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How Does PayPal Work? A 2023 Guide

PayPal lets you check out securely online, send and receive money, and also offers financing options.

Bloomberg / Getty

PayPal is one of the most popular ways to send and receive money online. However, PayPal is actually a lot more than a simple payment app. The tool can also be used to securely check out online or to finance purchases over a set period of time. PayPal even offers its own credit card.

Here’s everything you need to know about how PayPal works for people and businesses, the fees that apply, and the main benefits of this payment platform.

What is PayPal and how does it work?

PayPal is a global payment platform that lets users send and receive money and securely make purchases online. It has different uses depending on whether the user is an individual or a business.

PayPal for individuals

Individual consumers can link a bank account, debit card or credit card account to their PayPal account then use it to make purchases online wherever PayPal is accepted. 

PayPal serves as an intermediary between the merchant and the bank for the purpose of facilitating the purchase while protecting the consumer’s sensitive financial information.

You can also use PayPal to send or receive money. If you’re splitting a restaurant bill with your friend or buying a couch on Facebook marketplace, you can use PayPal to send money.

PayPal also offers a few ways to finance purchases at the point of sale:

  • PayPal Credit: A financing option that lets users spread out the payments of specific purchases. Some payment plans through PayPal Credit are offered without interest for a limited time.
  • PayPal Pay in 4: PayPal’s Buy now, pay later option, lets users spread out the payments for eligible purchases over four fixed monthly payments.

PayPal also offers two card products for consumers. The PayPal Cashback Mastercard® and the PayPal Debit Card. The PayPal credit card offers 3% cash back on PayPal purchases and 2% cashback on everything else. The debit card connects to your PayPal account and also lets you earn rewards on select eligible purchases.

PayPal for businesses

PayPal also offers a range of financial solutions for businesses, including the ability to accept payments for purchases or services online or in person. PayPal also offers business loans, credit cards and debit card options for businesses that need flexibility in how they make purchases and payments.

Businesses can also use PayPal’s e-commerce tools to track payments, check and manage sales, and send invoices.

Is PayPal free to use?

You can send money from your bank account or use PayPal to check out online for free, as long as currency conversion isn’t required. It’s also free to receive money domestically. 

However, fees can apply in a range of common situations:

FeeAmountCharged when
Money transfer fee2.90% + fixed feeSending money domestically to another person using a credit card account
International transfer fee5.00% ($0.99 minimum, $4.99 maximum)Sending money internationally with a PayPal balance or bank account, credit card or Amex Send account
Crypto fees$0.49 to 1.50% of sale amountAny time crypto is bought or sold on the platform
Currency conversion fees3.00% to 4.00%Any time local currency must be converted to a different currency
Withdrawal fees (instant)1.75%When someone wants to withdraw money from their PayPal balance or credit card instantly (instead of waiting 1-3 business days)

Why use PayPal?

There are a range of reasons to use PayPal for money transfers and for purchases:

  • Buyer protection policies: PayPal offers a range of benefits for buyers making purchases, including purchase protection around the globe. If your purchases show up damaged, different than what was described or you don’t receive your full order, PayPal might reimburse you. Coverage lasts for up to 180 days.
  • Convenience: PayPal is easy to use for online purchases since users can securely store their credit card or banking details for easy use.
  • Global acceptance: PayPal is accepted worldwide in more than 200 countries and regions, and it supports more than 25 currencies.
  • Security: PayPal uses a range of security features to keep an account safe, including enhanced encryption. The platform also lets users secure their accounts with features like biometric and multi-factor authentication.

Risks of using PayPal

While checking out with PayPal is secure, there are still risks. In December 2022, the platform fell victim to a cyberattack, with hackers stealing Social Security numbers and other personal information from more than 35,000 PayPal customers. There was no indication that financial information or login credentials had been released, PayPal noted.

While you can’t prevent websites and payment platforms from getting hacked, you can monitor your passwords, email addresses and credit scores to look for red flags if you’re notified your information is leaked in a cyberattack.

Alternatives to PayPal

While PayPal is a major player when it comes to the global payments industry, there are other popular payment apps to consider for money transfers and online transactions.

  • Cash App: Cash App is another money transfer app that lets users seamlessly send and receive money. This app also lets users invest in stocks and bitcoin, and it comes with a variety of banking features. Cash App can also be used to make purchases in-person or online with a variety of participating merchants with the use of a QR code.
  • Skrill: Skrill is another money transfer app that has a variety of uses, including sending and receiving money and making purchases on 15,000+ participating websites. This app also has special features for people who gamble and make bets, as well as its own loyalty program.
  • Venmo: Venmo is another popular money transfer app that lets users send and receive money, split bills with one another and send financial gifts. Users can also Venmo businesses to make a purchase, and they can use the Venmo app to invest in cryptocurrency. Like PayPal, Venmo also offers its own credit card.
  • Zelle: Zelle makes it easy to transfer money between US bank accounts. Transfers are typically completed within minutes. If your bank isn’t supported, you can download the Zelle app and still use it to send and receive money.

How to make a PayPal account

Signing up for PayPal is absolutely free, and you can create an account in a matter of minutes. Follow these steps to make a PayPal account:

  1. Go to 
  2. Enter your email address or sign in with Google.
  3. Provide PayPal with your phone number.
  4. Create login details, including a password for your account.
  5. Provide your address and other contact details.
  6. Link a bank account or credit card account.
  7. Verify your phone number and/or email with PayPal by clicking on the link they send or submitting a one-time code.


PayPal is one of the safest ways to send or receive money or make purchases online. It boasts a range of security features, including encryption and PayPal purchase protection.


To protect your PayPal account further, enroll in two-factor authentication to have PayPal text or email you a code every time you log in, to avoid cybercriminals logging in with your credentials.

To make an online purchase using PayPal, you need to have a PayPal account with a form of payment connected like a bank account, a credit card or a debit card. 


From there, you’ll look for a PayPal button when you make a purchase online, and you can log into PayPal to securely move through the checkout process.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

Holly Johnson is a credit card expert and writer who covers rewards and loyalty programs, budgeting, and all things personal finance. In addition to writing for publications like Bankrate,, Forbes Advisor and Investopedia, Johnson owns Club Thrifty and is the co-author of "Zero Down Your Debt: Reclaim Your Income and Build a Life You'll Love."