How Does Paypal Make Money | Full Business Model

It still feels like a huge mystery how the big name “Paypal” makes its money. It is something only a few persons have been able to understand.

If you have ever wondered how Paypal makes money, I’ll show you in this article. Just be sure to follow me very closely throughout this journey.

So, the big question is, how does PayPal make money? This particular question boggled my mind for quite some time before I could find an answer to it.

See this shocker!

In December 2019, PayPal had a total number of 305 Million active accounts and processed $712 Billion of total payment volume. They had total annual revenue of about $ 17.77 Billion, with a net income of $ 2.46 Billion.

That’s a huge amount of money, right? But how were they able to make such a huge amount of bucks in one year? That is what I’m going to show you in the following lines of this article.

Meanwhile, here’s the table of content for an overview of what to expect from this article.

What is Paypal?

Paypal is a fintech company that allows individuals and businesses to send and receive money through their platform.

Usually, PayPal allows customers to create and own an account on its platform, which is connected to the user’s credit card or bank account.

PayPal also gives the buyers the chance to purchase items in different currencies making international purchasing easier. You can simply send or receive money to/from anyone anywhere with just your e-mail address once your account is well set up and confirmed.

Let me share with you the interesting story of how Paypal began and then became a global brand.

When was Paypal Founded?

Paypal was first founded in December 1998 by a group of business partners; Max Levchin, Peter Thiel, and Luke Nosek. Its original name was Confinity. In 1999, it was officially launched as a money transfer system.

At the time, Confinity had a fierce rival company called was a company founded by Elon Musk- the maker of the first electric car.

One interesting that happened between Paypal and that is worthy of note is that both companies, instead of heading on as sworn rivals, merged together to conquer the payment industry.

After the two companies merged, they finally came up with a business model and strategy. One of the strategies Paypal employed was starting the business with a small niche at the time, and then monopolized it and nurtured it until it grew.

In October 2002, eBay bought PayPal for $1.5 billion in stock. eBay phased out Billpoint which was its payment system at the time, and integrated PayPal into its services.

Since 2002, PayPal has remained a steady leader in providing online transaction services. It expanded its services in the United States to include such features as debit cards for its accounts.

At the beginning of 2019, PayPal had 277 million active users and was available in over 200 countries [source: PayPal].

How Exactly Does Paypal Make Its Money- the Business Model?

One of the things that have remained a mystery to most persons is how Paypal has been able to accrue such great wealth without having to sell any physical product. In this section, I’ll be showing you some of the untold strategies behind the Paypal’s affluence.

There are several ways PayPal makes its money.  The first way is the fees they charge sellers. So when a buyer pays for a service, the system takes thirty cents plus a 1.9% to 2.9% surcharge fee.

The second way PayPal earns profit is by earning interest against the money that you have sitting in your account. 

Knowing that there are over 100 million members on PayPal, if every member kept $5 in their account for a year and PayPal gets an interest rate of 1.75%, they would make $8,750,000 a year.  The person who owns the account does not make any interest by letting their money sit in there.

In addition to these, Paypal also has three or more other streams of making money. In the next few lines, we’ll be looking at them. You can see How to Make $100+ on PayPal Daily here.

How Paypal Makes Money

Here below is a list of some of the ways Paypal make its money;

  • Transaction Fees
  • Payflow Gateway Fee
  • Business in a Box
  • PayPal Capital Loan Fee
  • International Money Transfer Fees
  • Withdrawal Fees
  • PayPal Credit Interest
  • PayPal Here Fee
  • Interests from Money Deposited

Let us now look at these items very closely.

#1. Transaction Fees

Usually, PayPal runs two types of accounts, which are business and personal accounts.

Personal account

Creating a personal account allows you to do a number of things. Here below are some of what you can do with a personal Paypal account.

  • You can send and receive money to family and friends
  • Buy goods and services online
  • You can also use a personal account to sell products

When you send money to friends and family using PayPal, PayPal will charge you 9%, plus $ 0.30 in the US.

If you make a sale from the US, the platform charges you a service fee of 2.9% plus $ 0.30 per transaction. Paypal charges 1% of the amount each time you make a transfer to your bank account.

Business account

Paypal also has an option for businesses to create account for business purposes. With the business account business owners can send and receive money from partners across the world.

This is one of the ways Paypal makes its money.

Paypal charges 2.9% plus $ 0.30 per online sales and billing transactions. In-store sales pay 2.7% plus $ 0.30 per sale. The fee for transferring funds to a bank account is usually 1% of the transfer amount and can be free sometimes.

Certain businesses use the PayPal Payments Pro accounts. The companies here pay an additional subscription fee of $ 30 per month.

#2. Payflow gateway fees

Another sure way Paypal makes money is through its Payflow Gateway. Payflow is a service provided by PayPal that is incorporated on websites that allow users to make payments.

The Payflow Pro: This premium plan is priced at $ 25 and it provides users with the opportunity to design and build a checkout page according to their preferences.

Payflow link: This free plan is hosted by PayPal on a page where customers can enter payment details. Paypal charges $ 0.10 for credit card payments made through this channel.

#3. Boxed action

Another business model through which Paypal makes money is the “Business in a Box”. The Business in a Box is a comprehensive e-commerce solution for small businesses. This PayPal business model gives you the option to partner with some other service providers like Godaddy, woo-commerce, etc. PayPal, however, earns an affiliate commission through this.

#4. PayPal Loans

Simply put, this is a business loan for small businesses who are looking for some extra money to grow their business.

The working capital function is a little more different than traditional loans. There is no credit check requirement. There are no regular interest and early repayment fees.

Businesses can borrow up to 15% of their last 12 months of PayPal sales, which could go up to $85,000, with a fixed fee and no interest.

Eligibility for the loan is entirely based on a company’s PayPal’s sales history, and there is a fixed one-time fee that can usually replace the regular interest.

Also, the amount of loans a company can obtain depends on its annual PayPal sales. If your business is booming, you can borrow up to 35% on the sale.

#5. International remittance fees

If you send money to other countries/regions, PayPal will charge you 0.3% -3.9%, plus a small flat fee. Most of these costs revolve around currency exchange rates, especially because they involve the use of other currencies.

Looking for how to make some extra bucks? See 13 Online Surveys That Cash Out Through PayPal 

#6. Withdrawal fees

If you want to withdraw money from your PayPal account, PayPal will transfer the money to your bank account for free, but if you want a check, you will need to pay a small fee to facilitate it.

#7. PayPal Credit

When opening a PayPal credit account, you will receive a special promotional rate at the beginning of six months. During the promotion period, if your purchases exceed $99, you will not need to pay any interest.

However, after the six-month promotion period ends, PayPal will charge 26.24% interest on the remaining balance.

Learn more about Paypal credit. Read our article on PayPal Credit Review: Pricing, Features, Legit or Scam

#8. PayPal fees here

Paypal Here is another PayPal business model. It is an offline payment solution provided by the company. It’s a mobile application and a card reader that allows you to accept payment from all types of cards with the ease of PayPal. Fees range from 1.5% to 3.5%.

#9. Interests From Money Deposited

If you keep saving money in your Paypal account, PayPal will deposit that money into your bank account and earn interest. The interest is not shared with you. It is solely for Paypal. This is another Paypal business model.

How Much Does Paypal Make Per Transaction?

How much Paypal makes per transaction largely depends on a number of factors. It depends on what kind of transaction you want to perform. Different transactions have different charges.

Usually, Paypal charges business accounts more than personal accounts, and most times no charge is made for transactions.

Merchants who own business accounts on Paypal pay a fee of 2.9% plus $0.30 USD of the amount they receive on the sale. However, this fee is reduced with an increased amount.

Also see How to Get Free $100 PayPal Fund | Quick Cash

How Much Money Does Paypal Make A Year?

In December 2019, PayPal had a total number of 305 Million active accounts and processed $712 Billion of total payment volume. They had total annual revenue of about $ 17.77 Billion, with a net income of $ 2.46 Billion.

Paypal had also made a whooping sum of $15.45 billion in the previous year. This data has shown that Paypal’s revenue is continually on the increase each passing year.

It is also expected that Paypal’s revenue will hit $20 billion by the end of 2021.

How Long Does It Take for Money To Become Available on Paypal?

If there aren’t any issues with your transaction, such as a customer filing a dispute, the payment will become available within 21 days.

In the same vein, it usually takes between 1-5 days for funds to move from your PayPal account to the merchant’s bank.

The simple answer is yes! PayPal is safe, but within limits.

Whether you’re sending money to friends or buying and selling products online, PayPal has a number of industry-standard security features you must adhere to if you must be safe.

The system has a bug bounty program to weed out vulnerabilities before it’s too late. Users’ data are both secure and encrypted. So you need not bother about anything.

However, it is also important to note that nothing is completely risk-free. Glitches and data breaches are possible anywhere and you have to keep your eyes open always.

Here below are some important tips to help you stay safe and secure on Paypal platform;

  • Ensure your software is up to date
  • Do not use public wifi for financial transactions
  • Do not use a debit card or do a direct bank transfer, instead you are advised to use a credit card as your funding method.
  • Be careful of malicious email links. Phishing scams may feature messages that appear to come from PayPal but really link to impostor sites that steal your account information. Do not click on such links.
  • Always use a personal computer

Does It Cost Money To Create A Paypal Account?

No! You do not need to make any payment to get on Paypal. The registration is completely free. Click here to begin your journey.

Bottom Line:

PayPal has continued to expand its business model over the years. The company has experienced some political challenges arising from top rivals but even so, it has remained unwavering.

Interestingly, PayPal has a lot more streams of revenue. The company owns many other companies like Braintree, Xoom, and Venmo etc. and all these has helped it remained a dominant force in the fintech industry.

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