How Does PayPal Make Money

Are you concerned about online payment security? Don’t worry. PayPal is one of the known digital payment platforms that provide complete financial security.

Once transferring money overseas was a big issue. But in 1998, started as Confinity, PayPal became the safest and easiest solution for instantly sending or receiving money online. Eventually, it’s like a digital wallet, an alternative to paper methods like cash or checks.

Moreover, through transformational change strategy, PayPal caught the eyes of the global market. Being a consumer, anyone can pay for purchases online without a Credit or Debit Card. Also, international purchasing has now become easier as PayPal allows users to buy products in different currencies.

At the same time, merchants or sellers don’t have to wait for checks or clearing the bank. All they need is a PayPal account for getting paid by customers. Additionally, PayPal’s protection policy ensures covering their losses for the damaged or lost items during shipment.

However, PayPal operates in a highly competitive market where many smaller or larger companies are ruling it. But still, with 286 million active users around 202 countries, PayPal has earned net revenue of $5.46 billion during the third quarter in 2020.

So, to understand how does PayPal make money, let’s look into its business revenue model. It’s mainly divided into two categories, transaction fees and other value-added services. Go through the article for further details about the revenue resources over the years.

PayPal- The Biggest Online Payment Platform

What is PayPal? In a simple sense, PayPal is an electronic way for online transactions. You can send or receive money securely, shop or buy online with PayPal. Eventually, this is the first choice for e-commerce businesses as it guarantees safety and security.

In 1988, PayPal initially started in the name of Confinity. Two years later, the company renamed itself  PayPal. Further, in 2002, PayPal was owned by eBay for $1.5 billion. Gradually, it acquired the online and mobile payment market worldwide.

Especially during COVID-19, the digital payment platforms, including PayPal, have grown rapidly. Consequently, increment in the PayPal stock by 78% as of October 2020. Do you know that 87.5% of online buyers use PayPal? Among them, 43.86% of users are only from the US.

Besides, PayPal is more than just a fund transfer for businesses or any individual. You don’t even need a PayPal account to send money as long as you have the recipient’s email address. However, to receive money, sign up for an account.

How to Set Up a PayPal Account?

It’s not so difficult to open a PayPal account. You can set up the account on both Android and iOS devices. All you need is an email id and password or mobile number and PIN. Not to mention, you must be 18 years old to open the account.

Here’s how to set up a PayPal account.

  • Visit PayPal’s website and select the Sign-Up button from the top right corner.
  • Choose the account type, individual or business. Individual accounts are for sending payment only, whereas business accounts are suitable for sending and receiving payments locally or overseas,
  • Sign up with your details.
  • Link your bank account or Credit Card and indicate whether your payment would be deducted from your bank account, Credit Card or PayPal balance.
  • Now log in to your PayPal account. Its “One Touch” technology saves your log credentials safely. So, you don’t need to provide the username or password to check out any website.

However, don’t be worried about your personal details given. PayPal keeps your information private and provides certain security measurements during a transaction between a buyer and seller.

Additionally, PayPal does not charge any fee to open an account. But you need to pay $29.95/month for the PayPal Security Key, which gives an extra layer of security. It generates a unique 6 digit code, lasts for 30 seconds. The user uses the code to access the account.

So, how does PayPal work? To withdraw an amount from PayPal, you have three options.

  • Send the amount into the linked bank account.
  • Request a PayPal Debit Card and add the amount to it.
  • Request a check via email.

How Does PayPal Make Money?- The Revenue Resources

PayPal offers customers an alternative way of money transactions. Like a bank, it provides all features like Debit Card, Credit Card, loans, digital wallets, fast money transfers etc.

Since PayPal has a good track record of earnings and sales growth, let’s know how does PayPal make money.

1.Transaction Fees

PayPal offers you two types of accounts, personal and business.

With a personal account, you can send or receive money from family or friends, purchase online, send money or a gift abroad, donate or invest with Acorn (an American financial service company), split bills etc. Furthermore, you can sell products, but it’s recommended to use a business account for it,

However, there are certain fees for sending money using PayPal depends on the country.

  • There is no fee for buying online or in-store using PayPal Card.
  • To send money as a personal payment using a Debit or Credit Card or PayPal balance, PayPal charges 9% plus $0.30 within the US.
  • Also, the selling fees are 2.9% plus $0.30 per transaction in the US.
  • For transferring money into a bank account, it charges free or 1% of the amount.

In contrast, a business PayPal account is free to register. But PayPal charges a fee for selling goods online.

  • A transaction fee of 2.9% plus $0.30 per sale for online selling through a PayPal account.
  • For in-store sales, it charges 2.7% plus $0.30.
  • For transferring funds into the bank account, it charges free or 1% of the amount.
  • Additionally, for the PayPal Payments Pro business account, the subscription fee is $30/month. It offers a customized mobile checkout experience, easy cart integration, advanced API, phone-based credit Card payment and online invoice.

2. Business In A Box

PayPal offers the Business in a Box, an all-in-one business solution. With the PayPal business account, you can easily make a partnership. Eventually, PayPal earns an affiliate commission from the partnership service.

You need to sign up for PayPal and get associated with many partner services like GoDaddy, Woo Commerce, Xero, Intuit etc.

3. International Payment Fees

PayPal charges a fee if you send money to a different country. It includes currency exchange rate and international payment fee.

  • For sending a payment using a bank account or PayPal balance, the fee is 5% with a minimum fee of 0.99 USD and a maximum of 4.99 USD.
  • For sending money using Cards, PayPal charges a 5%+2.9%+fixed fee ( based on currency received), along with a minimum fee of 0.99 USD and a maximum fee of 4.99 USD.
  • For sending money using AmEx Card to a PayPal customer, it charges 5% with a minimum fee of 0.99 USD and a maximum of 4.99 USD.

However, the fees vary in countries.

Additionally, if there is no currency conversion, PayPal charges no fee for receiving money internationally.

4. Payflow-Payment Gateway Service Fees

PayPal provides a service called Payflow as a gateway payment service. It’s easy to integrate into a website with Payflow if you have a PayPal business account.

The two different levels of customizations for online checkout pages are available.

  • Payflow Link: it’s the free plan where customers provide the payment details on the page hosted by PayPal.
  • Payflow Pro: The premium plan where the user designs and creates his own checkout page costs $25/month.

However, regardless of the plan, PayPal charges $0.10 for the Credit Card payment as a gateway fee.

Moreover, there are three additional features with extra charge:

  • Buyer authentication: $10/month with $0.10 additional cost per transaction.
  • Fraud detection: $10/month with $0.05 additional cost per transaction.
  • Recurring billing: $10/month with zero additional cost per transaction.

5. PayPal Withdrawal Fees

You may not want to save money in PayPal. Instead, you can withdraw it anytime. However, there is a small fee on every transaction from a PayPal account to a bank account. This is another way of how does PayPal make money.

Let’s know PayPal withdrawal fees.

  • For transferring a balance to a local bank account, there is no fee.
  • For an instant transfer to the bank with a withdrawal limit of up to 25,000.00 USD, the fee is 1% of the amount transferred. The maximum fee is $10.00, based on withdrawal currency.
  • For transferring the PayPal balance to linked Debit Card instantly, the fee is 1% of the amount transferred with a maximum of $10.00 based on withdrawal currency. The card withdrawal limit can be $5,000-$15,000.
  • For transferring the PayPal balance to check, the fee is $1.50.

6. PayPal Business Debit Card Withdrawal Fees

PayPal Business Debit Mastercard provides comes with many benefits, such as

  • Instant access to PayPal money
  • Online or offline purchase where Mastercard is accepted
  • Earn 1% cashback on eligible purchases
  • Withdraw cash from ATM
  • Protection against unauthorized payments with Mastercard Zero Liability Policy.

However, PayPal charges every time you withdraw money using a Debit Card. The fees depend on how you’re using it.

  • ATM domestic withdrawal fee: $1.50 per withdrawal within the US+amount charged by the ATM owner.
  • Signature withdrawal fee: $3.00 per signature withdrawal if a signature is required to withdraw the cash.
  • ATM international withdrawal fee: $1.50 per withdrawal from a non-US ATM, even if the transaction does not require a currency conversion.
  • Foreign transaction fee: 1% of the purchase amount from a non-US merchant or 1% of the withdrawal amount at a non-US ATM. This fee is applicable even if the transaction does not require a currency conversion.

7. PayPal Credit Interest Fees

Furthermore, if you keep money in the PayPal account, you need to pay an interest rate. This is another revenue resource.

The Annual Percentage Rate (APR) for a PayPal Credit account is 19.9% as a standard interest rate. However, there will be no interest if your credit is $99 or more and you paid entirely in six months.

Sometimes, PayPal runs promotional offers at low interest, like 0% per annum for four months. The standard rate doesn’t apply to the transactions of lower interest during this offer.

8. PayPal Working Capital Loan Fees

Are you looking for a business loan? Then, PayPal can offer you a loan with a fixed fee through PayPal working capital. Hence, you can use it to grow your small business.

Unlike a traditional loan, there is no interest or late fees, credit check, or additional repayment fees in the PayPal Working Capital loan. Instead of an interest rate, here is a one-time fixed fee. Additionally, you need to pay regularly as a percentage of the sale rather than paying monthly. Thus, the larger the percentage for repayment, the lower the fee.

However, the fixed fee depends on some factors, like your sales, account history, merchant cash advance amount and repayment percentage. If you have a grown business, it’s easy to borrow up to 35% from the sales.

9. PayPal Here Fees

PayPal Here Card Reader is a mobile application that provides offline transactions in-store or office. It’s ideal for making payments for any business, charity or non-profit. Further, it lets you process Credit Card payments, tracks your sales, generates invoices, accepts touch-free payment etc., from your compatible mobile or tablet.

Moreover, there is no setup or monthly fee with PayPal Here. So how does PayPal make money through PayPal Here Card?

There are three types of PayPal Here Card available at different costs:

  • Mobile Chip Card Reader costs$99.99.
  • Chip and Swipe Reader is free for new customers. But for existing customers, it’s $24.99.
  • Chip and Tap Reader costs$59.99.

In addition, it has simple and transparent transaction pricing:

  • 2.7% per US card swipe and tap transaction.
  • 3.5%+$0.15 to key in cards.
  • 2.9%+$0.30 to invoice.
  • 1.5% for cross-border transfer.
  • 2.2% per QR code transaction until March 31, 2021.

10. Interest Fees from Deposite Money

Last but not least, another revenue stream is earning interest from your PayPal account’s deposited money. Your PayPal balance is not Federal Deposit Insurance Corporation (FDIC) insured. Following the state money transmitter law, PayPal combines your PayPal balance with other PayPal users’ balance and deposits the fund in liquid investments. Thus, PayPal earns interest along with any earnings on these investments.

However, you never know this as it’s not shared with you.

11. Revenue From Other Companies

There are some other revenue sources to make money. PayPal owns companies like Venmo, Braintree, Xoom to generate revenue for the company.

The Benefits of PayPal Account

  • Make purchases online securely.
  • Send and receive money with no limit.
  • There are no annual membership, service charges or processing fees.
  • Pay bills directly from your linked credit/debit card or bank account.
  • Link multiple payment methods with PayPal.
  • Unlike other payment services, in PayPal, you pay only when you sell.
  • Transfer money direct to your bank account from the PayPal balance is easy.
  • PayPal business account avails partnerships to earn a commission.

The Downsides of PayPal Account

  • Lack of good customer care service.
  • Longer arbitration procedure.
  • Longer PayPal verification service usually takes up to 5 days to deposit.
  • Expensive fees on the non-PayPal account, from 1.9% to 2.9% plus $0.30 per transaction.
  • Vulnerable to fraud.

PayPal- Worth of Saving Money?

Despite all benefits it offers, PayPal is not recommended to save money. You will earn zero interest from the PayPal balance. Rather, it will cost you a high-interest fee.

Additionally, your PayPal account may get freeze if there is no activity for a longer period. The company can suspend the account without notice. Also, PayPal is not FDIC-insured. Hence it is not the best place to save.

It doesn’t matter how does PayPal makes money, but it’s not worth saving money. With this intention, better use your bank account and link it with PayPal for online transactions only.


The PayPal market share is increasing over the year. People more prefer it as it’s a reliable source. After all, PayPal helps to organize one’s financial transactions safely.

Furthermore, PayPal provides features similar to the bank account. Though, it is not a full replacement of the bank. If you’re thinking of keeping money in the PayPal account for a long, be aware. Or else it’ll cost you an interest fee. Regardless of everything, PayPal has become the most used digital payment method. Hopefully, they bring more security and fraud protection for hassle-free online payments in the future.

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