How PayPal Makes Money

Fees on payment transactions are the largest source of revenue

PayPal Holdings Inc. (PYPL) operates one of the best-known digital payments platforms, enabling both merchants and consumers to make digital and mobile payments worldwide. The company's platform is comprised of payment solutions offered by trusted brands, including core PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy. It generates revenue through charging fees on payment transactions it completes for its customers and through other services.

PayPal operates in the highly competitive global payments industry in which it faces both larger, more dominant companies and smaller, agile competitors. The industry is rapidly changing and faces increasing scrutiny and oversight from regulators. The company competes with a broad range of payment solution providers, including Visa Inc. (V), Mastercard Inc. (MA), Alphabet Inc.'s (GOOGL) Google Pay, JPMorgan Chase & Co.'s (JPM) WePay, Square Inc. (SQ), and Stripe.

Key Takeaways

  • PayPal provides digital and mobile payment solutions worldwide.
  • Most revenue is generated through fees on payment transactions.
  • The company continues to expand its payment services with new product launches and payment experiences.
  • PayPal expanded its payment services in Ukraine to better support Ukrainian citizens during the ongoing crisis with Russia.

PayPal's Financials

PayPal announced in early February financial results for Q4 of its 2021 fiscal year (FY), the three-month period ended Dec. 31, 2021. The company posted a net income of $801 million, down 48.9% compared to the year-ago quarter. Revenue rose 13.1% year over year (YOY) to $6.9 billion. PayPal recorded a net other expense of $344 million in the recent quarter compared to net other income of $896 million in the year-ago quarter. That expense weighed on net income in the recent fourth quarter.

PayPal added 9.8 million Net New Active Accounts during the quarter, including 3.2 million from its recent acquisition of Paidy. Total Payment Volume (TPV) rose 23% YOY to $339.5 billion. PayPal said that 2021 was one of its strongest years in its history, noting that its TPV for the full-year FY 2021 was $1.25 trillion and that it launched more products and experiences than it ever has before.

PayPal's Business Segments

PayPal operates as one segment and does not break out its financial performance data into separate reportable segments. However, the company does provide a breakdown of revenue into two separate types: transaction revenues; and revenues from other value-added services. Transaction revenues comprise the majority of PayPal's total revenue. We look at these separate revenue streams in more detail below.

Transaction Revenues

PayPal charges net transaction fees to merchants and consumers for each transaction completed on its payments platform. The magnitude of the fee is based on the volume of activity, or TPV. Fees are also charged on currency conversions, cross-border transactions, fund transfers from customers' PayPal or Venmo accounts to their debit cards or bank accounts, cryptocurrency transactions, and other miscellaneous fees. PayPal's transaction revenues rose 12.2% to $6.4 billion in Q4 FY 2021. The category accounts for more than 92% of the company's total revenues.

Revenues From Other Added-Value Services

PayPal also generates revenues through partnerships, referral fees, subscription fees, gateway fees, and services offered to merchants and consumers. The company also earns interest and fees on its portfolio of loan receivables, as well as interest on certain assets underlying customer balances. PayPal's revenue from other value-added services grew 24.7% to $541 million in Q4 FY 2021, comprising nearly 8% of total revenue.

PayPal's Recent Developments

On March 18, 2022, PayPal announced that it was expanding its payment services available in Ukraine in order to better support the payment needs of Ukrainians during the ongoing crisis with Russia. The company said that it was waiving its own fees on funds sent to or received from Ukrainian PayPal accounts. It also made it possible for Ukrainian customers to transfer funds from their PayPal Wallet to eligible Mastercard and Visa debit and credit cards.

Article Sources
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  1. PayPal Holdings Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 4.

  2. PayPal Holdings Inc. "Form 10-K for the fiscal year ended December 31, 2021," Pages 3 & 7.

  3. PayPal Holdings Inc. "Form 10-K for the fiscal year ended December 31, 2020," Page 7. Accessed Feb. 6, 2021.

  4. PayPal Holdings Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 9.

  5. PayPal Holdings Inc. "Fourth Quarter and Full Year 2021 Results," Page 10.

  6. PayPal Holdings Inc. "Fourth Quarter and Full Year 2021 Results," Page 1.

  7. PayPal Holdings Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 77.

  8. PayPal Holdings Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 37.

  9. PayPal Holdings Inc. "Fourth Quarter and Full Year 2021 Results," Page 12.

  10. PayPal Holdings Inc. "Expanding PayPal’s Money Services To Help Ukraine Humanitarian Efforts."

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