Paypal is a globally recognized and trusted brand for making payments. In fact, it is quite a familiar name for who is familiar with online payments, isn’t it? Started as a small startup, the company has grown as a large system that has apps, sites, and other companies.
It’s no wonder if you have ever thought about how much money PayPal makes. But rather than that knowing the strategies that made it such a profitable company is important. Don’t you agree?
Well, let’s see PayPal Business Model and how it makes money in this article. Shall we?
Before we get into the critical things that made PayPal successful, let’s start with basics.
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What is PayPal?
PayPal is an American based fintech company that made payments to and from anywhere easy. It was founded in December, 1998 in Palo Alto, California. Within no time, it became a global money transferring platform for people across the world.
Over 200 countries use PayPal and nearly 325 million users use PayPal for sending and receiving money. Not just making payments and receiving money, PayPal also offers lots of services like debit & credit cards, payment gateways, loans, digital wallet etc. Not to mention, it is no less than a bank. In short, it is a virtual bank for thousands of merchants, businesses and individuals worldwide.
As a fintech company, it has many sources for generating income (in fact, it should have). The major benefit for PayPal is that it understands people’s minds about online banking and its threats. Right from the initial days, PayPal tried delivering the best service by introducing fraud detection, easy checkout, etc. In short, it made revolutionary changes in the world of digital money transfer.
PayPal & eBay
Started in 1998, within less time, in 2002 it gained huge popularity after eBay had included it in its interface as a checkout option. However, even after PayPal became an independent company, it never looked back.
PayPal is a giant company that offers unbelievable features to take its services to the next level. Let’s see what are the features and how do they impact PayPal’s revenue.
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Features of PayPal
Digital Wallet
PayPal is a safe digital wallet that saves your credit and debit card information. It makes it easier to make payments whenever you shop or transfer from your cards. Users just need to have their PayPal user id and password to access their own accounts.
Money Transfer
PayPal lets its users transfer money to or from eligible countries (over 202 countries). Also, it allows transfers from more than 100 currencies to bank accounts in around 56 countries.
One Touch Checkout
Logging into your PayPal account every time you checkout for making online purchases is irritating. Therefore, PayPal introduced “One Touch Checkout” that saves your logins in your device. Hence, you need not enter even your username to make payments.
PayPal Debit Card
PayPal, like banks, issues debit cards for its users. Users can use the debit cards for withdrawing money from PayPal accounts, shopping and earning rewards for using the card.
No Interest Credit Card
PayPal introduced the Bill Me Later feature that lets users enjoy credit of $99 or more for zero interest (if the amount is paid within 6 months). The feature is commonly known as PayPal Credit, and Bill Me Later.
Payment Gateway
Merchants can create business accounts and receive payments through PayPal gateway. No matter, where businesses operate (either offline or online), PayPal helps you in receiving payments smoothly.
Business in a Box
PayPal launched a small tool kit for businesses called Business in a Box. It helps merchants set up online business in simple steps.
PayPal Working Capital Loan
This is a daily payable loan that helps daily businesses to manage easy cash flow.
How does PayPal Make Money?
In 2002, eBay bought PayPal for $1.5 billion, after which it included PayPal as one of the payment gateways at their checkout page. It was then PayPal started making profit and gained huge popularity. However, eBay owned the revolutionary company PayPal only till 2005. PayPal is now owned by PayPal Holdings.
PayPal’s revenue was $17.7 billion as of 2019 as per PayPal reports. It has seen 1 14.4% year-on-year increase.
As said, there are many revenue sources for PayPal. Let’s see what are those in the below PayPal business model section. It’s business model clearly explains how the company makes money.
PayPal Business Model
- Transaction Fees
PayPal offers its services for two types of users. 1. Personal (individuals) 2. Business
1. Personal PayPal Accounts
This giant online payments system allows personal account users to send, and receive money either to their PayPal account or bank account. The money they receive goes to their PayPal wallet or bank account. Users can shop online or offline using their PayPal balance or their credit or debit cards. In short, they can make money payments to anywhere from anywhere for any purpose.
Now comes the actual part, when users make any payments to other countries or other than PayPal accounts, PayPal charges a certain transaction fee based on the countries and amount.
Nearly 87% of online buyers use PayPal for making transactions.
2. Business Accounts
PayPal charges fees for merchants with business accounts for using its services. When merchants sell their goods either online, they need to pay 2.9% and extra $0.30 of the sale amount. Yes, it charges only when the sale is made and the fee reduces with the increase in sale amount.
- International Payment Charges
As said in the above lines, PayPal allows transactions to & from over 200 countries. However, it doesn’t let it do for free. It charges from 0.3% to 3.9% and an additional small fee when you transfer money to different countries. The charges vary from country to country. Though there is much of a currency exchange rate, yet PayPal makes some profit from it.
- Business Account Charges
PayPal offers a few paid special services and features for business accounts. Hence, businesses can buy the special accounts with additional features known as Pro Account that costs $30/month.
It provides features such as access to design and host own checkout page, accept credit cards via virtual terminals etc.
- Withdrawal Fees
PayPal allows you to transfer money to your bank for free. But it charges a small fee when you want a check.
It charges around 2.9% and $0.30 USD in the USA and the fee varies for different countries.
- Interests Generated
PayPal puts all the user’s money that is in the PayPal wallet in liquid investments. The interest generated from such investments solely belongs to PayPal.
- Payflow
Payflow is a payment gateway service introduced by PayPal. Merchants using business accounts can integrate Payflow into their websites.
PayPal allows businesses to choose Payflow to their websites with two different plans. It charges a fee of $0.10 for credit card payments for both the plans as a gateway fee.
1. Payflow Link: This is a free plan that needs customers to enter payment details. Here the checkout page for PayPal is hosted by PayPal.
2. Payflow Pro: This is a paid plan that charges $25 where the user can design and host the checkout page on their own.
It also offers additional features such as Buyer Authentication, Fraud Protection and Recurring Billing that costs an extra amount.
- PayPal Working Capital Fee
So, as discussed in the features section, PayPal offers PayPal Working Capital for businesses who need daily loans. PayPal then charges a fixed fee instead of interest. Users can borrow upto 15% of the PayPal sales made in the last 12 months. The fixed fee is based on the daily sales made, hence the larger percentage of daily sales users make, the lower fee they need to pay.
- Business in a Box
PayPal offers an all-in-one business tool set for merchants to set up online stores with the help of Xero and WooCommerce. Therefore, merchants can access all the benefits that these sites offer. Wondering what’s in it for PayPal?
The websites pay an affiliate commission to PayPal.
- Debit Card Withdrawal Fees
PayPal deducts a small fee every time users withdraw money from their PayPal debit cards. The fee ranges between $1.50 to $3 for ATM withdrawals and upto 1% for foreign transaction fees.
- Credit Interest
The online payments system charges 19.99% as Annual Percentage Rate if the user doesn’t pay the credit bill within 6 months.
- PayPal Here Fee
This is an offline payment solution for businesses to accept payments through swiping. PayPal Here is a combination of card reader and a mobile application that lets you accept payments.
Again this is not a free service. PayPal charges from 1.5% to 2.5% of the amount received and some extra fees.
- Revenue from its Subsidiaries
PayPal acquired many other companies that truly contribute to its success. Of those many, a few are listed below.
- Braintree
- Xoom
- Venmo
- Honey
- iZettle
PayPal acquired Venmo and Braintree for $800 million. PayPal doesn’t reveal the revenue by its subsidiaries.
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What Made PayPal Successful?
There are many reasons for the success of PayPal. It in fact, has grown as a most preferred online payment choice by most people across the world. However, let’s see the key points that made this popular fintech company successful.
- It is a globally recognized brand
- It created Trust among people
- Technology like fraud detection etc
- Successful acquisitions
Its key challenge is to grow its brands.
Bottom Line
So, finally as you have made it to the end, this is how PayPal makes money. As you see it has multiple income sources to add more value to its revenue. It’s incredible products like Bill Me Later, PayPal Working Capital Fee, Business in a Box etc., and the payment services it offers became successful as they focus on helping both individuals and businesses make transactions smoothly.
