PayPal: How It Works and What to Know

What is PayPal?

PayPal is an online payment platform that enables individuals and businesses to send and receive money, pay for purchases, and manage transactions without directly sharing bank or card details with merchants. It supports online checkout, person-to-person transfers, in‑store payments via card readers, and additional services such as credit, financing, and international transfers.

How PayPal works

Users sign up with an email address and link a bank account, debit card, or credit card; identity verification (including mobile number confirmation) is required.
Consumers can pay merchants that offer PayPal at checkout or send money to an email address or phone number. Recipients who don’t yet have accounts are prompted to create one.
Business accounts get faster access to funds in many cases; however, PayPal may hold funds (commonly up to 21 days) for newer or higher-risk sellers.
Instant transfers to linked bank accounts or cards are available for a fee; standard bank transfers are typically free.

Key features

Buyer protection for eligible purchases.
Option to pay without exposing card or bank details to merchants.
Business tools: online payment portals, in-person card readers, invoicing, and merchant management.
Additional services and brands: Venmo (via Braintree), Xoom, Zettle, Hyperwallet, Honey, and others.

Fees — what costs to expect

Sending or receiving money in your home currency for personal transfers: generally no fee.
Transferring between PayPal and your bank: free for standard transfers; instant transfers incur a fee.
Currency conversion: typically around 4% on transactions involving conversion.
Merchant (seller) fees: generally range from about 2.29% to 3.49% plus a fixed fee per transaction; card transactions are commonly around 2.99% plus a fixed fee.
Other fees may apply for less common services (cryptocurrency transactions, charitable donations processing, chargebacks, etc.).

Security and consumer protection

PayPal uses encryption and supports two‑factor authentication.
It is not a bank, but it operates under regulatory oversight and offers protections such as dispute resolution and buyer protection for qualifying transactions.
To limit liability for unauthorized transactions, check your account regularly and report suspicious activity promptly.

PayPal vs. competitors

PayPal and Stripe are the two dominant online payment platforms; market-share figures have been very close (e.g., each holding roughly the high‑30% range at certain points).
PayPal is often praised for ease of use and widespread consumer recognition, making it convenient for small merchants and shoppers.
Stripe is known for customization and developer-friendly integrations, which can be preferable for businesses needing tailored payment flows.
Other competitors (Authorize.net, Square/Zettle) serve specific niches like in‑person point‑of‑sale or legacy merchant services.

History and evolution

Originated in the late 1990s (initially for handheld devices), later merging with and rebranding from early fintech projects.
Became widely used through early integration with eBay, was acquired by eBay, and then spun off as an independent public company.
Over time PayPal has expanded via acquisitions and internal development to include a family of consumer and merchant payment products.

Is PayPal right for you?

For consumers: PayPal offers convenience, speed at checkout, and added privacy/security compared with entering card details at many sites. It’s a good option for online shopping and person-to-person transfers.
For small businesses: PayPal is easy to set up and offers a suite of tools (invoicing, online checkout, in-person readers). Drawbacks include merchant transaction fees that may be higher than some alternatives; compare total costs and features (e.g., dispute management, settlement timing, integration needs) with other providers before choosing.

Bottom line

PayPal is a major, trusted player in digital payments that provides straightforward consumer and merchant solutions, strong security features, and a wide acceptance footprint. It offers many free basic services, but merchants and users should be aware of fees for transactions, currency conversion, and instant transfers. Businesses should weigh PayPal’s ease of use and reach against fee structures and customization options offered by competitors like Stripe.