How does PayPal make money? – PayPal’s Business Model

PayPal is a global online payment compnay that allows the transfer of money from one person to another. If you are wondering how PayPal makes money, then you have come to the right place. In this article, we explain the business model of Paypal and how PayPal makes money. Lets dive in!

What is Paypal?

PayPal is an online financial service that lets you pay for items with a secure internet account. It gives you the option to put in your bank account, credit card, or debit card details. Whenever you make a purchase using PayPal, you can choose which of your cards it will use, based on your preferences. Setting one as the default also makes it easier to make purchases!

PayPal is a great tool for any business, not just e-commerce stores. Plus, you can use it to receive money, not just send it. The money just sits there in your PayPal account until you need it. Whenever you need to pay for something by PayPal, the balance of your account is topped up by the assigned bank account or credit card.

You can withdraw money in a variety of ways. You can transfer the money to one of your assigned bank accounts or cards with a fee applied. However, most of the PayPal services are free on a personal level. Free features include transferring money to friends or family through your account, as long as there is no currency conversion involved.

PayPal ranks third behind credit and debit cards and ahead of all other payment methods.

FoundedDecember 1998
HeadquartersSane Jose, California
PeopleDan Schulman (CEO, President), John Donahoe (Chairman)
IndustryFinancial Services
Business TypePublic

What does PayPal do?

PayPal offers a variety of ways to pay. If you have a browser, you can do so by following the simple instructions on the screen. However, if you have a mobile application for Android or iOS, it offers a number of features that can help you with your transaction.

As a result of partnerships with stores and restaurants in your area, PayPal is now providing different ways to pay for purchases. For example, you can order ahead of time from establishments such as restaurants and coffee shops. Additionally, you can see a list of all the vendors nearby that accept each of the different PayPal options.

Not only can you add loyalty cards to your PayPal account, but you can also use the PayPal app to spend points and receive rewards.

how does Paypal make money

How does PayPal make money?

PayPal makes money by charging a transaction fee for items bought, offering subscriptions to business accounts, selling card readers, issuing business loans, referral fees on cashback, interchange fees, and interest on cash. They also promote expedited shipping.

This analysis only covers the revenue generated by PayPal’s core platform for simplicity, but it is worth noting that a large portion of its business comes from its other subsidiaries. Below we will discuss PayPal’s income streams in detail.

Customer Account Fees

With PayPal, opening an account is free and most payments are free as well. That means you can:

  • Sending money to the people you love.
  • Receiving funds from family and friends.
  • When you need to make a purchase.
  • Transferring money to a personal bank account.

Nevertheless, as a consumer, you often face hidden fees. PayPal is one company that charges them on the following types of payments:

  • Sending money to your family and friends just got easier.
  • Conducting international payments.
  • Instant transfers to your personal bank account.
  • Transferring funds to your personal debit or credit card.
  • Buying and selling cryptocurrencies.

Furthermore, the fees and the availability of trading crypto vary across countries. For example, cryptocurrency trading is only available in a few select countries at the time of writing.

how does Paypal make money

Business Account Fees

There are two types of accounts on PayPal, personal and business. Personal accounts allow for money transfers between people, while business accounts let firms accept payments via PayPal for the goods and services they offer.

Businesses don’t have to worry about the high cost of running a personal PayPal account. They can set one up with no cost, and, if they need more features, upgrade to PayPal Payments Pro.

Payments Pro offers a virtual terminal and the ability to process Visa, Mastercard, and American Express payments at $30 per month. It also provides dedicated customer support and other features such as the ability to offer branded gift cards.

Businesses need to be aware that they’re also charged per transaction. For example, there is a subscription fee and then fixed transaction fees. More information can be found here:

  • Say you want to buy something online. You would pay a 2.9% transaction fee, plus a variable fee per purchase, based on your credit card’s transaction fees. 
  • If you buy something in-store with cash, you’d pay 2.7% plus a variable fee, but with the added bonus of not paying the international transaction fee.
  • PayPal has low transaction fees. This is a cheaper alternative to credit and debit cards, which come with higher transaction fees. 
  • PayPal also offers mass payments, which allows businesses to organize many recipients at once and charge a maximum of 2%.
  • Micropayments are often lower than credit card transactions but are equivalent to 5% of the value plus a fixed fee. 
  • The chargeback fee is applied when a transaction cannot be processed through the buyer’s PayPal account or through a guest (non-PayPal user) checkout.

Paypal Here

PayPal Here is a point-of-sale system that allows people to pay for items or services with their debit and credit cards or with different mobile wallets. PayPal does charge a transaction fee for accepting in-store payments, but it also makes money from selling its card readers. The prices range from $24.99 to $99.99.

Paypal Working Capital

PayPal Working Capital is a loan that you can get from PayPal. The money should be used to grow your business and operations. The maximum amount of money you can receive from a PayPal Working Capital loan is dependent on a number of factors, such as how many sales you make and how often PayPal Working Capital has been used in the past.

As we know, traditional loans charge monthly interest. But with PayPal loans, the company will deduct a certain percentage from transactions made and use that to repay the loan. As a result, PayPal is generating income on the fees that are deducted.


Payflow, a payment gateway, gives your customers the ability to purchase products from your site with a credit card. As seen above, it’s a cost-effective option. If you need more customization, opt for Payflow Pro. It costs $25 monthly for this service.


In August 2017, PayPal announced that it would offer a credit card to customers which offers cashback rewards. The PayPal card offers 2% back on purchases, no annual fee, and no minimum redemption requirement. It doesn’t have any expiration date and you can use the cash back for anything. This card is perfect for someone looking for an easy way to save money.

Interchange Fees

When you use your debit or credit card to shop online, an interchange fee is applied. This is typically less than 1%, but PayPal gets a cut of that fee. It’s not yet publicly known how much of that share PayPal gets, but it’s safe to say that PayPal promotes credit cards on behalf of Mastercard.

What is the Business Model of PayPal?

The PayPal business model is a two-sided platform. On one side, there are businesses that use PayPal to process financial transactions, with security and trust. On the other side, there are consumers who use the platform to pay for their purchases on merchant websites.

Sending money overseas can be a real pain. It used to be that it was too expensive, required complicated wiring instructions, and could take days to complete. Financial companies didn’t have a perfect solution. The answer? PayPal. Nowadays, PayPal is the best way to send money to over 200 countries and 300 million users around the world. Let’s examine how PayPal made sending money easier.

  • Customer Segments:  as a two-sided platform, it serves two types of customers: the consumer and the merchant. The consumer buys goods and sends and receives money from merchants. The merchant accepts payment from consumers both online and offline.
  • Value Proposition: convenience, security, trust, and global reach.
  • Customer Relations: PayPal has more than enough employees to serve customers. Plus, the company offers buyer and seller protection.
  • Revenue Streams: the revenue streams of PayPal are mainly transaction fees. However, they can also be described as sources of income.
  • Cost Structure: PayPal’s largest expense is transaction fees. In addition to operating costs, it has customer support, sales and marketing, product development, operations, and general expenses.
  • Channels: the main channel is PayPal’s website, with most transactions happening there. You can also use the PayPal mobile app or Venmo, which is a PayPal subsidiary.

How much is PayPal worth? (Valuation and Revenue)

PayPal has raised $216 million in funding across 6 rounds. The company’s latest round of funding was $70.2 million, which was during its IPO.

The company has also seen impressive growth since its acquisition by eBay back in 2001. The valuation has skyrocketed to $1.5 billion. Today, PayPal has a market cap of $277 billion. For the fiscal year 2020, PayPal generated $21.4 billion in revenue and $3.29 billion in profit.

2016$10.8 Billion
2017$13 Billion
2018$15.4 Billion
2019$17.7 Billion
2020$21.4 Billion

What is the founding history of PayPal?

PayPal was created by a group of four forward-thinking entrepreneurs in 1988, headed by Luke Nosek, Peter Thiel, Max Levchin and Ken Howery. They started a company called Confinity, which later became, when Elon Musk merged it with his own company.

PayPal was first introduced in 2002 and immediately gained 5 million customers. It then began an aggressive acquisition strategy to grow its customer base and remove its competition in the industry.

Plenty of people think that PayPal’s new idea is a bad one. That’s why it has been acquired by eBay. In July 2002, eBay bought PayPal for a cool $1.5 billion USD not bad for a company based on a business with a bad idea. With eBay’s backing, PayPal took over many of its rivals, including Verisign in 2005.

In 2014, eBay and PayPal parted ways. After thirteen years, PayPal had grown substantially and was worth $315 billion. In the second quarter of 2021 alone, PayPal recorded $6.24 billion in revenue and $1.8 billion in profit. These growths are impressive considering the current climate of the industry. Shares have risen by 29% because of global demand for e-commerce.

Key Statistics of Paypal

Paypal has 403 million active registered user accounts.
  • Paypal has 403 million active registered user accounts.
  • In the last year, PayPal has increased its net profit by 75% from $2.6 billion to $4.2 billion in 2020.
  • PayPal generated $21.4 billion last year, 20.9% more than the previous year.
  • In 2020, PayPal completed over 15 billion transactions with a total transaction volume of $936 billion.
  • PayPal is the number one digital payment platform around, used by 337 million people and merchants.

If you liked reading this article, make sure to check out our article on how does Instacart makes money!