PayPal

What Is PayPal?

PayPal is an electronic commerce company that facilitates payments between parties through online transfers. PayPal allows customers to establish an account on its platform, which is connected to a user's credit card or checking account. Once identification and proof of funds are confirmed, users can begin sending or receiving payments to and from other PayPal accounts online or through the company's app.

How PayPal Works

PayPal offers payment services and solutions for both personal consumers and businesses. The company allows personal consumers to shop, make payments, and transfer money with relative ease. Users need an email address to sign up for an account and must provide a credit card, debit card, or bank account to complete the setup. PayPal verifies all the information to make sure the person setting up the account is the rightful owner before the service can be used.

PayPal account holders can use the company's website or mobile app to transfer money to others using the recipient's email address or mobile phone number. Shoppers can choose the PayPal option to complete purchases online if the retailer has the service. Transactions are completed within minutes and the company promises that transfers are available for payment or withdrawal to a bank account immediately.

PayPal also offers businesses a range of solutions for their day-to-day operations. This includes payment portals for both online and in-person transactions, business management solutions, as well as credit and financing options. Business owners must also provide an email address in order to create an account.

PayPal attempts to make online purchases safer by providing a form of payment that does not require the payor or payee to disclose credit card or bank account numbers. Therefore, money is secure, privacy is protected, and, since the customer base is so large, transactions are faster than traditional methods.

Special Considerations

Although PayPal is not a bank, it is still subject to many of the same consumer protection regulations by which banks are governed. For example, the extent of your liability for an unauthorized transaction is determined by how promptly you notify the bank that unauthorized activity has occurred in your account. Notifying PayPal quickly when you have concerns will help to limit your liability, and it is recommended that PayPal users check their accounts regularly.

History of PayPal

The first form of PayPal as we know was launched in the late 1990s by Confinity. The company merged with X.com—an online banking company—and officially took the PayPal name in 2001. It broke into the mainstream when it appeared as a payment facilitator for eBay auctions. The service became so popular that eBay decided to acquire PayPal in 2002, making it the official transfer service for its website. In 2015, PayPal was spun off as an independent company. Company shares trade on the Nasdaq under the ticker symbol PYPL.

Throughout its history, PayPal has acquired other companies that serve different parts of the financial transaction, digital money transfer, and payments markets. Some of these acquisitions brought technology enhancements and additional features that were incorporated into the PayPal platform as the companies were absorbed. For example, PayPal purchased BrainTree in 2013, which owns rival service Venmo.

Types of PayPal Fees

PayPal doesn't charge a fee for purchases. Other fees vary based on the type of service. For instance, personal consumers aren't charged for standard transfers done from a linked bank account, but there is a fee of 1% of the transferred balance or a maximum of $10 for instant transfers.

Money can be transferred for free internationally if both parties have PayPal accounts. This makes PayPal a competitive force in the world of bank transfers when sending U.S. currency internationally. When foreign currency is accepted into another country, PayPal's fees become more comparable to that of a traditional bank.

PayPal’s website advertises a 2.9% + a 30 cent transaction fee, which works out to $3.20 for a $100 transaction. This sounds simple until you dig deeper and find all the different packages and services available to merchants. PayPal's fee structure for merchant transactions is different from its personal account transfers. PayPal charges between 2.7% and 3.2% plus a flat rate of 30 cents on a transfer of $100 in standard fees for merchants selling goods and services online, including eBay sellers and private businesses that use PayPal as a payment option.

Benefits of PayPal

Purchases made with a select few online retailers may include a discount from PayPal or a cashback offer of some sort. PayPal also offers its own credit card through Synchrony Bank. Approved applicants are supplied with MasterCards branded with the PayPal name.

The company also finances large purchases, extends lines of credit, and provides customers with debit MasterCards which use PayPal balances to pay for purchases in a brick-and-mortar store or to withdraw cash. With PayPal being so widely known, there are stores throughout the world that will accept PayPal payments for goods or services—some even accept contactless PayPal payments.