How does PayPal make money

How Does PayPal Make Money? PayPal Business Model In A Nutshell

It was a blooming summer day in 2005, a few friends decided to get together for a barbecue party out of 100 that happened in California that day.

This event will eventually mark the origin of technology that leads to a dramatic app. In the backyard, an idea for a website gets exchanged which becomes a billion-dollar valuation in less than 2 years.

How does PayPal make money


Yes, it’s true these kinds of transactions happen all the time in Mafia’s and drug lords gang. But this Mafia is not the typical one. No, it’s the PayPal Mafia.

The members of the group are Jawed Karim, Peter Thiel, Max Levchin, Steve Chen, Elon Musk (Woah!) and a few hundred more tech giants.

PayPal is an American holding dealing with a worldwide online payment system that supports online money transfers and serves as an electronic alternative to traditional paper transactions methods like checks and money orders. It’s a type of payment rail.

Before delving into how PayPal makes money, let me share with you some details about PayPal.


Who Owns PayPal?

How does PayPal make money

The brand that is globally well known today to almost every educated people actually emerged out of the cave in an uncanny way.

PayPal was first established as Confinity. Later it merged with an online banking company founded by Elon Musk. He focused on PayPal and got replaced by Peter Thiel as CEO of

Later, the company renamed PayPal in 2001 and expanded itself rapidly through the year until the executives decided to take it public in 2002

Again the company was acquired by eBay for $1.5 billion, which led to PayPal becoming the widely used payment system for eBay users. Then suddenly it was announced that eBay would spin-off PayPal in 2014.


When Was PayPal Founded and By Whom?

Since we became familiar with who owns PayPal it’s clear that there are a handful of important dates to remember. Its story begins in September 1998, although it wasn’t called PayPal back then.

How does PayPal make money

In a town called Palto Alto, California Max Levchin, Elon Musk, Peter Thiel, Luke Nosek, and Ken Howery with a few hundred others initially launched Confinity, which later merged with to renamed as PayPal.

Also, see what people are talking about PayPal’s safety on Quora.


Understanding the PayPal Business Model

PayPal makes money primarily through processing customers’ transactions on payment platforms and value-added services. 

The revenue streams are divided into transaction revenues which depend on the volume of activity or total payments. In 2017 PayPal has generated over $13 billion in revenues itself.

Now let’s see what’s so interesting about the PayPal ecosystem model-

There are 4 primary brands around the PayPal family:

  1. Braintree
  2. Venmo
  3. Paydiant
  4. Xoom

These companies are all acquired by PayPal to increase the revenue as well as customer base and users.

Every second it processes more than $8000 in payments, by the time I finish writing these words it would have made $32000 in transactions. The amazing fact right?

Annual payment by PayPal users $1.2 billion. It’s the third most preferred payment option after Visa and MasterCard indicating just how the customers have fallen in love with it.

86% of the users are most likely to recommend the service to their friends and family. No other apps can cross it because of its deep roots in the global market of payment services.

watch this video on how to send money from PayPal account.


How PayPal Makes Money?

You have a PayPal account and you’ve been using it for a while to make transactions back and forth with friends and family without paying even a penny. Can this get any better?

PayPal made $3.239 billion in revenues in 2017 for the third quarter which is 21% more than what it made in 2016. 

You might be wondering where does all this money come from? I’ve compiled a list of sources where PayPal is earning revenues, just take a look-

  • Balance Investments

Assume you have $2000 as balance in your account, It’s not just sitting there idly. Paypal takes that balance and invests it in stocks and bonds earning an attractive rate of interest on it. 

How does PayPal make money

By the time you use the amount the value of the investment may have gone from $2000 to $2030. This is how it makes money with millions of customers instead of walking away empty-handed.

You can find this practice in PayPal’s User agreement stating that it combines the balances of customers to invest in liquid investment and has the right to own interest.

  • Transaction Fees

When the money is sent from one user to another it counts as a transaction and it comes with a cost. You can have a personal account or related to business it’s applicable no matter what.

2.9% + $0.30 per transaction as fees. There are two accounts on Paypal, one is personal and the other is a business account.

How does PayPal make money

Sending money in the personal account for the goods bought online or offline through debit card, credit card or PayPal balance will attract a fee.

Business accounts for merchants who use Paypal services have to pay 2.9% plus $0.30 of the amount received from the sale as a fee.

The fee might be waived when the money is sent to friends or families but when it comes to debit and credit card it has a charge. On average PayPal handles 1.9 billion payments daily, it makes sense how the revenue comes.

  • International Fees

Almost all educated people know about PayPal so there’s no question about international transactions.

How does PayPal make money

It makes a lot of money from country-to-country transactions. 1.5% is charged for international transaction fees. The conversion of money from USD to INR also attracts a fee which is 2.5% per transaction.

This has played a huge part in PayPal’s revenue.

  • Withdrawal Fees      

There is no charge or anything to create an account or withdraw money from a bank account in PayPal. If you want to receive it as a check you’ll be charged a $1.50 fee.

How does PayPal make money

Regular PayPal accounts are eligible for PayPal Cash MasterCard, which has $3.00 over the counter withdrawal fee and $2.50 as an ATM withdrawal fee.

Business PayPal accounts are authorized to have a PayPal Business Debit MasterCard. $3.00 over the counter withdrawal fee and $1.0 ATM withdrawal fee.

  • Credit Interest Fees

PayPal has a huge benefit of pay now or pay over time with PayPal credit, which was formerly known as bill me later, we just have to use the credit in PayPal checkout.

How does PayPal make money

If the purchase is $99+ interest will be charged to the account if the balance is not paid in full within 6 months. Some items are less than $99 qualify for special financing.

This powerful credit facility from PayPal is reusable on purchases at millions of stores. Purchase APR is applicable for new accounts. If approved, the credit line can be at least $250.

In case if you miss a payment the late fee could be up to $39 but can be less for the first time. The Monthly interest of 19.99% APR will be a jackpot in the bucket of PayPal.

  • Working Capital Fees

PayPal’s working capital is like a business loan for PayPal sellers. You can just apply it for a minute and then can access the loan amount through your account.

How does PayPal make money

Of course, this capital is repaid with a fee and 10% to 30% of sales. As the name itself reveals, it’s for business owners who need working capital. 

You can pay rent, enroll new employees and use it for innovative marketing strategy.

Its capped at $97000 for the first loan and $125000 for subsequent loans. The fixed fee can be calculated anywhere from 5 to 50% depending upon repayment percentage. This is another smooth way PayPal earns revenue.

  • PayPal Payments Pro

How does PayPal make money

PayPal Payments Pro is a fully tailored payment system that accepts all major credit and debit cards, PayPal and PayPal credit. 

With these terminal users get all the benefits of payment standards plus the ability to accept payments through phone, fax, and mail. It is very flexible and can be customized in the major shopping carts.

Any business that wants to accept credit and debit cards will be fully prospered and it serves as a perk. The PayPal PAyment Pro has a monthly fee and base merchant rate per transaction is also applicable.

Take a look at the Standard Transaction Fee charged here.

  • Debit Card Withdrawal Fees

You can use PayPal prepaid card to withdraw cash at the ATM that has MasterCard, Cirrus or Pulse acceptance marks. 

Each of these cash withdrawals made at an ATM in the US is subject to a $1.95 fee plus a surcharge fee the owner may charge.

How does PayPal make money

Foreign transactions using the debit card outside the USA have 2.5% of the purchase amount deducted as a fee for a non- US Merchant. Even if the conversion of currency is not required the charge is applicable.

Meanwhile, ATM withdrawal from a non-U.S. ATM also requires a withdrawal fee of 2.5%.

One advantage for the user is unlike banks, PayPal doesn’t charge overdraft or negative balance fees. This is how PayPal makes money.

How does PayPal make money

  • Miscellaneous Fees

PayPal is not alone, it has an army behind it. The revenue from the companies it acquired also fills the money basket of PayPal like Braintree, Xoom, and Venmo.

Payflow is the payment gateway service given by PayPal. It can be unified into the website having a merchant account. Here, the premium plan for this gateway is priced $25 per month.

PayPal is in association with Xero and Woo-commerce and it earns an affiliate commission through this platform. It charges 2.7% when accepting payments with its “PayPal Here” card reader.

And no matter what the plan, credit card transactions have a fee of $0.10. 

If you are a paranoid customer who worries about the safety of the company also provides some extraordinary features to make you feel safe but you’ll be charged!

  • Fraud Protection – $10
  • Recurring Billing  – $10 Monthly + $0.05 per transaction
  • Buyer AUthentication – $10 Monthly + $0.10 per transaction.
  • The PayPal App

Additionally, users downloading and browsing PayPal apps can generate a lot of revenue for PayPal. 

How does PayPal make money

The top 800 apps make money around $3500 daily and we don’t need even need to debate on which place PayPal might be in.


In a Nutshell

Paypal has created a revolution in the market and emerged as mafia in the online payment system. Along with money transfer, it provides debit cards, credit cards, loans, payment gateways, and digital wallets too.

Can you believe that in 1999, PayPal was voted as one of the 10 worst business ideas? Who would’ve thought in the future that no other app can beat it in competition and a favorite among users?

This business model of PayPal may sound simple and not that interesting but it’s making whopping dollars of money every second as we speak.

Also, PayPal is very secure to use, safer than credit or debit cards even because the seller never gets to see your credit card number. But always be on the lookout and be precautious about the financial information.

It’s one of the largest online payment processors in the world, you’ll be more likely to use it soon. Even people who seem to hate PayPal agree that nothing can beat the app for what it does.



1. Is there a fee to use PayPal?

Yes, if you are a merchant or business who uses PayPal to accept payments from your clients, PayPal takes 2.9 percent plus 30 cents per transaction as a fee. It’s only on the business side of the transaction, the customer isn’t charged anything and gets to walk away free.

2. Is it safe to do PayPal?

Yes, for the most part, it is safe when using it to send money. Using PayPal is safer than giving your credit card number for bank account information directly to any website.

3. Is PayPal safer than a credit card?

Yes, PayPal is a more secure way to shop online because the seller never gets to see your credit card. Also, you can link it directly to your bank account or debit card.

4. Does PayPal reimburse money?

Yes, PayPal does reimburse money when you pay with PayPal. It is covered under the Purchase/ Buyer Protection program in case of any issues.

5. Can you get scammed by giving someone your PayPal Email?

Yes, if you give someone the email linked your PayPal account you can get scammed because there’s a higher probability that they can guess your password and gain access to your PayPal account. If you have 2-factor authentication set up there is less danger.

Have you already tired Paypal? If yes, do let us know your experience in the comment section below

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