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What Is PayPal?
Let me explain PayPal to you directly: it's an online payment platform with a website and app that lets you handle payments through money transfers. You create an account and link it to your checking account, credit card, or both.
Once you've confirmed your identity and payment methods, you can send or receive payments online or use it to make purchases, with PayPal acting as the intermediary. Millions of retailers, big and small, accept PayPal both online and in stores.
PayPal also provides its own branded credit and debit cards for added convenience.
Key Takeaways
- PayPal facilitates payments between individuals and businesses as an online platform.
- It was once a subsidiary of eBay but became independent in 2015.
- Beyond online payments, PayPal offers debit cards, credit card readers for businesses, and lines of credit.
- PayPal is regarded as a highly secure way to send payments online.
How PayPal Works
PayPal provides payment services for both consumers and merchants who accept it. If you're a merchant, you can use a PayPal card reader in physical stores or add PayPal as a payment option on your website.
As a consumer, you can pay invoices and transfer money easily. You can send cash to any email or phone number, even if the recipient doesn't have a PayPal account—they'll be prompted to create one after you send it.
To sign up, you need an email address and must provide a credit card, debit card, or bank account, plus verify your mobile number. PayPal checks this info to ensure you're the rightful owner before you can use the service.
When shopping, choose PayPal at checkout if available—transactions complete in minutes. For business owners, funds might be available right away after a sale, but sometimes they're held up to 21 days, especially for new sellers without history.
PayPal for Business
If you're running a business, PayPal offers solutions for daily operations, including payment portals for online and in-person deals, business management tools, and credit or financing options. You just need an email to create a business account.
PayPal makes online buys safer by letting you pay without sharing card or bank details with the site or store, keeping your money secure and privacy intact.
PayPal Fees
PayPal earns most revenue from merchant fees, not from consumers using it to pay.
There's no fee for transactions in your home currency, sending money to friends or family in that currency, or transferring between PayPal and your bank—unless you pick instant transfer.
Other fees apply: for purchases or money sends with currency conversion, buyers or senders pay 4%. Sellers face 2.29% to 3.49% plus a fixed fee per transaction, depending on the buyer's method—credit and debit cards are 2.99% plus fixed.
PayPal's branded cards are free to use but can have fees like any card, including interest on the credit card. Additional fees hit for things like crypto trades or charitable donations.
PayPal vs. Its Competitors
As of June 2024, PayPal has 37.8% of the online payments market, making it second-largest behind Stripe at 37.9%. Competitors like Authorize.net and Square are way behind at 5.6% and 4.1%.
This means you'll find more merchants using PayPal or Stripe than others, but it doesn't automatically make them superior.
About Stripe
Stripe is a payments platform headquartered in San Francisco and Dublin, Ireland.
Its Stripe Connect version targets small online businesses aiming global, letting them accept dozens of cards in 135 currencies via Stripe as intermediary.
A Forbes comparison shows Stripe and PayPal have similar services and fees, but PayPal might suit small merchants better for ease, while Stripe offers more customization.
Special Considerations
PayPal isn't a bank, but it follows many bank-like consumer protection rules.
Your liability for unauthorized transactions depends on how quickly you report them—notify PayPal fast to limit it, and check your account regularly.
History of PayPal
PayPal started in the late 1990s as a payment system for Palm Pilot users by Confinity, then merged with X.com and took the PayPal name in 2000.
It gained traction as eBay's preferred payment method, leading eBay to acquire it in 2002 and expand it.
In 2015, PayPal spun off as an independent company, trading on Nasdaq as PYPL.
Over time, PayPal acquired companies like Braintree (owner of Venmo) in 2013, plus Xoom, Zettle, Hyperwallet, Honey, Chargehound, Paidy, and Simility, integrating their tech and features.
Important Note on Transfers
PayPal charges no fee for regular transfers but adds one for instant ones.
Is PayPal a Good Choice for a Small Business?
PayPal is a major option among competitors for small businesses.
Its advantages include ease of use and extra features for running your business, but disadvantages are higher merchant fees compared to some credit card services—merchants cover most costs since basic user services are free.
Is PayPal a Good Choice for a Consumer?
For U.S. online shopping, PayPal is often the main alternative to direct card use. If your details are saved in PayPal, it's faster and more secure than entering them on sites, plus it offers buyer protection if orders go wrong.
In physical settings, compare various payment apps to find what fits you best.
Is PayPal Safe to Use?
PayPal uses end-to-end encryption and optional two-factor authentication, making it as safe as modern electronic transactions get.
The Bottom Line
PayPal is a key player in payment apps for online and offline use.
Basic services like paying from your checking account or transferring money are free to users, but fees apply for currency conversions, instant transfers, and more—these are standard in the industry.
Merchants pay transaction fees but gain access to PayPal's business services. As the dominant online payment service, small business owners should review competitors before choosing.
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