How Does PayPal Work?

ALSO CONSIDER: Venmo || Zelle || Cash App || Apple Pay Cash || Top P2P payment apps

What is PayPal?

PayPal is a method for selling and buying things online and transferring money to friends and family in a convenient and inexpensive way, without requiring that you share financial information. With more than 400 million active account holders around the world, PayPal is a money transfer giant.

Because the service is so ubiquitous, many online merchants and customers know and trust it. Here’s what you need to know about how PayPal works.

PayPal snapshot
Fees: $0 to make a purchase or transfer money domestically using a bank account or your PayPal balance. 2.9% of the amount, plus 30 cents, to transfer funds using a credit card, debit card, or PayPal credit.
Transfer limits: Varies, $4,000-$60,000 per transaction.
User experience: A payments behemoth with a clean website, top-rated mobile apps.
Customer service: Live phone support available from 6 a.m. to 6 p.m. PT daily; support via social media and the message center (when logged into your account) also available.

» Looking to compare? Check out NerdWallet's top peer-to-peer payment apps

How to use PayPal

1. Send money to friends and family

PayPal supports transfers to individuals in the U.S. — in many cases, for free. Here’s how:

+ What to know about sending money

Tools: You can use the PayPal site or PayPal's mobile app.
You'll need: The other party’s name, PayPal username, email address or cell phone number — no need to exchange financial information.
Pay with: Your bank account or PayPal balance for free, or a credit card, debit card or PayPal Credit for 2.9% of the amount sent, plus 30 cents.
Limits: You can transfer up to $10,000 in a PayPal transaction, or up to $60,000 if you've provided your bank account data or other identifying information.
Timing: Transfers to and from your bank account and PayPal account can take a few days. You also can pay a 1.75% fee for an instant transfer.

2. Pay for goods online

To pay for online purchases using PayPal, the company lets you check out by logging in to your account and skip plugging in your financial, billing and shipping information on a retailer's site. Only PayPal will have your financial info.

Hundreds of thousands of online merchants offer PayPal as a payment option, including eBay, Walmart and Best Buy, and newer players such as Spotify and Uber.

3. Shop now, pay later

PayPal Credit allows qualifying users to shop for an item online and pay for it later or over time with interest (23.99%) — acting basically like an online credit card. Avoid interest by paying off the full amount in six months on purchases of $99 or more.

4. Buy items in stores

PayPal’s mobile app lets you pay at participating brick-and-mortar stores by providing you a one-time QR code. You can look for PayPal QR codes at restaurants, stores, farmers’ markets and more.

What are PayPal fees?

PayPal is free to use if you’re:

Buying something from a website or in a store.
Sending money to family or friends in the U.S. via a bank account or PayPal balance.

Fees come into play if you're:

A seller using PayPal.
Transferring money abroad.
Performing an instant transfer.
Using a debit card, credit card or PayPal Credit to transfer money to another person in the U.S.

Sending cash to another country can get costly. Other international money transfer providers, such as OFX or Wise (formerly TransferWise), may offer cheaper ways to get money to family and friends overseas. (Compare providers and get details on fees at "Best Ways to Send Money Internationally .")

PayPal fees: Summary

Opening a PayPal account	Free.
Buying an item online or in store in the U.S.	Free.
Sending money to friends or family within the U.S. using a PayPal balance or a linked bank account	Free.
Receiving money from friends and family in the U.S.	Free.
Receiving money from friends and family abroad	4% of transaction.
Sending money to friends or family within the U.S. using a credit card, debit card or PayPal Credit	2.9% of transaction plus 30 cents.
Transferring money from a PayPal account to a bank account	Free. If you want to receive a check instead, there is a $1.50 fee.
Receiving money for goods or services as a seller	Generally, 1.90% to 3.49% plus 30 cents, depending on payment type.
Sending a payment to somebody’s PayPal account in another country using your PayPal balance or a bank account	$0.99-$4.99.
Sending a payment to somebody’s PayPal account in another country using your credit card, debit card or PayPal Credit	5% plus $0.99-$4.99 plus 2.9% of the transaction amount plus an additional fixed fee based on the location of the recipient.
Making an instant transfer from your personal PayPal balance to your bank account	1.75% of transfer amount.

How secure is PayPal?

All PayPal transactions happen on web pages with Secure Sockets Layer encryption, a tool used by many other financial services providers. The company also has anti-fraud technology and monitoring services that operate 24/7.

PayPal’s purchase protection policy guarantees you a full refund on orders that never arrive, are significantly different from what you ordered or were not made by you.

That said, PayPal — like any other financial service — is not completely hacker- or fraud-proof. It’s a good idea to check your account transactions regularly and dispute any that you don’t recognize. Get familiar with PayPal’s guide to common fraud activity. Report fake websites and suspicious emails to [email protected]

PayPal vs. Venmo and Cash App

PayPal’s international transfer capabilities and wide acceptance at merchants separate it from some of its competitors, including Venmo — which is owned by PayPal — and Cash App. And when it comes to person-to-person transfers, PayPal offers terms similar to those offered by the other companies, with some exceptions.

Keep in mind that your recipient must have an account with the service to get paid through any of these methods.

Limits

You can send at least $4,000 in a single transaction with PayPal. With Cash App, you can send up to $1,000 per month (though you can get a higher send limit by providing your full name, date of birth and the last four digits of your Social Security number). Unless you complete identity verification, your send limit with Venmo is $299.99 per week.

Fees

You can pay for free using a debit or a prepaid debit card on Venmo, and Cash App only charges for personal payments made using a credit card. That credit card fee is 3% for Cash App and Venmo — similar to what PayPal charges for all card funding.

All three companies offer instant transfers of your balance to your bank account. Like PayPal, Venmo charges 1% per transaction. Cash App charges 1.5% of the amount transferred.

Transfer timing

Moving money from your PayPal account to your bank account can take one to three business days. Transferring money from your bank to your PayPal account can take longer — three to five business days. Transfers from Cash App and Venmo to your bank account take one to three days, according to the providers.

How to set up PayPal

Setting up your PayPal account online is a fairly simple process.

Download the app or go to the website.
Provide your:

Name.
Address.
Phone number.
Email address.

As many financial transactions shift online, it might be worth opening a PayPal account if only for the sake of convenience. If you don’t want to hop onto the PayPal train, however, look for other handy ways of sending money or paying for goods. (Read NerdWallet’s guide to some of the best ways to send money.)

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