How does PayPal Work? Is PayPal free to use? PayPal dominates the digital payment scene. It has upwards of 360 million active users in more than 200 countries and facilitated four billion payment transactions in Q3 of 2020 alone.
Since 1998, PayPal has been giving consumers alternative ways to make purchases and send and receive money online. PayPal lets you pay for things online with a bank account instead of a credit card and keeps your payment information hidden from merchants. It also makes sending money easy and, in most cases, free. PayPal has essentially made checks and costly wire transfer services obsolete.
Decades since its founding, PayPal remains a top choice for online shopping and money transfers. Here’s what you need to know to get started with PayPal.
How does PayPal Work?
PayPal offers payment services for consumers and for merchants who accept Paypal. Merchants use a PayPal card reader in brick-and-mortar stores or enable Paypal as a payment option on their websites.
Consumers can pay invoices and transfer money with relative ease. Cash can be transferred to any email address or phone number, whether or not the recipient has a PayPal account.
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 the information to make sure the person setting up the account is the rightful owner before the service can be used.
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.
What is PayPal and how does it work?
PayPal is an online payment system that makes paying for things online and sending and receiving money safe and secure.
When you link your bank account, credit card or debit card to your PayPal account, you can use PayPal to make purchases online with participating stores. PayPal serves as a middleman between your bank and merchants and keeps your payment information secure.
You can also use PayPal to securely send money to friends and family as well as receive money from people. This feature is useful for splitting rent with roommates, for example, or receiving money for your birthday.
What is PayPal Credit?
PayPal Credit is PayPal’s credit line program. It’s like a virtual credit card, but it can only be used to make online payments on websites that accept PayPal. Just like a traditional credit card, PayPal Credit lets you defer payments.
What is PayPal Pay in 4?
PayPal also offers a buy now, pay later program called Pay in 4, which lets users split up purchases into four equal payments over six weeks. There is no interest or fees associated with this program, and you can pay off purchases between $30 and $1,500.
Why use PayPal?
Secure transactions
When you use your debit or credit card to pay for things online, merchants can sometimes access your payment information. PayPal provides an extra layer of protection by ensuring that merchants never see your sensitive data. PayPal also uses a number of features to keep accounts secure, including end-to-end data encryption, optional two-factor account logins and email confirmations for transactions.
Easy and convenient
PayPal is now the fifth most accepted payment option after Visa, Mastercard, American Express and Discover and is available at millions of stores online. Have you ever wanted to make an online purchase but couldn’t because you didn’t have your credit card handy? You can use PayPal to make a payment via cards that are linked to your account, without having to retype your card numbers. All you need to do to make a purchase via PayPal is memorize (or save) your PayPal login information.
Is PayPal free to use?
Creating a PayPal account is free and online purchases and most personal transactions are also free. PayPal does, however, charge fees for certain types of transactions.
Fees for purchases
There are no fees for making purchases online with retailers that accept PayPal as long as there’s no currency conversion involved. There is a 3 percent or 4 percent foreign transaction fee for purchases made in a foreign currency.
Fees for personal transactions
When you send money to or receive money from friends and family for personal reasons, and not for any sort of commercial reason, PayPal considers this a personal transaction. PayPal has a special “Friends and Family” tab you can click when making personal transactions. Some of these transactions attract fees while others don’t, mostly based on where you’re drawing the funds from and where you’re sending them.
If you use your PayPal balance, bank account, or Amex Send™ Account, there is no fee for a domestic personal transaction and a 5 percent fee (between $0.99 and $4.99 USD) for an international transaction. If you send money using a debit or credit card, you’ll be charged 2.9 percent if it’s domestic and 5 percent if it’s international, plus a fixed fee that varies depending on your country ($0.30 USD for payments originating in the U.S.).
Is there a fee to receive money through PayPal? Generally speaking, no. It’s free to receive money from a friend through PayPal as long as there’s no currency conversion involved.
Fees for withdrawing money
There are some other fees you might encounter when using PayPal. While there’s no fee to transfer your PayPal account balance to a local account, you’ll have to wait for the funds to go through. If you want instant access, you’ll have to pay a 1 percent fee. In addition, drawing a check from your PayPal account comes with a $1.50 fee per withdrawal.
How does PayPal work when receiving money?
When someone sends you a payment using PayPal, it’ll be deposited into your PayPal account automatically.
If you don’t have a PayPal account already, you’ll be sent an email or message with a link, asking you to create an account. Click on this to get your account set up and receive your PayPal payment.
What do you need to open a PayPal account?
To open a PayPal account, you’ll need to take the following steps¹:
- Open the PayPal desktop site or app
- Click sign up
- Confirm if you want a personal or business account and tap get started
- Follow the prompts to enter the information needed
- Get verified and you’re done
The exact information needed will depend on the type of account you’re opening.
For personal accounts you’ll basically just need to enter your personal and contact information, but for business accounts you’ll also be asked to provide some details about your company.
To verify your account, you’ll then also need to link a bank account or card, and follow a verification step.
This may be as simple as logging into your online banking — or may require you to receive 2 small deposits and then enter the exact amounts into your PayPal account to prove you own the bank account in question.
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