How Does PayPal Work?

What is PayPal, or how does PayPal work? How does it make money, and how can it help me, say, run my business? If you’ve been thinking about using PayPal to do online transactions or just plain curious how it works, then this blog post is for you. This will tackle the basics, and hopefully, you’ll get yourself started in no time. Are you ready?

How Does Paypal Work? Learn The Basics

What Is PayPal?

Checkout with a click of a button. #PayPalCanDoThat https://t.co/pv5ihLhruH pic.twitter.com/cr7HIbhbpM

— PayPal (@PayPal) June 22, 2017

PayPal is an electronic payment system that allows you to receive and send money online, as well as process payments for online purchases. To some extent, just like what some people say, it works like a bank where you can keep your money, but you cannot earn interest. You can transfer funds to your bank accounts, although there are corresponding fees.

Although there are other electronic processors, PayPal is the biggest and the most popular. In 2016, it earned close to $11 billion. Making it huge is the fact that eBay owns it. eBay is also the largest buy-and-sell online shop in the world.

How Do You Create A PayPal Account?

1. Go to PayPal’s website. PayPal’s website can be regional. You’ll know it when the abbreviation of your country appears in the URL. However, even if PayPal has a strong presence across the world, it doesn’t support all the countries.

2. Click the Signup button. It is on the upper right-hand part of the screen. Now, you’ll see two choices: Buy with PayPal or Receive Payments with PayPal. The first one is actually a personal account while the other is a business. For the sake of this mini tutorial, let’s choose Buy with PayPal.

3. Fill out the form. Make sure all the information you provided is accurate. Due to phishing and other scams, PayPal takes your security to heart. One important thing to remember is that your name should be the exact one that appears on your bank accounts and credit cards.

How Does PayPal Work With Bank Account And Credit Card?

Pay exactly how you want, even when things get out of hand. #PayPalCanDoThat https://t.co/pv5ihKZQD9 pic.twitter.com/u0Du594CS4

— PayPal (@PayPal) June 19, 2017

Upon signing up on PayPal, you need to register your credit (or debit) card. This is important for two reasons: one, it helps confirm your identity. Second, you can use your card to fund your PayPal account. Then you can perform some transactions like buying items online. You can also send money to your friends or family, as well as make payments.

To add a credit or debit card, here are the steps:

1. Open your PayPal account.
2. From your dashboard, click Wallet.
3. Press Link a Card.
4. Enter the needed details.
5. Wait for the three-digit number to appear on your credit card statement.
6. Enter the three-digit code for the card on your PayPal.

To add a bank account, do the following:

1. Open your PayPal account.
2. From your dashboard, click Wallet.
3. Press Link a Bank Account.
4. Enter the needed details. (Keep in mind PayPal fills out your name already. Again, make sure your name on your PayPal and bank account are exactly the same. Otherwise, you will pay a return fee of around $5.)

One piece of very important information is your bank’s code. It’s a 9-digit number that is unique to your bank. It’s easy to find one. Just go to Google and type “bank code [name of bank].” If you can’t find one, call your bank. Note, though, not all banks can process PayPal transactions.

How Does PayPal Work When Buying Online?

Update: You can now purchase items from the Online Shop using PayPal. pic.twitter.com/1opawkRb7N

— @RHC_OnlineShop (@RHC_OnlineShop) June 5, 2017

Consider PayPal as the middle man, between you and the merchant (or your customer). When you buy something and the seller accepts PayPal money, you have two options. One, you press the PayPal button on the merchant’s website. It will redirect you to a PayPal page. You can log in and pay using your funds or enter your credit card details and let the website process the payments for the merchant.

The other is to use the email address of the merchant. To do this, follow the steps:

1. Open your PayPal account.
2. From your dashboard, click Send & Request Payments.
3. Click Pay for goods and services.
4. Enter the email address of the recipient.
5. Indicate how much you’re paying.
6. Add a note (optional). This is helpful when you want to keep track of your payments. You can put there the items you bought with the payment.
7. Click Continue.

Note: The currency you choose to make a payment matters. If the funds in such currency are not enough to cover the payment, PayPal will add more money to the fund using your credit card. This may require a fee. A smart way to avoid that is to convert your remaining currencies.

To do that:

1. Open your PayPal account.
2. From your dashboard, click Details right next to PayPal balance.
3. Press Manage Currencies.
4. Go to Currency Exchange.
5. Scroll below and select your type of conversion.
6. Press Continue.

How Does PayPal Work To Receive Payment?

PayPal makes it very easy for you to receive payments from friends and family, as well as customers. Here are some of your options:

PayPal.Me Link

This is basically your unique personal link you can share with whoever you want to receive payment from. When you send the link and they click on it, they just need to add the amount and PayPal does the rest of the work.

To create it, you need to do the following:

1. Open your PayPal account.
2. From your dashboard, click Send & Request Payments.
3. Choose to Get Your PayPal.Me link.
4. Customize it.
5. Preview to see how it looks like on your customers’ end.

Create Invoice

If you’re a freelancer, a supplier, or a wholesaler, you can benefit from the Create Invoice feature. It’s easy to use and customizable. Moreover, you can keep track of unpaid, past due, and paid invoices. If you have a recurring invoice, you can save time by choosing Copy. Moreover, you can generate an invoice link or a PDF for record keeping or reporting.

To make an invoice:

1. Open your PayPal account.
2. From your dashboard, click Send & Request Payments.
3. Click Create Invoice.
4. Press Create Invoice beside Manage Invoices.
5. Fill out the invoice form.
6. Click Send.

How To Transfer Funds From Your PayPal Account To Your Credit Card Or Bank Account

Transfer & receive cash within minutes! We’ve partnered w/ @Visa & @MasterCard to provide instant cashout to banks. https://t.co/PC9DZmnaoU

— PayPal (@PayPal) June 20, 2017

While it’s awesome to use PayPal to buy items online without having to depend on your credit (or debit) card all the time, it’s even better if you can tap the funds offline. The good thing is you can withdraw funds:

1. Open your PayPal account.
2. From your dashboard, click Withdraw Funds.
3. Choose how much you want to withdraw.
4. Select if you want to withdraw using your bank account or credit card.

Note: Depending on your bank, it may take 2 to 5 business banking days before you will receive your money. Also, banks may charge transfer fees.

How Does PayPal Make Money?

We’ve already answered “How does PayPal work?” in different situations. Now let’s determine how it earns revenues from your transactions. Although signing up is free, a lot of them have a fee. In general, you pay 2.9 percent and $0.30 for every amount you spend using your credit or debit card, as well as when you receive money from goods and services (if you’re a merchant). There’s a $1.50 fee if you want to withdraw money using a check.

You don’t pay anything if you send money to friends and family using your bank account, PayPal balance, or both. You also don’t spend when you create an invoice and buy from your merchant (unless if the part of the cost of the good is the PayPal fee). It’s free to withdraw money from your PayPal to your bank account, but again, banks can have their own charges.

Besides creating a Payment.Me link, you can add a PayPal button on your website. Here’s how to do it:

How does PayPal work across the country? Sometimes the features are limited. For example, you may receive money but cannot withdraw it. Don’t despair, however. PayPal always improves and expands its services. Altogether, this website offers you a seamless, simple, and easy way to buy and sell online.

Want even more information on PayPal? Check out this audio lesson to get the most out of this tool.

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