PayPal is an e-commerce business that handles money services like money transfers and online payments. While it started out strictly handing financial transactions on the Internet, the company recently branched out to start accepting payments at brick-and-mortar stores as well. In the world of online retail, PayPal is ubiquitous. Without the ability to accept PayPal payments, most online retailers won't remain in business for long.


PayPal is most closely associated with eBay, and the histories of the two companies are largely intertwined. However, they weren't developed simultaneously. When it was founded in 1998, PayPal was called Confinity. At the time, eBay had already started experimenting with its own online payment service, Billpoint. However, PayPal skyrocketed to popularity as an online payment service and quickly became the default option for online auctions.

Proof of PayPal's meteoric rise is evidenced by its Feb 2002 IPO. After starting at a price of $15.41 per share, the company's stock had gone up to more than $20 a share by the end of the trading day. Shortly thereafter, in October 2002, eBay bought PayPal for a total of $1.4 billion in stock. The online auction company then phased out Billpoint and completely embraced PayPal as its payment processing provider.

Sending and Receiving Money

Although PayPal initially started out as the preferred way to process online auction payments, it quickly became the default method of sending and receiving online payments for just about anything. While PayPal's sending and receiving functions have evolved a little over time, they have generally remained simple and easy to use.

  • Sending Money - As long as the recipient's email address is known, a PayPal transfer can be initiated. The sender also either needs to have funds in his PayPal account or have a savings or checking account linked to his account, which is referred to as an instant transfer account. If both options are available, the sender can select the one that he wants to use. No fees are charged to send money from one PayPal account to another, and money can be sent for any reason. Senders can also designate the purpose of the money for future reference.
  • Receiving Money - There are several ways to receive payments through PayPal. A recipient can simply provide his email address to the person who wants to send money. Invoices can also be generated to request payments. Online merchants can add "buy now" buttons to their websites, set up PayPal shopping carts or even accept offline payments through PayPal's Virtual Terminal service.


PayPal offers a variety of products and solutions for consumers and retailers alike:

  • PayPal Debit Card - This card is linked directly to a user's PayPal account and can be used to make payments anywhere that MasterCard is accepted. Funds may also be withdrawn from a PayPal account from an ATM. There is a daily transaction limit of $3,000 and a daily ATM withdrawal limit of $400.
  • Shopping Cart Integration - With an Advanced account, retailers can accept PayPal payments through their websites by integrating the service with a variety of popular shopping carts.
  • Virtual Terminal - For retailers who don't strictly conduct business online, PayPal's Virtual Terminal is a convenient option that allows them to accept payments by phone, fax or mail.
  • PayPal Here - With the free card reader and smartphone app, users can swipe credit cards and process PayPal payments in person.


Retailers are subject to transaction fees in order to accept payments through PayPal. In addition to paying 30 cents per transaction, they pay anywhere from 1.9 percent to 2.9 percent of the total value of each transaction. Currency exchange fees apply as well.


Considering PayPal has more than 100 million active accounts and more than 232 million registered accounts, it's clear that most people are satisfied. Like any huge corporation, it's not without its detractors. The main point of contention is that PayPal is not classified as a bank and is therefore exempt from many standard banking regulations. Despite this, the service only continues to grow in popularity.