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What is PayPal and How PayPal Works?

PayPal is a global e-commerce business allowing payments and money transfers to be made through the Internet.

The company operates as a payment processor for online vendors, auction sites, and other commercial users, for which it charges a fee.

In this article, you will learn about PayPal in detail, how it works, uses and its benefits etc.

So let’s get started!


What is PayPal

PayPal is the world’s leading online payment platform and one of the earliest global e-commerce companies.

It was founded as part of eBay in 1998, and became a separate company in 2015.

PayPal allows payments and money transfers to be made through the Internet, and is available in almost every country.

The service provides its users with financial transactions that include exchanging currencies, paying for goods or services, or sending remittances.

Since it moves money electronically, much like a bank account, PayPal does not deal with paper checks or money orders.

It has limited support for POS credit card readers. PayPal makes money by charging a small transaction fee for each completed transaction.

How PayPal works?

In order to send or receive money through PayPal, the recipient of funds must have or create a PayPal account. To do this, recipients need to make arrangements with their mobile service providers and/or verify a bank account in their name.

PayPal accounts can be set up by individuals or businesses, with a limited number of “seller” accounts available for people selling goods and services through the eBay platform.

paypal - what is paypal

Businesses may also send invoices containing payment buttons that must be paid from an associated checking account or credit card stored in PayPal.

PayPal also offers its own branded debit card, which are accepted by many merchants that have chosen to accept PayPal as a form of payment.

The existing account holder must initiate the transfer by logging into their PayPal account and clicking on “send money.”

Once the recipient has been selected, the user is required to provide an address that the payment will be sent to.

After completing the required fields, the user must enter their PIN or password and confirm they are the authorized account holder for the selected PayPal account.

The system shows a message confirming that there is money in the recipient’s balance immediately after only  2 to 3 seconds . If an error occurs, a message will appear informing the user of the error and they may try again.

In order to complete a funds transfer, the information provided must match that on file with PayPal.

If there is a discrepancy between accounts, users are instructed to contact their bank for further assistance .  

The money is not transferred until it has been confirmed by PayPal.

The service can be used in different countries, subject to the conditions stated by PayPal when creating the account.  If you are an existing member of PayPal, then you can send or receive funds through this service from anywhere in the world where there is Internet access via email address.

Why use PayPal?

  • PayPal is a secure, lower-cost payment option.
  • It’s more convenient than traditional check or money order payments.
  • PayPal is accepted more places than most other payment options.
  • You don’t have to share your credit card number with the seller.
  • Your account can be linked to more than one bank account or credit card so you always have access to all of your funds.
  • PayPal also makes it easy to track past payments and manage how you send and receive money.

Is PayPal free to use?

Yes, PayPal is free to use. PayPal offers a way of making payment for goods and services online. Whether you’re shopping for your favorite TV show on iTunes, booking your next vacation with Expedia or buying yourself something special with PayPal Digital Gifts, shopping on the internet has never been so quick, easy and secure.

How to make a PayPal account?

You can create a PayPal account by clicking on the “Sign up” button. You are then taken to the registration page where you insert your name, country of residence, username, password, gender and birthday. You also need to accept the user agreement and click on “Create Account”.

After that, you can add your bank account details and verify your identity by submitting a picture of your passport or driving license, while making sure it is not covered up in any way. You will be required to add an alternate email address which should also be verified.

Once your account has been created and all verification processes have been completed, you are free to use the service for online transactions between members. However, it does not mean your bank or credit card details are stored on files by PayPal.

Moreover, it is important to note that the service does not make deposits, but only withdraws money from the bank account you have registered with PayPal.

You can also upgrade your account to a Personal or Business account which offers higher limits of withdrawals and transactions depending on how frequently you use the service.

After opening a PayPal account, you are given an email address which makes it easy to send and receive money online.

It is important to note that whenever you withdraw money from your bank account via PayPal, there are certain fees attached depending on the withdrawal method.

How to send money via PayPal

Firstly, select the amount of money that you will be willing to send. You can then select PayPal as your choice of payment.

You will then be asked to log in to your account if you are not logged in already. If you do not have an account with PayPal, click on “Continue” and follow the instructions provided.

Once you log in, you will be redirected back to the payment page where you can confirm your bank details or select a different card. Once you are done, click on “Confirm your Order”.

Getting paid through PayPal

When someone transfers money to your email address or mobile number, you are paid through PayPal. You will receive a message when that happens, letting you know you have money available.

PayPal Pros

  • PayPal can be used to buy products, transfer money to bank account or receive payments without having a bank account.
  • PayPal is one of the most secure ways of transferring money. You can send money to anyone, anytime with just an email address, mobile number or text message.
  • PayPal has been around for a long time and have been trusted by many people. The funds in your PayPal account are insured so if anything happens they will cover it up for you at no cost.

PayPal Cons

The main con about PayPal is that not everyone has it due to lack of availability in certain countries.

The other con about PayPal is that it’s a third party service which is a little uncomfortable for some people.

Alternatives to PayPal

There are a number of alternatives to PayPal out there. Here are some of them:

  • Stripe – Probably one of the best known payment processors on this list, Stripe provides online infrastructure solutions to help businesses accept payments over the internet. For individuals looking to accept payments through their blog or website, there is also a free plan available, which makes Stripe a great choice for anyone starting out.
  • Authorize.net – A popular choice for established online businesses, Authorize.net helps merchants handle credit card transactions over the web through various plans that are designed to suit businesses of all sizes. It’s free to sign up and you’ll only have to pay if you exceed a certain number of transactions.
  • Square – Another well-known payment processor, Square is a mobile credit card processing company that helps individuals and businesses process payments using their smartphone or tablet. It’s free to sign up.
  • Apple Pay – One of the newest online payment processors on this list, Apple Pay is a payment solution from Apple that allows individuals to purchase products from their smartphones or tablets using an easy-to-use digital wallet. It’s free to sign up and works by simply using an individual’s Apple ID.
  • WePay – One of the biggest names on this list, WePay is a popular online payment processing solution that helps individuals and businesses manage their online payments. It has no setup costs or monthly fees for signing up.
  • Dwolla – Dwolla was designed specifically with business transactions in mind and offers its users a flat rate per transaction processed – there are no monthly fees or setup costs.
  • Amazon Payments – Amazon Payments is an online payment processing solution offered by Amazon that’s designed specifically for individuals and businesses that sell goods or services through their Amazon seller account. There are no monthly fees to use the service but it does charge 2.9% + $0.30 per successful purchase made by buyers using the platform, making it somewhat more expensive than other solutions on this list.

What is PayPal fee?

It is free to use PayPal to pay for a purchase or any other type of commercial transaction unless it involves a currency conversion. For online or in-store purchases there is no fee.

For other fee details refer to this PayPal pricing page.

What is PayPal credit?

PayPal Credit is a revolving credit card account with an open end (revolving) credit line incorporated into your PayPal account, allowing you to pay for your purchases immediately or over time.

It’s simple to use and apply, and it’s always there when you need it.

What is PayPal key?

PayPal Key is a virtual card that lets you use your PayPal account anywhere that accepts credit cards. PayPal Key may be used as a credit card at any online merchant that takes Mastercard, even if there isn’t a PayPal button.

At this moment, PayPal Key is only available to residents of the United States.

What is PayPal me

PayPal.Me is a new method to be paid using PayPal that is both faster and easier. Simply share your PayPal account. Others can send you money for any purpose if you share your PayPal link (paypal.me/YourName).

They don’t need your email address or phone number, and they don’t even need the PayPal app. They may just click on your link and proceed to your PayPal account. Type in the amount and send the money to me.

What is PayPal address

An email address that has been confirmed as a valid recipient of payments is referred to as a PayPal address. After you join up, you’ll get an email asking you to confirm your PayPal account request.

What is PayPal cash

A PayPal Cash account is just a location within PayPal where you may store money – money that isn’t in your bank account or on your credit card, but rather money that is stored within PayPal.


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