With over 426 million active accounts globally and support for 25 currencies, PayPal has undoubtedly become the easiest and most trusted way to send money and make purchases online.
But how exactly does it work, and why should you choose PayPal over other options? This comprehensive guide explains everything that makes PayPal tick while walking through the entire user process step-by-step.
An Evolution into the Leading Digital Wallet
It all started back in 1998 when PayPal founders Max Levchin and Peter Thiel had a vision for moving money by email. After several pivots and an acquisition by eBay in 2002, PayPal quickly became the preferred payment method for eBay‘s massive user base of buyers and sellers.
Processing $14B+ in payments for eBay annually by 2008, PayPal also grew off-eBay volume by offering services to thousands of other merchants. The business eventually became so successful that eBay decided to spin off PayPal in 2014 into an independent publicly traded company valued at nearly $50 billion at the time.
Fast forward to today, and PayPal processes over $1 billion in payments every single day. Now available in over 200 markets with support for 100+ currencies, PayPal enables consumers and businesses worldwide to:
- Safely transact online – Send, receive, and request money from friends & family or pay online retailers
- Store cash – Maintain balances safely in a PayPal account
- Leverage credit – Apply & pay via PayPal‘s credit products and financing
- Withdraw cash – Instantly transfer money to bank accounts and debit cards
And thanks to ubiquitous availability on both desktop and mobile, all this is achievable anytime, anywhere within seconds.
Let‘s take a deeper look at precisely how you can leverage PayPal‘s digital wallet and extensive benefits.
Sending, Receiving, Storing – How PayPal‘s Payment System Works
PayPal acts as a crucial intermediary between your bank and the recipient‘s bank – facilitating movements of cash without exposing sensitive financial information. Here is an overview of how transactions flow:
- Initiate payment – Log into your Paypal account and enter amount and recipient details
- Verify identity – PayPal verifies your identity behind the scenes via credentials or linked accounts
- Withdraw funds – PayPal securely pulls money from the bank account / card you specify
- Transfer funds – Money is moved from your bank to PayPal and then to the recipient‘s bank
- Notify Recipient – An email and app notification goes out alerting recipient of money received
Once a transaction occurs, extensive details around dates, amounts sent/received, and current balances are made available within your PayPal account.
So in practice – how would this work? Here‘s a quick example:
Jenny wants to pay her friend Alex $40 as he purchased concert tickets on her behalf. After logging into her PayPal app, Jenny enters Alex‘s email address along with the $40 amount and selects her linked credit card as the payment method before hitting send. In seconds, Alex receives a notification that Jenny has sent him money which he can now use towards grabbing snacks at the show!
As you can see, PayPal creates a seamless way to transfer money remotely using nothing more than an email address or phone number. But what makes PayPal so special compared to traditional banking?
Key Reasons PayPal Stands Out From the Competition
There are several compelling factors that explain PayPal‘s runaway success and status as a payments juggernaut processing over 41 million transactions every day:
Security
- Encrypted technology safeguards financial data
- No sensitive card/account details provided to sellers
- 24/7 fraud monitoring with proprietary AI
In 2021, PayPal protected users from over $1.2 billion in fraudulent transactions while 91% of their 284 million users felt their money was safer in PayPal than in banks!
Convenience
- One click checkout with just email / # needed
- Send to anyone across the globe in 200+ markets
- PayPal wallet simplifies online & in-store purchases
- 41 million daily transactions prove the popularity
According to 73% of users, PayPal‘s top perk is ease of use compared to 51% for credit cards and 44% for bank accounts.
Buyer & Seller Protection
- 100% money back guarantees for issues with goods
- No risk selling to verified identities
- Peace of mind for up to $20,000 coverage
These protections give PayPal buyers & sellers confidence in every transaction – knowing potential losses have a safety net.
Rewards
- 3% cash back on PayPal purchases
- Points, discounts and other exclusive perks
- 0% APR financing options
Attractive promotions like up to 5% back on Apple Pay transactions give Paypal users yet another incentive to engage frequently.
With benefits like these in security, convenience and finances, it makes sense why PayPal maintains an unmatched 43% market share of global digital wallets.
PayPal Fees, Limits and Account Risks
Now, while individuals can utilize PayPal‘s core peer-to-peer sending features for free, you should be aware fees and restrictions exist in certain scenarios:
Personal Domestic Payments
Personal International Payments
- Currency conversion fees range from 0% – 4% based on exchange rates
- Cross border + standard sending fees apply
Account Limits
*Higher tiers available with verification
Account Risks
- Accounts can be limited, suspended or terminated if deemed high risk
- Limited accounts restrict access to balances and certain features
While merchants assume the bulk of transaction fees in traditional ecommerce, individuals should factor PayPal expenses into budgets – especially when transacting internationally. New users gradually gain higher privileges and limits through identity verification and account longevity.
Understanding the pricing model upfront ensures accurate forecasts of costs for utilizing PayPal‘s unparalleled convenience and protections.
Creating Your PayPal Account in 3 Easy Steps
If you want to enjoy simpler online checkouts, ensure eBay transaction safety or gain money transfer flexibility, setting up a PayPal account takes just minutes:
Step 1) Visit PayPal.com and click Sign Up
Step 2) Enter your email, create a password and provide some basic personal details
Step 3) Add a debit card, credit card or bank account to enable payments
And you‘re all set! With your account created, you can now send or request money from others and pay merchants online.
We recommend immediately linking a bank account or card you actively use to keep the payment process seamless. Certain verification levels also depend on validated financial instruments being present.
Once signed up, check out PayPal‘s intuitive mobile app for monitoring balances and transactions on-the-go.
Linking Bank Accounts and Credit Card Strategies
Adding payment methods from within your main PayPal account settings is straightforward – requiring just basic details and account numbers from either credit cards or bank accounts.
We recommend considering a few tips and strategies when deciding what to link.
For credit cards:
- Choose your highest rewards card for optimal points or cashback
- Keep unused cards active by placing a small monthly subscription on PayPal
- Check if your issuer provides bonus offers for PayPal purchases
And for bank accounts:
- Link checking accounts used for frequent transactions
- Verify accounts fully to unlock higher sending/receiving limits
- Transfer out balances periodically to your main bank
The key benefit is all perks and protections from your payment methods still apply when linked and used via PayPal – so choose wisely!
PayPal Branded Credit Lines and Cards
In addition to linking your existing credit, PayPal also offers their own unique lending products and branded rewards cards tailored specifically to PayPal users:
The PayPal Extras Debit Mastercard is a top choice for frequent eBay shoppers who can maximize points earned on web purchases towards cashback or gift cards.
Casual users who simply want to streamline online checkout and transactions can benefit from boosted security and convenience alone with minimal fees.
For small business owners and high volume merchants, unlocking working capital flexibility with PayPal Business Credit Lines can be invaluable towards managing cash flow gaps.
Closing Thoughts – Why PayPal Should Be Your Preferred Payment Method
Given PayPal‘s ubiquitous role within marketplaces like eBay and dominance among early crypto exchanges, many individuals aren‘t even aware of the expansive utility offered through a personal PayPal account:
- Securely store balances like a digital wallet
- Send / Receive money globally with ease
- Checkout faster with a single email/password needed
- Leverages two decades of transaction security expertise
Domestic payments between friends & family are free (though most other activities incur nominal fees). Nevertheless, users consistently rate security, convenience, availability and protection as primary benefits that outweigh costs.
And by directly linking your existing credit cards and bank accounts, you can continue earning associated points, miles and cash back rewards on your PayPal spending seamlessly.
So for your next group trip, special purchase, or even paying monthly rent – take advantage of PayPal‘s digitization of payments for simpler personal finance management. Sign up takes just minutes but provides a lifetime of benefits you’ll wonder how you ever lived without!
