What is PayPal and How Does PayPal Work?

PayPal is one of the most reliable online payment services that has served businesses for over 20 years. It is a web-based financial service that can help you process payments for items you purchase online.


For two decades of being a secured digital-payment platform, it has gained 286 active users and processed almost 10 billion payments.


In December 1998, PayPal was founded by Peter Thiel and Max Levchin. They started the concept of digital wallets in August 1998 after they met at Stanford University where Thiel was giving a speech about global market opportunities.


PayPal wasn’t its original name when it was founded. It was called Confinity. Merged from the words “confidence” and “infinity”.


Then in June 2001, the founders changed the name Confinity to PayPal and since then it has been the official name. And the company is currently situated in Mountain View, California.


The founders’ idea was simple and very efficient for customers – they want the customers to reveal their banking information and emails in exchange for convenient, fast and low-cost payments. This resonated well with small businesses, online merchants and consumers and they quickly signed up with PayPal.


In January 2000, the founders and managers of PayPal noticed that the end users are asking online merchants and other buyers to have a PayPal account to make their transactions faster. In the same year, PayPal made its way to eBay, is the largest online marketplace in the world. Where buyers and sellers can trade whatever stuff they want to sell. The marriage of PayPal and eBay gave PayPal a larger customer base.


In March 2000, PayPal reached the 1 million customer mark.


Since then, the company operates as a money transfer service and has become the go-to online payment platform for over a decade.


So what exactly is Paypal and how does it work?


PayPal is a web-based service that gives you the capacity to pay, send money and get payments.


Let us find out how you can create your PayPal account:


Signing up for PayPal is quite a breeze. You don’t have to go through a confusing process just to have a PayPal account.


Here are the steps to follow in creating your own PayPal account.


  1. Go to PayPal’s website and select “Sign Up” at the top of the website’s home page.


  1. After clicking sign up, it will lead to a page where you can select what kind of PayPal account you want to create – personal or business account. If you are planning to use PayPal to pay for your online purchases, just select Personal (which can be upgraded in the future).


On the other hand, if you decide to use PayPal to accept payments for your business, just select the Business type of account.


  1. After selecting what kind of account you would like to sign up for, PayPal will ask you to key in some personal information such as your legal first and last name, address, phone number, and email address. Of course, do not forget to tick the box where you agree to PayPal’s terms and conditions.


  1. After that, click Create Your Account and you will receive an email to verify your account with the email address that you used in signing up.


Now let’s discuss how PayPal works for two types of customers it serves:


  1. People who purchase online

In making a payment for your online purchases, you have the freedom of how you want to pay for the items you purchased.

  • If your PayPal account has a sufficient balance to pay for your purchases, you can pay using your balance and the amount will be deducted the same day.
  • If you do not have a sufficient PayPal balance, the payment for your online purchase will be deducted from the bank account that is linked to your PayPal account. Amusingly, you can somehow consider it as a flexible loan from a licensed money lender without interest.


  1. For people who are selling online

Once you have created your PayPal account, you can start accepting payments from your customers for a fee.

  • You may also choose how you can access the payments received by your PayPal account. You can use it to buy online or transfer it to the bank account that is linked to your account.
  • As an online seller, you can also create professional invoices inside your PayPal account. Feel free to use the templates for future invoices in your account.


PayPal has been the most trusted online money transfer service for individuals and business owners. It is undeniable that PayPal has changed the game of personal and business finance and has been delivering excellent service to a lot of people. Clearly, PayPal is here to stay.



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