How does PayPal work?

|
paypal sign - How does PayPal work?
Image Credit: Dreamstime

More and more American consumers are becoming comfortable with person-to-person (P2P) payment apps and the process of sending and receiving money through their electronic devices.

The very first P2P payment apps was PayPal, which began as a payment transfer service in the late 1990s. Today, PayPal is grown into a financial giant, and is still one of the most-used payment apps out there.

PayPal: What you need to know

If you’ve never used PayPal before or if it’s been a while, let’s walk through how PayPal works and some things to know that will help you get the most out of the service.

You can access online or on your mobile device — here’s where to download it on Android or iOS. PayPal offers Business and Personal accounts.

How PayPal works

PayPal bills itself as a “mobile cash” service. It doesn’t charge a fee for sending or receiving money under a certain amount.

To use PayPal, you have to link it to either your bank account or credit cards (Visa, MasterCard, Discover or American Express).

Once you’ve done that, you conduct transactions by clicking on the icons on the top right of the page or the menu. Here’s what those icons look like:

How does PayPal work

If you click on “More,” you’ll see a vertical pop-up box that offers services like “Send a gift,” “Donate to a cause,” and “Split a bill.”

To send or request money, you will prompted to enter the recipient’s email address or phone number.

Advertisement

How does PayPal work

Once you’ve confirmed payment and click to send, that amount of money you specified will be deducted from your connected bank account or card.

Now let’s cover two questions most associated with PayPal…

Does it cost anything to send money through Paypal?

There is no fee in the United States to send someone money if you use your PayPal balance, your bank account or a combination of the two.

However, if you use your credit or debit card to send someone to money as a personal payment, there is a fee.

Does it cost a fee to receive money through PayPal?

There is no fee to receive a personal payment through PayPal, but if you receive the money for goods or services you will pay a a fee of 2.9% of the transaction amount plus a fixed fee based on the currency.

Let’s look at this from a domestic and international perspective. Here are the fees based on where your transaction takes place.

PayPal fees for selling & accepting money

Type of sale Location Standard fee
Online U.S. 2.9%*
Online International 4.4%*
In your store U.S. 2.7%
in your store International 4.2%

*There is also a fixed fee added based on the currency used for the transaction.

PayPal: How to stay protected from scams

Unfortunately, scams are rampant when it comes to payment apps like PayPal. Many of these P2P companies play hardball when it comes to refunds and reimbursements, even if criminal activity is proven.

Money expert Clark Howard says the best way to handle this is to use PayPal and other payment apps with a designated bank account. That way, you lessen the brunt to your finances in case the worst happens.

Advertisement

Clark recommends you set up a checking account just for PayPal, Venmo and other payment apps.

“You and I can’t stop the crime from happening, necessarily, but we can limit the damage severely,” Clark says. “There are all these online checking accounts you can open now that have no minimums and no fees.”

More bank stories on Clark.com:

Advertisement
  • Show Comments Hide Comments