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How Does PayPal Work And All About PayPal You Need To Know

PayPal is an online payment service with global operations. Based in the USA, PayPal allows for online transfer for money and online transactions on eCommerce websites. It is an alternative transfer method to the traditional methods such as money orders and checks. Though there are plenty of PayPal alternative available online but no other company has ever come closer to give this giant a tough competition in the market.

how does paypal work

Some Facts About PayPal

  • PayPal is one of the biggest online payment services in the world.
  • It has the payment processor for eCommerce business owners, auction websites, and many other types of commercial users.
  • PayPal bills a fee for the transaction and the services.
  • PayPal started its operations in 1998 and became IPO listed in 2002. As of now, it is owned by the eCommerce giant eBay.
  • In 2014 alone, PayPal completed the total transactions worth nearly $230 billion worldwide. This earned eBay the profit of nearly $8 billion.
  • Using PayPal you can send and receive money and also make online payments on various websites.

It is unarguably the most popular online payment service of the world at this time, handling more than 60 percent of all the online transactions worldwide.

How Does PayPal Work?

What is PayPal and how does it work?

Different Account Types

First of all, you need to create an account. There are primarily three types of PayPal accounts available – Personal, Premier, and Business.

Personal Account:

  • The personal account holders do not need to pay the transaction fees for the payments made using instant transfer, PayPal balance, or e Checks.
  • However, they need to pay higher percentage of the transaction fee while receiving money using the debit or credit card. They also get very limited PayPal merchant services support.

Premier Account:

  • If you are an eCommerce seller and your transaction volume is high then you will need to accept the payments using credit card. The transaction fee is always charged when you are receiving the payment.
  • The good thing is that your credit card payments are unlimited. If you are receiving money through debit or credit card you will need to pay lower fee.
  • You get full PayPal merchant services support. You also get the benefit of the PayPal debit card service.

Business Account:

  • Business account is more appropriate for the business owners.
  • It offers the same benefits as the Premier Account with an additional multi-user access feature.

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It Offers Personal Payments As Well As Online Purchases

PayPal allows two types of transactions – personal payments and online purchases. The transaction fee may be applicable in certain cases.

Personal Payments:

  • If you are sending and receiving money between the PayPal accounts then no transaction fee applies.
  • If you are receiving money using credit card, there is a transaction fee of 2.9% and an additional US $0.30.
  • The sender of the money determines who would be charged the transaction fee.

Online Purchases:

  • There is no transaction fee for making online purchases. The receiving is charged a transaction fee in the range of 1.9% to 2.9% and an additional US $0.30.
  • As a receiving you can apply for the lower fee for merchant rate.
  • If the currency exchange is happening at the time of the transaction there will be an additional fee.

Using Credit/Debit Card with PayPal

All types of credit/debit cards are supported at PayPal including MasterCard, Visa, American Express and Discover. American Express, however, is less favorable. Once the card has been linked to your PayPal account you can send the balance to your card.

Here is how you can add your card:

  • Login to your PayPal account
  • Choose My Account > Profile
  • Choose Add/Edit Credit card or Add/Edit Debit card

Credit/Debit Card Verification

  1. To be able to use your card with PayPal you will need to get it verified first. During the verification process, a minimum refundable charge will be made to your card. A PayPal code of 4 digits will get generated which will be used for the verification of the card.
  2. You can see the 4-digit PayPal code in your credit card statement. The description field of that particular charge will either start with ‘PP’ or ‘PayPal’.
  3. Log in to your PayPal account again, once you have the 4-digit code. Go to the ‘Overview’ section and choose ‘Confirm my debit or credit card’. Enter the code and complete the verification process.
  4. Once the verification is successfully completed, it will take less than 24 hours to refund the amount charged on your card to your PayPal account.

Withdrawal Process

  • PayPal offers many ways to receive the money depending upon the country of your residence.
  • A lot of countries allow you to have your money withdrawn to your local bank account or debit/credit card.
  • In other countries you will need to ask for the check payments.
  • Make sure you check with the rules of your country before you start the withdrawal process.
  • PayPal charges a fee for withdrawals to your card. Currency conversion charges may also apply.

Adding Funds to Your PayPal Account

  • To add funds to your PayPal account you need to top it up.
  • You are not charged any transaction fee by PayPal for the top-up. However, your bank may charge some fee.
  • Depending upon your bank and your country, it may take up to 3 days to receive the funds in your PayPal account.
  • You cannot top-up anyone else’s PayPal account. In order to add funds to any PayPal account, the name of the bank account owner should be the same as the name on the PayPal account.

Receiving Credit/Debit Card Payments

If you need to receive the payments from your clients or customers, there are three options available:

  1. Website Payments Standards: It is an extremely easy and fast way to receive money from the clients through credit card. You can add various styles of PayPal buttons on your website to allow the customers to send you payment instantly, as product purchase payment, or as subscription (daily, weekly, or monthly).
  1. Email Payments: it is also a very easy way to receive payments from your clients. It is fast and secure. You can use this method for credit card payments, bank payments, or PayPal online payments. There is a small transaction fee associated with this type of payment.
  • PayPal as additional payment option: PayPal can be added on your website as an additional payment option. This means that customer can use PayPal to make the payment directly from your website. However, if you have a Personal PayPal Account you will be charged higher transaction fee for receiving credit/debit card payments.


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