PayPal is one of the best digital payment platforms that allow both sellers and buyers to make online payments worldwide. Since its establishment, PayPal has brought a revolutionary change in the global money transferring industry. Presently PayPal is available in 202 countries and they have 197 million users who can transfer money all over the world.
PayPal has many revenue sources and you have to understand its business model if you want to know how PayPal makes money. Some of the key revenue sources of PayPal are transaction fees, international payment fees, business account charges, P2P payment withdrawal fees, debit card withdrawal fees, and many more.
How Does PayPal Work?
You will have to open a PayPal account to receive or send money. Moreover, you have to add your bank account or credit card to receive or send money. With your PayPal account, you can transfer money to family, friends, online shops, and make payments for auction sites like eBay. From your PayPal account you can withdraw money three ways:
1. Send the money to your bank account
2. Add it to your PayPal debit card (if you even have one)
3. Request a check in the mail
How Does PayPal Make Money
PayPal generates most of the revenues from the fees on payment transactions. Some of the key revenue sources of PayPal are:
1. Transaction fees
2. International payment fees
3. Business account charges
4. P2P payment withdrawal fees
5. Interests from Money Deposited
6. Payflow Service Fees
7. PayPal Working Capital Fee
8. Debit card withdrawal fees
9. PayPal Credit Interest
10. PayPal Here Fee
Transaction Fees
PayPal offers two types of accounts. They are Personal & Business PayPal accounts. PayPal’s personal account allows you to send and receive money online from family or friends and make online payments as well as offline payments through your debit card, credit card, or PayPal balance. PayPal charges a fee on the amount when you send a personal payment using a debit, credit card, or PayPal credit. The fees may differ depends on different countries.
| Activity | Country of recipient’s Account | Fee |
| Sending a Cross Border Personal Transaction payment | US, Canada, Northern Europe, Europe I, Europe II | 1.99 EUR |
| Any other country | 3.99 EUR |
If you are a merchant then you have to use a PayPal business account. The fees of a PayPal business account are different from a personal account. You have to pay a fee of 2.9% plus USD 0.30 of the amount that you receive from your sales.
| Transaction Type | Rate |
| Commercial Transactions – Online | 2.90% + fixed fee |
| Commercial Transactions – In-Store | 2.70% + fixed fee |
| PayPal’s pay later offers | 2.90% + fixed fee |
| QR code Transactions – 10.01 USD and above | 1.90% + fixed fee |
| QR code Transactions – 10.00 USD and below | 2.40% + fixed fee |
| Venmo | 2.90% + fixed fee |
International Payment Fees
When you receive payments from different countries PayPal charges a fee. Usually, the charge includes currency conversion costs as well as the international payment fee. This type of fee varies depending on the country.
| Activity | Transaction Fee | Additional Charges |
| Transferring to another PayPal Account | 5% of the transaction amount, $0.99 minimum, $4.99 maximum | 2.9% funding fee + a fixed fee based on the currency used when using a credit card, debit card, or PayPal credit to fund the transaction |
| Transferring directly to a bank account via Xoom | The mark-up on the exchange rate varies by currency. | Added fees when using a debit card or credit card. Fees vary based on currency and transaction amount |
Business Account Charges
You can open a business account on PayPal for free but you have to pay extra fees for features like the customized checkout page, etc. There is a Payments Pro business account available on PayPal that will cost you $30 per month.
P2P Payment Withdrawal Fees
You can receive money directly via a custom link to your PayPal account. However, you have to pay a fee when you withdraw the amount that you have received via the custom link. The P2P payment charge in the USA is 2.9% plus USD 0.30 of the amount you received.
Interests From Money Deposited
The money PayPal users kept on their accounts is deposited by PayPal in liquid investments. Therefore, PayPal earns interest from those liquid investments. It is a big source of revenue for PayPal that many of us don’t know.
Payflow Service Fees
Payflow is a payment gateway service offered by PayPal. If you have a merchant account then you can easily integrate Payflow into your website. You can choose from two plans which will give you different levels of customization. They are:
Payflow Link: It’s a free plan and you can enter the payment details on a page hosted by PayPal.
Payflow Pro: It’s a premium plan where you can design and customize your own checkout page. This plan will cost you $25 per month.
Fees For Using Payflow
| Activity | Description | Fee |
| Monthly Fees | Payflow Pro | 25.00 USD |
| Payflow Link | Free | |
| PayPal Recurring Billing Service (Monthly) | Payflow Pro | 10.00 USD |
| Payflow Link | 10.00 USD | |
| PayPal Fraud Protection Services (Monthly) | Basic Package | No Fee |
| Advanced Package | 10.00 USD | |
| Buyer Authentication + | 10.00 USD | |
| PayPal Fraud Protection Services (Monthly Excess Transaction Fee) | Basic Package | No Fee |
| Advanced Package | 0.05 USD | |
| Buyer Authentication + | 0.10 USD | |
| Recurring Billing Service | No Fee |
PayPal Working Capital Fee
This is a type of small loan from PayPal for people who are in need of working capital. This is an excellent service from PayPal as you can borrow up to 15% of your last 12 months of PayPal sales. You can borrow up to $85,000 with a fixed fee and no interest rate. It is different from a traditional loan; there is no monthly payment instead payments are made on a daily basis from the percentage of your sales. The fee of the PayPal working capital depends on the percentage of daily sales allotted to your account. The larger the percentage of the daily sale the lower the fixed fees of PayPal working capital.
Debit Card Withdrawal Fees
You can use the PayPal debit card to withdraw money anytime from anywhere. However, you have to pay a fee to use this privilege. When you use the PayPal debit card to withdraw money, PayPal charges you.
PayPal Business Debit Card Fees
| Activity | Fee |
| ATM Domestic Withdrawal* Fee | $1.50 Per ATM withdrawal within the US (Plus any amounts charged by the ATM owner.) |
| Teller Assisted Withdrawal Fee | $3.00 Per signature withdrawal if a signature is required to obtain cash. |
| ATM International Withdrawal* Fee | $1.50 Per withdrawal from a non-US ATM. This fee will apply even if the transaction does not require a currency conversion. |
| Foreign Transaction Fee | 1% of the purchase amount from a non-US merchant or 1% of the withdrawal amount at a non-US ATM. This fee will apply even if the transaction does not require a currency conversion. |
* If you use an ATM for any transaction, including a balance inquiry, you may be charged a fee by the ATM owner even if you do not complete a withdrawal. This ATM fee is a third-party fee amount assessed by the individual ATM operator only and is not assessed by us. This ATM fee amount will be charged to your PayPal Account.
PayPal Credit Interest
PayPal Credit is a proprietary payment method that provides a reusable credit line so that you can make payments for your purchases over time. There is no fee as long as your credit line is $99 or more and you can easily pay the full credit within 6 months. However, PayPal charges an Annual Percentage Rate of 23.99% and it starts from the posting date (a few days after the purchase date).
PayPal Here Fee
PayPal Here is an offline payment solution offered by PayPal. It is a mobile application that lets its users accept payments from all types of cards through PayPal. This feature allows you to bring the checkout experience directly to your customer anywhere or at any time.
Standard Rate For Receiving Transactions Using PayPal Here
| Payment Type | Rate |
| Card Present Transactions | 2.70% |
| Keyed Transactions | 3.50% + fixed fee |
| PayPal Transactions (In Store) | 2.70% |
| QR code Transactions | 2.70% |
Additional Percentage-Based Fee For International PayPal Here Transactions
| Payment Type | Rate |
| Card Present Transactions | 1.50% |
| Keyed Transactions | 1.50% |
| PayPal Transactions (In Store) | 1.50% |
| QR code Transactions | 1.50% |
Final Thought
PayPal also owns many other companies like Braintree, Xoom, Venmo, etc. and they also add revenue to the company. In the 2020 fiscal year, PayPal’s net income rose 70.9% and the revenue grew 20.7% compared to the 2019 fiscal year. Moreover, the total payment volume also rose 31% in 2020. So, all this information indicates that PayPal’s major earning source is its various fees and bills. If you have any queries about this topic then feel free to leave them in the comment section. Our experts will get to you.
References:
1. https://www.zippia.com/advice/how-does-paypal-make-money/
2. https://productmint.com/paypal-business-model-how-does-paypal-make-money/
Last Updated on February 1, 2022 by
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.
