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What Is PayPal?

Banking, Banking Basics, Money Transfer
What is PayPal?
  • PayPal fees: None if you buy from a website or send money to individuals using funds from a bank account. 2.9% for payments via credit and debit cards.
  • PayPal transfer limits: Up to $10,000 per transaction
  • PayPal user experience: A payments behemoth with a clean website, top-rated mobile apps

With 203 million active account holders around the world, PayPal is a money transfer giant.

So, what’s so great about it?

Simply put, PayPal makes exchanging money online convenient. It expedites online shopping and can make sending money to friends and family fast and free.

With PayPal you can:

  • Buy and sell goods on eBay and thousands of other online retailers
  • Transfer money to family and friends domestically or internationally
  • Purchase items online and pay later with PayPal Credit if you qualify
  • Pay for merchandise in person at participating brick-and-mortar stores

The company owns payment services Venmo and Braintree, as well as the international money transfer provider Xoom, making it one of the biggest and most recognizable players in the payments industry. And because many merchants and customers know and trust PayPal, you can use it to pay almost everywhere online.

How to use PayPal

1. Pay for things online

Paying for goods online with PayPal lets you skip plugging in your financial, billing and shipping information; you check out simply by logging into PayPal. Only PayPal will have your bank account, credit card or debit card info — meaning you can avoid giving your financial information to every online merchant you use.

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.

2. Send money to peers

Sending money to individuals in the U.S. via PayPal can be free and fast. Here’s how:

  • Use a linked bank account or your PayPal balance. All you need is the other party’s email address or cell phone number — no need to exchange financial information.
  • Use PayPal’s mobile app to transfer up to $10,000 while you’re out and about. Transfers to and from your bank account and PayPal account can take a few days.
  • Try an instant transfer. Make sure you’ve linked a bank account and a backup debit or credit card and that your PayPal balance is less than the amount you need to transfer. (PayPal will tap that account balance first.)

3. Shop now, pay later

It’s known primarily as a way to pay people and stores online, but PayPal offers other services that you might find useful, including PayPal Credit. The program allows qualifying users to shop for an item online and pay for it later or over time with interest (19.99%)— basically an online credit card. Avoid interest on purchases of $99 or more by paying them off within six months.

4. Buy items in stores

Let’s say you forget your wallet at home but desperately need to buy your significant other a gift. PayPal’s mobile app allows you to pay at participating brick-and-mortar stores by providing you a one-time QR code or asking for a receipt code. Check the app for stores near you that participate.

How secure is PayPal?

PayPal, like most other financial service providers, prides itself on its security. All PayPal transactions happen on web pages with Secure Sockets Layer encryption. PayPal also has anti-fraud technology and services that operate 24/7.

That said, PayPal — again, 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 spoof@paypal.com.

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.

Customer support is available from 5 a.m. to 10 p.m. on weekdays and 6 a.m. to 8 p.m. on weekends.

What are PayPal’s fees?

PayPal is free to use if you’re:

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

Fees come into play if you’re a seller using PayPal, you transfer money abroad, or you use a debit or credit card to transfer money to another person.

International transfers to other PayPal accounts are convenient, but they can get expensive. Transferring with PayPal subsidiary Xoom is generally fast, but it might also cost more than competitors — look at other options before sending money overseas with PayPal.

PayPal fees: Quick summary

Opening a PayPal accountFree
Buying an item online or in store in the U.S.Free
Sending money to friends or family in the U.S. or Canada using a PayPal account balance or a linked bank account Free
Sending money to friends or family in the U.S. or Canada using a credit card, debit card or PayPal Credit2.9% of transaction plus 30 cents USD or 30 cents CAD
Receiving money from friends or family in the U.S. via PayPal balance or bank accountFree
Transferring money from a PayPal account to a bank accountFree. If you want to receive a check instead, there is a $1.50 fee.
Receiving money for goods or services as a seller2.9% of transaction plus 30 cents
Sending a payment to another PayPal account internationally0.3%-3.9% of transaction plus a flat fee, depending on the payment method and the destination country
Sending money to a bank account or for cash pickup in another countrySee Xoom review for details

Where does PayPal fall short?

PayPal is convenient, but there are downsides.

Moving money from your PayPal account to your bank account can take a full business day. Transferring money from your bank to your PayPal account can take even longer — three to five business days.

You can send up to $10,000 in a single transaction with PayPal. That’s pretty high when you consider competitor SquareCash caps out at $2,500 per transfer and PayPal-owned Venmo at $2,999 per week. But the recipient needs to have a PayPal account to receive the money. And sending that money from a debit or credit card will mean you pay 2.9% of the transaction, plus 30 cents. You can avoid that fee by moving money directly from your linked bank account or PayPal fund. See our fee schedule above for more details.

Sending cash to another country can get costly. Other international money transfer providers, including OFX and TransferWise, might offer cheaper ways to send money to family and friends overseas. (Compare providers and get details on fees at “Best Ways to Send Money Internationally.”)

How easy is it to set up PayPal?

Setting up your account is fairly simple. You’ll need to provide your:

  • Name
  • Address
  • Phone number
  • Email address
  • Bank account, or debit or credit card information

Log onto your account online or on your mobile device to send money. If an online merchant offers PayPal as a way to pay, you’ll see the PayPal logo and can choose that option when you check out.

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, scout out other handy ways of sending money or paying for goods.

» MORE: Best ways to send money

Amber Murakami-Fester is a staff writer at NerdWallet, a personal finance website. Email: amufe@nerdwallet.com.  Twitter: @iamyams.