offers two account types:
Let's explore both options.
This type of account is best for individuals who shop online and send money to friends. It’s more accessible and easier to use than a business one.
Here's how to set up a PayPal account:
A PayPal business account helps sellers receive payments for their products and services. It enables businesses to accept debit and credit card payments as well as direct payments from a customer's account. It also accepts online check payments.
With a PayPal business account, you can create online payment buttons for your website. That way, your clients can pay with just one click. You can also transfer the funds to your main business account or personal bank account.
To create a PayPal business account:
Once that’s done, PayPal will send a verification request to your bank. This process typically takes three to five days to complete.
Keep checking your bank account transaction history for two small deposits from PayPal. Once you've seen it, follow the instructions on the verification page to finish creating your business account.
Now, how does PayPal work when sending money?
There are two primary ways to send money via PayPal. It allows you to choose whether to send money to pay for goods and services or to family and friends. Each option has its perks.
All you need to send money to friends and family is the recipient's email address, PayPal username, or phone number. Sending money this way is free.
The minimum transfer amount on PayPal is $0.01. For unverified accounts, users can send a maximum of $4,000. Once an account has been verified, the PayPal transfer limit is increased to a maximum of $60,000 per transaction. The process involves providing documents that verify and authenticate your identity.
To transfer money to family and friends, follow these steps:
Sending money via PayPal for products and services is simple. All you need is the recipient's email address.
When paying for products and services, the PayPal sending limit is the same as sending money to friends and family. For unverified accounts – $4,000 daily maximum; for verified – $60,000.
How does PayPal goods and services work?
There are many ways you can pay for products and services, such as via a website. When shopping online with a business that accepts PayPal payments, the "Buy Now" button typically takes you to a checkout page. Just follow the PayPal button, and it’ll take you to your account, after which it’ll automatically process the payment as Products and Services.
Another way to pay for products and services is through your app or the website. Here's how to make a PayPal payment:
You’ll receive a notification that the funds have been transferred. The recipient will also be notified via email.
If you already have a PayPal account, all you need to do is give the sender your email address.
Note that you can receive money via PayPal even if you don’t have an account. When the money is sent, you’ll be notified via email. However, you’ll need to create an account to claim the payment.
To get paid via PayPal, you’ll have to request payment. You can do this on the mobile app or the web version.
Here are the steps:
In terms of fees, receiving money for personal use is free. Although, PayPal charges users for receiving money for goods and services. There are also fees attached for other types of transactions.
PayPal fees are the charges placed on certain transactions. They don’t affect online purchases made with retailers. There aren’t any fees attached when you send money to or receive money from family and friends in the same currency.
Some of the transactions that have fees are outlined below.
When making an online purchase from a seller in another country, PayPal charges a fee for currency conversion. This is about 3% of the total amount paid.
Personal transactions made on PayPal are primarily free. However, charges might be attached depending on where you’re sending the funds to and where it’s drawn from. For example, domestic transactions withdrawn from your bank account or PayPal wallet balance are free. But, international transactions come with a 5% fee – usually between $0.99 and $4.99.
If you send money from a credit or debit card to a PayPal account, a 2.9% charge is attached. International transactions made from a credit or debit card are charged at 5%. This also has an additional fixed fee that varies based on your location. For payments made from the U.S., the fixed charge is $0.30.
Withdrawing money from your PayPal account to your bank account is free. However, it’ll typically take 2 to 3 days to process the withdrawal. If you want to withdraw instantly, a 1% fee is attached. You can also draw a check from your PayPal balance, which costs $1.50.
PayPal Credit is a reusable credit line service to buy items but pay for them later. It works like a credit card but doesn’t require any card. There’s a variable interest rate of 17.9% per year when using PayPal Credit. For new accounts, the interest rate is 23.99% per annum.
Many stores already allow their customers to make purchases with PayPal Credit. Some even offer special discounts and reduced interest rates.
There are lots of benefits that come with using PayPal. The major ones are outlined below.
PayPal is seamless and easy to use. It’s a straightforward way to send and receive money from anywhere in the world.
All credit card and bank information provided by users are encrypted and cannot be accessed. PayPal also offers an extra security level that protects its users from fraud. This means that if you make a purchase via PayPal and it’s fraudulent, they’ll guarantee your money back.
But is it safe to link a bank account to PayPal?
Absolutely. PayPal uses extensive security measures that ensure that your bank information isn’t revealed to anyone. It also protects users from unauthorized payments made from their accounts.
PayPal doesn’t charge users for sending money to friends and family. When it does charge for transactions, the fees are relatively affordable.
Several other payment services operate in a similar niche. One of them is Venmo. It’s a convenient payment service that has a unique social networking feature. It doesn't charge for requesting money but charges a fee for instant transfers.
However, PayPal owns Venmo. Besides being a subsidiary of PayPal, it aims at making sending money safe, simple, and social.
This is another payment software that lets its users send money easily. It offers the Skrill Visa Prepaid Card to its users. This lets users earn rewards with each purchase and are very helpful when traveling. One significant advantage of this app is that it doesn’t charge any fee for foreign transactions. However, there’s a $5 inactivity fee. To avoid paying this, be sure to use your account regularly.
Payoneer is another go-to payment service for e-commerce businesses and freelancers. They offer integrations for digital marketing services and vacation rentals as well. Payoneer's reach spans over 150 countries. Users can easily transfer local and international currencies. However, their fees aren’t fixed and vary based on the transfer source.
So, what is PayPal?
PayPal is an easy-to-use, secure online payment service. It allows users to send money to family and friends locally and internationally. It also allows them to make payments for goods and services. Users can also receive money easily in any currency.
Is PayPal account free?
Opening and setting up a PayPal account is free. Note that there are specific fees attached to different transactions. However, sending money to family and friends locally is free. International transactions attract a 5% fee that covers currency conversion.
Some tested and trusted alternatives are Payoneer, Skrill, and Venmo.
To check your balance, all you need to do is log in to your PayPal account. You can do this via your mobile app or web browser. If you log in via the website, you’ll find your balance on the left side of your screen. On the mobile app, it appears on the primary account screen.
It was initially founded in December 1998 by Peter Thiel, Max Levchin, and Luke Nosek. It was then called Confinity and aimed to develop security software for mobile devices. It later switched to PayPal in 1999 when it became a digital wallet. It merged with x.com, which Elon Musk established that same year.
It takes between one to three days to send money to your bank account. To do a PayPal instant transfer to your debit or credit card takes only a few minutes. You can also send money from PayPal via a bank check. This process takes between five to ten business days.
To transfer money to your bank, you need to have your bank account linked. Once you’re done linking your bank account to PayPal, which you can do from either the website or the mobile app.
So, how does PayPal work when transferring money to your bank?
Deyan has been fascinated by technology his whole life. From the first Tetris game all the way to Falcon Heavy. Working for TechJury is like a dream come true, combining both his passions – writing and technology. In his free time (which is pretty scarce, thanks to his three kids), Deyan enjoys traveling and exploring new places. Always with a few chargers and a couple of gadgets in the backpack. He makes mean dizzying Island Paradise cocktails too.
Latest from Author
Your email address will not be published.
Updated · May 30, 2023
Updated · May 30, 2023
Updated · May 30, 2023
Updated · May 28, 2023