NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

How does PayPal work?

How does PayPal work?
Image source: Getty Images

PayPal is an online payment system with over 250 million active users all over the world. PayPal works by connecting your bank account or credit card to a virtual account so you can send money online quickly and safely. 

How do you get your money?

PayPal works by sending and receiving money using only a secure online account.

Your PayPal account is connected to your credit card or bank account and funds are taken directly from there and sent to the recipient’s PayPal account. From there, the person can then use the money to make payments online or transfer it to their own bank account.

In addition to sending money to family and friends, PayPal works by allowing you to make payments at online shops or sites like eBay.

As long as the website has the PayPal logo on it, you are able to make payments using the service during checkout. You’ll need to log in to your PayPal account during the process to authorise the payment.

Is there a fee to use PayPal?

Creating an account with PayPal is easy and free. You just need to enter your email address and some basic information to set up your account. 

When you send money to friends and family members or other users in your country using your PayPal balance or bank account, the process is free.

How does PayPal work with commercial payments? There is no fee to use PayPal to pay for goods or services. It’s the seller or the business receiving the money that has to pay a fee when you send them money.

However, there are fees for using the service to:

  • Receive payments from a purchase
  • Send or receive money to another country
  • Send money using a debit or credit card

So, there are fees if you’re transferring money to somebody abroad and there’s a currency exchange involved. If you’re sending money internationally, Transferwise is usually a cheaper option.

Begin your journey to financial freedom today – try our new Hero’s Journey tool!

MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.

Our latest tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.

Can you get scammed using Paypal?

PayPal offers secure encryption and anti-fraud technology so your transactions are always safe.

PayPal scams work only through third-party intervention. This involves scammers using spam, phishing and other kinds of fraud to cheat people out of their money.

For example, you might receive an overpayment from somebody who then asks you to send back the difference. The catch is that the payment has usually been sent from a fraudulent account and the money might later be taken back.

Other common PayPal scams include amazing prize winnings for which you have to pay a shipping fee, high-profit investments that require a fee or fake charities. As a general rule, if you receive an unexpected message asking for any kind of payment via PayPal, be suspicious.

Who are PayPal’s competitors?

PayPal has a few main competitors but they all have drawbacks. While PayPal works on many websites and is accepted by many merchants, its competitors aren’t as popular.

  • Skrill, one of the best-known alternatives, has no fees for deposits or withdrawals but not many online retailers accept it.
  • Payoneer is another competitor that works well for transfers but you cannot use it to shop online.
  • Google Pay is more popular and more widely accepted and transfers to debit cards are instant. Still, it’s not as widely available for online payments as PayPal is right now.

Join our mailing list

If you’re looking for more ways to make your money work for you, why not sign up for MyWalletHero’s email newsletter? You’ll receive our team’s top money-saving tips, lifestyle hacks and handy personal finance ‘must-knows’ – delivered straight to your inbox…

Just enter your email address below to sign up now:

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.