How does Paypal make money? Everything you want to know How does Paypal make money? Everything you want to know

How does PayPal Makes Money and What You Should Know Before Signing Up

With the advancement of technology, financial transactions have become more well-bred. Similarly, payment gateways have also become much easier and faster to use. 

Does anyone ever think of sending and receiving money over thousands of miles with just a single touch of a finger? PayPal has made this goal a reality. 

Some of you might be confused and thinking about how PayPal works when receiving money. We hope this article will clear up the questions that you might have.

Within a few minutes, you will learn “how does PayPal make money.” You will come to know “how does PayPal work when sending money to the recipient” or “how does PayPal work when receiving money.”

Thousands of online sellers have reached millions of customers worldwide by using PayPal as their payment option. If you want to get paid for selling your products online, you should also choose PayPal.

In this read, you will also find “does PayPal make interest on my money” or not. Let’s learn about PayPal and some of its attributes before signing up!

What is PayPal?

PayPal is an American online payment platform established in 1998.  It facilitates online payment transfers among its users around the world. Customers can create accounts on the platform to connect credit cards or debit cards for their transactions.

Plus, it enables individuals and businesses to receive and process credit card and debit card payments. PayPal’s app allows consumers to send and receive payments among PayPal accounts and others after verification and proof of funds are provided.

In addition, it offers a variety of safe payment options for businesses that want to simplify onboarding and maintain payment information securely.

Since 2002, the company has started a trade services wing, which helps all business owners to get paid quicker and more conveniently. The agility, safety, and well-being of PayPal business accounts make it an excellent option for all types of businesses.

PayPal supports 26 currencies, and currently, it has approximately 361 million active digital wallets across the globe. Over $315.3 million online payments are processed daily by PayPal. So it grows to the most extensively used financial platform for online transactions.

PayPal is also fulfilling a variety of financial needs of both individuals and business companies. In this context, PayPal is the most suitable payment channel for online transactions.

Due to this, it is possible to transfer money between accounts without disclosing financial information. PayPal business accounts make it easy for consumers to go through and benefit from its services.

How Does PayPal Work?

Paying through PayPal is possible for both consumers and companies alike. With PayPal, users can transfer their funds, shop online, and make payments instantly from wherever across the globe.  Furthermore, you can send money to your loved one in a few moments urgently.

In general, it facilitates online payments and money transfers easily and quickly. Plus, PayPal users must know how PayPal works when sending money to other users. If you are an eCommerce wholesale trader, it’s possible to accept credit cards in your online store for payment.

To create an account, consumers should have submitted their email addresses, credit cards, debit cards, and bank account information. Using the service requires approval. Due to this, PayPal will check every piece of information to confirm the account holder’s legitimacy.

Using PayPal’s mobile application and company website, users can transfer money to any recipient around the world. It is also possible to use the recipients’ email addresses and mobile phone numbers for this purpose.

A retailer that accepts payment via PayPal has made it easy for online shoppers to use the PayPal services to do their shopping. Thus, it is probable that all transactions usually take only a few moments to be carried out.

The reason is the company has pledged to transfer and withdraw funds from bank accounts as quickly as possible. At this point, it is evident how PayPal works when receiving money from the consumers.

It also provides various payment options to businesses for their routine services. So, you can make payments online or in person using the payment portal. The company’s services, such as business management solutions, credit lines, and financing options, are also included.

When creating an account, business owners must provide their email addresses. It is PayPal’s goal to promote the safety of online shopping. Consequently, it neither needs a credit card number nor a bank account number for revealing the payee.

Consequently, it gives protection to the customers’ money and personal information. In light of the high number of customers’ demands, PayPal offers a more flexible way to make payments than traditional payment methods.

How Does PayPal Make Money?

PayPal is one of the most advanced technology payment platforms in the contemporary world, which provides its services to its consumers across the globe. Digital payments are made immediately via mobile devices from anywhere globally, facilitating both traders and consumers to transact.

On top of this, the firm offers its services in a highly contentious market. Because of this, the company has to compete with big, dominant companies and smaller entrepreneurial ones.

In other words, PayPal is in a contest with various other payment companies at the moment. Visa Cards, MasterCard’s, Google Pay, JPMorgan Chase & Co., WePay, Square, and Stripe are its competitors. However, the company is leading all of its competitors.

The question may certainly arise in your mind: how is it leading, and how does PayPal make money?  In the same way, the company mainly generates most of its profits from processing consumer transactions through PayPal. In comparison, PayPal’s additional value-added services also generate revenue.

This system can help to segment the sources of income into transaction revenues and value-added services (VAS). Transaction revenues are calculable by Total Payment Volume (TPV), adding a handsome revenue to the company’s total income.

Similarly, PayPal offers a variety of payment options on its platform. So, the core PayPal, Xoom, PayPal Credit, Venmo, iZettle, Braintree, and Hyper-wallet are the company services. All these are its revenue sources through levying charges on payment transactions from its users.

In addition, value-added services generate income from interest and charges on loans, boosting the company’s cumulative revenue.

how does PayPal make money

PayPal’s Financials

In 2020, PayPal had $21.5 billion in revenue and made a cumulative profit of $4.2 billion. PayPal’s annual total income and revenue increased by 70.9% and 20.7%, respectively, compared to the previous year. An increase in profits on strategic investments has mainly contributed to the rise in total revenue at the end of the year.

Because of this, PayPal describes this type of revenue in its income statement as another source of income. As of 2020, the U.S. generated almost 51% of its revenue, whereas the U.K. contributed 11% of the total revenue. 

In addition, the remaining 38% of revenue came from outside of the United States. According to PayPal, at the end of the fiscal year, December 31, 2020, the number of active accounts added by the company increased to 72.7 million.

As a result of these new accounts, total active accounts are now 377 million, representing an increase of 24% for 2020. With this move, a considerable change resulted, which has brought a 31% increase in the total volume of payments and generated a $936 billion revenue.

Besides that, PayPal earns interest on your money which you leave in your account. So, PayPal makes money this way too, which adds to the total revenue of the company. As a result, the company earns a large percentage of its income from this area.

If the company’s 377 million active account members for 2021 keep their money for just one year, in this case, PayPal can make a massive amount of revenue from this money with interest. 

Suppose each PayPal user had $5 in his or her account for a year. PayPal receives an interest rate of 1.75% on that money.  Then, it will make an annual income of approximately $659,750,000 for the company.

Indeed, by this time, it will be apparent to you how PayPal makes money with interest receivables from member’s accounts. PayPal can make a significant profit from it, but it may not be the best for you.

PayPal’s Business Segments

According to the way PayPal is operating, it is an almost single segment company that operates autonomously. There is no segmentation of the financial performance data for PayPal.

However, the company has two broad categories for its revenue. These revenues generated from transactions and including the revenues that came from the value-added services cover these revenues.

It is true that PayPal’s cumulative revenue predominantly generates from fees associated with transactions. Following is an overview of each of these revenue streams.

Transaction Revenues

PayPal is a well-known payment platform that is used equally by both traders and customers. Whenever a transaction is processed through it, traders and customers have to pay a net transaction fee. The TPV or volume of activity is a determining factor for fees.

Furthermore, PayPal’s total portfolio value is forecast to grow by 2021 at least 20 percent. In addition, the company charges fees for currency exchange and cross-border transactions as well.

Added to this, PayPal and Venmo account holders also have to pay fees for fund transfers from their PayPal or Venmo accounts to their debit cards and bank accounts.

In FY 2021 first quarter, it has generated transaction revenue of around $285billion, with a growth rate of 50% at the prevailing market, and 17% is on the FXN base. About 42 % of the PayPal cumulative revenue comes from this category.

Revenues From Other Value Added Services

According to various reports, the company earns substantial revenue from subscriptions, referral fees, and partnerships. Added to this, the traders and consumers must pay gateway fees and the other services fees that PayPal offers.

Furthermore, PayPal makes revenue through interest and fees in connection with the portfolio of loans receivable.  And it also earns a huge revenue through interest receivables with the specific assets sitting in the customer accounts.

In parallel, PayPal’s revenue from other value-added services may reach up to $1140 billion. If the growth rate is 31% and 22 % on the spot, the FXN basis remains at this level for 2021. Thus, it would make up almost 58 % of PayPal’s cumulative revenue.

What’s the Advantage of PayPal?

PayPal is among the most widely used and secure payment networks available for paying and transferring money online. Sending and receiving money through PayPal is easy. Compared to other companies, money can be sent or requested in unlimited amounts via PayPal.

PayPal accepts payments in the same way as Amazon and eBay do.  So the majority of online shops, public auctions, and shopping sites use PayPal to accept payment.

With PayPal, you can buy almost anything online in the United States and 203 markets in other countries across the globe. PayPal also offers the convenience of exchanging 25 different currencies, so you will not be burdened with this task.

In addition, for those who do not own a PayPal account and crave to receive and transfer money to and from other PayPal users. Therefore, the PayPal app is free to download and install with ease.

PayPal makes it comfortable to pay your utility bills, subscriptions, and purchases. You can use your connected credit or debit cards and bank accounts to make this payment. Also, PayPal offers various payment methods to give flexibility to its users.

Moreover, you can purchase many goods from highway shops such as petrol stations and restaurants with your PayPal account. Despite all of the above using PayPal, you can shop online with absolute safety without disclosing personal and account information.

Is PayPal Good for Saving Money?

Despite the fact, PayPal is not a bank. The company is considered a non-bank financial organization. Due to this, you can utilize the money in your account to make an online purchase.

As such, a straightforward answer to the question, PayPal is not suitable for saving your money.  PayPal will not allow you to earn interest through your account on PayPal until the company takes interest out of your account.

Further, you can also be blocked if PayPal has any reason to suspect that your account may be compromised. For instance, when you leave money in your account for an excessively long period, the company has the authority to suspend or block your account without prior notice.

In a nutshell, it would be tremendous and logical for all of us to use PayPal as needed. So, PayPal’s main objective is to facilitate fund transfers between businesses and individuals. Other than that, it is not beneficial to employ it.

You can also save money in your PayPal account; however, you use it separately as a bank account. You can also obtain a PayPal debit card for use on the go. Likewise, people also use debit cards and credit cards regularly.

Is PayPal Good for Saving Money?

Frequently Asked Questions (FAQs)

Is there a fee to use PayPal?

PayPal does not charge you when you use it to buy goods and services. On the other hand, when you receive money in exchange for goods and services, you must pay a little for it.  For example, when you trade something on eBay. As a result, you will get charged for every transaction.

How does PayPal make money if they aren’t charging the buyer?

If PayPal did not charge the buyer, then it can make money from two other sources. The first one is the consumer’s transaction, and the second one is interesting on the money.

Consumer transactions are the main source of revenue for PayPal. The PayPal Payment Platform is used, as are value-added services based on loans and receivables, which are the interest and fees. PayPal charges its users a fee for every transaction. In general, transaction fees typically range between 1.9% and 2.9%.

Secondly, PayPal makes money through interest on the money its users possess in their accounts. According to PayPal, the company has 377 million active accounts as of 2021. There are also 203 global markets in which the company operates.  

So it is evident from the example that we have mentioned above. Now, it will be apparent to you how PayPal makes money if it doesn’t charge buyers.

Who pays the fee on PayPal?

PayPal charges a fee from its seller after it has made the transaction. Contrary to this, the buyer is under no obligation to pay any fee. Sellers’ fees are automatically taken into account for every transaction.  The fee is a percentage plus 30 cents of the entire transaction.

What is PayPal’s business model?

PayPal’s business model combines financial services and a peer-to-peer (P2P) network. Consumer and trader adoption leads to the growth of the ecosystem. Numerous businesses and traders are using PayPal to carry out their financial transactions. They are those who rely on the safety and reliability of the PayPal platform. 

PayPal has extended its network to 202 countries worldwide and currently has 361 million active users. Moreover, PayPal customers can hold, transfer, and send funds in 25 different currencies worldwide. Also, the company processes more than $315.3 million online transactions daily.

PayPal derives revenue from two broad sections that are transaction charges and value-added tax. A transaction charge is a fee applied to every transaction by both consumers and traders. As well as partnership profits, subscription charges, and gateway fees, are subject to the value-added tax.


Concluding from the above description, one can easily understand “how does PayPal make money?” PayPal offers many distinctive hallmarks when compared to other online payment channels. That’s the reason PayPal has gained a remarkable reputation over time.

Besides the highly competitive global market, PayPal has become the world’s most famous and preferred payment service. It is all due to the superb financial services offered by the company. Security, safety, and ease of use are some of its worth mentioning highlights.

Finally, you might know how PayPal works when sending money and does PayPal make interest in my money or not. So, that’s enough for today.