PayPal is one of the most popular online payment services. It is widely accepted among individuals and businesses for secure fund transfers with minimal hassle. The digital platform works smoothly across borders, handling multiple currencies, and enjoys extensive support from local banks and credit cards. Whether you want to learn more about what PayPal is all about or are already using it, this guide will cover everything about this payment processor.
What Is PayPal?
Let’s understand what PayPal is and what it means for the people who have accounts with it. First launched in 1998, PayPal’s aim was to replace checks and bank wire transfers with a fully automated online system. We can, therefore, describe PayPal as a digital intermediary between the senders or receivers and their respective bank accounts or credit cards.
Apart from web browsers, PayPal can be used from its iOS and Android applications. The payment processor is also a popular checkout choice for e-commerce, freelancing and online donations. Additionally, PayPal account holders in the United States can now transfer payments to 160 countries using PayPal USD (PYUSD), a US dollar-backed stablecoin.
Currently, PayPal is an independent company based in the Bay Area, with other ventures including Venmo and Xoom. It has changed hands several times in the past, most notably being an eBay subsidiary from 2002 to 2015. Elon Musk and Peter Thiel are among its famous cofounders.
Good to know: apart from PayPal, you can also use Google Pay to track your spending, link your bank accounts, and transfer money.
How Does PayPal Work?
To initiate and complete a PayPal transaction, both the sender and receiver must sign in to the dashboard with their own PayPal user accounts. The user name is simply the account holder’s email address.
After logging in, you can send or receive payments, transfer any balance to your bank account, create and send invoices, make online purchases, or subscribe to services. When you first create a PayPal account, you may encounter transfer limits that vary from country to country. In the U.S., the initial sending limit is restricted to $4000 for unverified first-time users.
To lift these limits, it’s recommended to verify your profile, which means your email address, phone number, bank accounts, and credit cards are approved into the system. You can easily find these details from within the dashboard as soon as you create a new account.
The processes of making domestic and international transactions differ.
Domestic Transactions
The domestic transaction rules for PayPal vary from country to country. In the U.S., it’s free to use this payment processor to donate or pay for a domestic purchase in USD. You can send payments to your friends or family or a business. You only need the recipient’s email address.
To make a payment, go to Pay & Get Paid -> Send payments, and enter the email address of the recipient. If it’s a verified or “PayPal.me” user, you can easily select them from a drop-down menu.
Once your user is available, insert the amount you want to transfer, and click Next to preview your payment information. Click Send to finalize the transfer. The recipient doesn’t have to do anything and will see the additional funds on their dashboard.
As long as you use your PayPal balance, bank account, or an Amex Send Account, you don’t incur any transaction fees. With cards, however, the transaction fees are as high as 2.90%, plus a fixed fee.
International Transactions
The method of sending international payments using PayPal is the same as discussed above. However, before making international payments, get confirmation from your recipient that their user account has been verified and can be used to receive payments internationally.
Globally, PayPal supports 25 currencies for payment processing, including USD, AUD, CAD, GBP, EUR, JPY, SGD, and CHF. In the United States and other supported countries, you can transfer funds directly from your account balance. Recipients can send money to their local bank accounts in other currencies across 200 countries.
To add a new currency into your system for international payments, go to Money/Funds -> Add a currency.
Using PayPal is not always popular internationally, as it is known to charge very high transaction fees. In the U.S., it can cost you as much as 5 percent of your wallet balance or card to send money abroad.
FYI: for security reasons, payment apps like PayPal and Apple Pay automatically sign you out after several minutes of inactivity. It’s always a good idea to sign out when you’re not using these apps.
Types of PayPal Accounts
Having learned how to use PayPal, we will now focus on its two different categories of users: personal and business accounts.
PayPal Personal
You can use the PayPal Personal account to make or receive small payments occasionally. This is suitable for individuals who want to use this payment processor to transact with families and friends, shop online, split funds using Venmo (US only), send money as a gift, and even do some casual online selling.
When you create your account, it gives you two choices: Personal or Business. If you choose a Personal account, you can always upgrade to Business, as I did many years ago.
Good to know: Venmo vs. Zelle? Which is the best digital wallet for users?
PayPal Business
PayPal Business is a more serious account that gives you more privileges than an ordinary personal account.
For one, the transaction limits are all but lifted, and you will never encounter any hassles while sending or receiving money. You can also receive payments on your website, which is not possible with personal accounts. A business account allows you to ship goods anywhere in the world.
To create a PayPal Business account, click your profile name, and select Account Settings. You can update your business information, which includes your Business information name. A PayPal Merchant ID is created as well. Further down, update the Account owner information, Money, Banks, and Cards, and other business information.
With all of your PayPal questions answered, you may still want to use other platforms, such as Stripe for WordPress. NFC mobile payments are also very popular for smartphone users. Check out our comparison of the best NFC payment providers: Google Pay, Samsung Pay, and Apple Pay.
Image source: Unsplash. All screenshots by Sayak Boral.
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