How Does PayPal Make Money?

Amanda Postma
by Amanda Postma
Business Models - 2 weeks ago

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What is PayPal?

PayPal got its start in 1998 as a premier e-commerce merchant company. Today, the company serves more than 200 markets worldwide. In 2002, ebay.com acquired PayPal for $1.5 billion. Now PayPal is used for more than just online fund transfers for individuals and businesses alike. You don’t even have to be a member to send money, so long as you have an email address of a member. If you want to receive payment, then you’ll have to sign up.

How Does PayPal Work?

After you’ve set up an account to receive or send money, you’ll link a bank account or credit card. The company guarantees your information is kept private and has many security measures in place for transactions between buyers and sellers. One particular measure will cost you. It’s called the PayPal Security Key and comes at a monthly payment of $29.95. The portable device generates a 6-digit code that is good for 30 seconds. Then if you want to withdraw money from your account you have 3 options:

  • Send the money to your bank account
  • Add it to your PayPal debit card (if you even have one)
  • Request a check in the mail

How Does PayPal Make Money?

PayPal makes money in two different ways. To start off the company charges fees to the payment recipient. Even though most of the transactions through PayPal are free of fees, merchants with business or premier accounts are charged a fee for each of their transactions. These fees are typically $.30 plus a 1.9%-2.9% surcharge fee.

It’s important to note that you won’t be charged for anything until you’re paid for selling something. Within the United States, you’ll be charged 2.9% and $.30 per sales transaction. The percent goes down to 2.2% for eligible charities and up to 4.4% for international sales.

Let’s break down the types of accounts you can have through PayPal. Designed with sellers who are just starting out in mind, the premier account gives you access to your shopping cart with payment reporting programs. These programs are actually quite essential for business prices and people who have regular customer interactions.

The business account is made specifically for people who manage large scale online companies or online stores. Typically, “power sellers” on eBay use this type of account to receive payments. This account allows members to generate accounts and receive help for persisting payments. These members aren’t limited on debit card usage and benefit from extended customer support hours. Either way, with one of these accounts you’re going to have to pay PayPal some amount of money.

The other way PayPal brings in the dough is that the company also earns interest for any money that is left sitting in your account. This part actually makes up a huge portion of the company’s income. With over 100 million members, PayPal counts on those members to leave at least some money in their accounts for a year. As an example, if every one of those members left $5 in their account for a year, then PayPal would make $8,750,000 because of its 1.75% interest rate. That’s great for PayPal, but not so much for its users.

What’s the Advantage of PayPal?

Simply put, PayPal is a fast and convenient method for sending and requesting money online. With PayPal, there’s no limit to who you can send or request money from. Most online stores, public auction websites and shopping websites even use PayPal, like eBay and Amazon.

PayPal is the solution to buying things online from a safe and secure net account. You can buy things from a large number of online and highway shops that include restaurants, petrol stations and market traders.

In addition to feeding your online shopping addiction, you can also receive money (likely as more fuel for said shopping addiction). The money that you rack up in your account can be transferred into cash or it can be utilized to help pay for something else.

Is PayPal Good for Saving Money?

In a quick response, no. You won’t earn interest through PayPal, and instead, the company will be able to pull interest from your account. Plus if there’s any suspicion about your account, like if you have the money sitting there for an abnormal amount of time, the company can and will suspend or freeze your account without notice. It’s probably just best to use PayPal for what it’s intended to do, which is transfer funds for individual and business purposes.

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