How Does PayPal Make Money? Business Model of PayPal

How Does PayPal Make Money

PayPal is one of the most popular payment solutions companies in the world. The company makes money primarily by charging transaction fees on payments that are sent through its platform. But PayPal has expanded into a number of other business services, as well.

PayPal primarily makes money via transaction fees on payments sent through its platform. They offer payment services to both consumers and merchants, so make money via digital payments to friends or family or by processing payments for merchants. They also make money by providing other financial services like lending, through subsidiaries like Venmo, and via a number of other smaller revenue sources.

Founded in 1998, PayPal is one of the oldest fintech companies and was one of the first companies to successfully tackle online payments. The company was founded by Max Levchin, Peter Thiel, Luke Nosek, Ken Howery, and Yu Pan.

PayPal went public in 2002 via a successful IPO but was later bought by eBay. In 2015, eBay spun off PayPal into a separate company, and it was back on the stock market as an independent company again. It is listed on the 2022 Fortune 500 list at 143rd based on its revenue of $25.37 billion in 2021.[1]

What is PayPal & How Does It Work?

PayPal is a global online payment processing company that helps individuals and businesses send and receive payments. It can be used in more than 200 countries and can send and accept over 100 currencies.[2]

Individuals can create a PayPal account and link their credit cards, debit cards, and bank accounts to it. They can then use PayPal to send money directly to friends, family, and businesses to pay for services, send gifts, or support an individual or cause.

When making a payment with PayPal, customers can choose which currency to send the money in and what kind of payment they’re sending. PayPal offers two kinds of payments. The first is for sending money to friends and family and the second is to send money to businesses.

When sending money to friends and family, consumers typically save on fees. Sending money via their business or services option is more expensive but also offers customers protection. They can file a complaint with PayPal if they are scammed or their product does not arrive as depicted and get the funds returned to their account.

Consumers can also use their individual PayPal account to accept payments from friends and family and businesses that they do work with. They can then decide to keep that money in their PayPal account to use to purchase things or send others transfers, or they can transfer it to their bank account. Customers can hold money in their PayPal account in more than one currency.

PayPal gives individual customers a link that they can use to accept support payments from strangers or friends if they are fundraising for something like a medical procedure. Popular content creators will also often accept support via PayPal donations.

Individuals can use PayPal on certain eCommerce sites that offer the ability to pay with PayPal. In that case, they can then choose the pay for the item with their PayPal balance, their credit card, or the bank account that they have attached to their account. This allows people to make online purchases with their bank account rather than only via credit cards.

PayPal also provides services to small businesses and enterprise companies. Non-ecommerce businesses can use PayPal to create and send invoices, manage their money, and even pay their employees or freelancers.

Ecommerce companies can connect their PayPal accounts to their online stores via a complete integration or via a web button that allows customers to access PayPal’s site to pay for their order with PayPal. PayPal can be fully integrated with a company’s inventory, customer data, accounting, and tax software and records.

PayPal offers fraud reduction technologies that help protect small businesses from loss. They also offer chargeback insurance on certain eligible purchases. Over 30 million global merchants use PayPal’s online solutions for their global or regional ecommerce businesses.

PayPal has an in-person point of sale solution called Zettle, which helps companies accept payments in their stores and integrates that data with their online inventory and sales data.

PayPal also offers two types of loans to businesses in need of operation funds or working capital. The first is a working capital loan that does not require a credit check but instead qualifies customers based on their PayPal account history. This is repaid via a percentage of each PayPal sale. The second is a PayPal Business Loan. These are term loans that are approved based on a company’s entire financial picture. They’re paid in weekly installments. Both loans charge flat fees rather than a percentage.

PayPal also offers companies the ability to allow their customers to choose Pay Later options. This option allows customers to pay in four installments or pay in monthly installments. It does not cost the merchant anything.

PayPal also has enterprise solutions for companies that need highly customized eCommerce solutions.


Business Model of PayPal

Like many payment processing fintech companies, PayPal primarily makes money from transaction fees. For that reason, their business model involves getting as many individuals and businesses using PayPal to send and accept payments as they can.

Successful fintech payment processors are often judged by how many billions or trillions of dollars they process through their platform every year. PayPal processed $1.25 trillion in 2021. It also has over 400 million global consumers who use their platform and 30 million global businesses.[3]

While PayPal started as an online payment processing company, it has branched out into other lines of business in order to keep up with emerging fintech competition. For example, PayPal owns Venmo, a popular peer to peer payments company in order to capture the peer-to-peer payment market. They also have expanded into in-person payments to compete with legacy competitors like Chase Payments and fintech competitors like Square and Stripe, who offer point-of-sales payments.

In addition, PayPal is going after the Pay Later market that Affirm and Klarna have cornered with their consumer buy now pay later offerings. They are also leveraging their significant transactional data to offer loans to business customers to compete with popular fintech lending companies.

PayPal’s business model includes a plan for global expansion. They are now in 200 countries and can accept 100 different currencies. The more markets they penetrate, the more their global revenue increases.

One thing that differentiates PayPal from other fintech payment processors is that they have both a significant consumer and merchant user base. Many payment processors’ business models involve going after just one of those groups.

However, by doing both, PayPal has created a unique business advantage that has protects them from upstart merchant payment processors. One of the ways that PayPal markets themselves to businesses is to talk about its 426 million users. Companies choosing between PayPal and another online processor might be more likely to choose PayPal since it gives customers more payment options and is already used by them.

A key part of PayPal’s business model is strategic acquisitions. PayPal has acquired a number of businesses in order to differentiate their product lines or expand into new areas. The company owns Venmo, Paidy, Xoom, Braintree, Hyperwallet, Simility, ChargeHoud, Happy Returns, and Honey.

PayPal has significant business, staffing, and development expenses. However, in 2021 PayPal brought in $25.4 billion in revenue and processed $1.25 trillion in payments. That’s up from $21.5 billion in revenue in 2020 and up 33% in payment volume from 2020. PayPal seems to be increasing their revenue and total payments processed significantly year over year.


How Does PayPal Make Money?

PayPal makes money in more than four different ways. These include online transaction fees, in-person transaction fees, business lending, and other services.

The company does not break down the source of their revenue by type of service but in 2021 they brought in $25.4 billion in total revenues.


Online Transaction Fees

PayPal charges transaction fees on almost everything they do across all their companies and merchant and consumer services. These include transaction fees on the payments themselves but also fees on things like currency exchanges. They also charge fees for services like buy now, pay later transactions.

How much PayPal charges per transaction depends on the type of transaction and the individual or company sending it. For example, if they send a friends and family payment on the platform as an individual, they will either pay nothing or pay much less than sending a goods and services payment. Also, larger companies with high volumes of transactions often can sometimes get transaction fee discounts.

In general, transaction fees are a few percent of the total transaction.


In-Person Transaction Processing

PayPal owns a company called Zettle that offers point-of-sale machines to process in-store transactions via PayPal. Formerly called iZettle, it was purchased by PayPal in 2021. The company charges for point-of-sale machines and also charges a percentage of every transaction.[4]

Zettle is only available in a limited number of countries.


PayPal Business Loans

PayPal makes money on two kinds of business loans: PayPal Working Capital Loans and PayPal Business Loans. Working Capital Loans charge a flat fee for the loan and take a portion of each transaction that a company process as repayment.

PayPal Business Loans are given in a lump sum and are paid back weekly via the holdings in a company’s PayPal account. They have no late fees, no early repayment fees, and no processing fees. Businesses just pay a fixed fee on their loan.[5]


Other Services

PayPal makes money through a number of other services, including things like fraud and risk management services, return services, marketing tools, and business services.

Some of these services are offered through their main company, while others are offered as stand-alone services. For example, Happy Returns helps companies process returns and is a subsidiary of PayPal.


PayPal Funding, Valuation & Revenue

PayPal (PYPL) is currently a public company trading on the NASDAQ exchange. This is the second time the company has been directly traded on a stock exchange. In 2002, it went public for the first time and then was bought by eBay later that year. In 2013, it was spun out by eBay as its own public company.

Prior to going public, the company went through five successful funding rounds and raised a total of $216 million. Well-known PayPal investors include Providian Financial, Goldman Sachs, BlueRun Ventures, and Bankinter.[6]

PayPal currently has a market cap of $100 billion. The company has a significant annual revenue.

YearTotal RevenueNet Income
2019$17.2 billion$7.9 billion
2020$21.4 billion$10 billion
2021$25.3 billion$11.9 billion


Is PayPal Profitable?

PayPal is profitable. The company made $11.9 billion in 2021, up from $10 billion in 2020 and $7.9 billion in 2019. Based on its $25.3 billion in total revenue in 2021, PayPal is listed as number 143 on the Fortune 500 list, a list of the largest companies by revenue based in the United States.



The business model of PayPal is a success. By providing users with a safe, easy way to send and receive money without the risk of losing it to criminals or hackers,  Paypal has been able to grow its user base to over 400 million people since its creation in 1998.

PayPal’s growth can be attributed to the fact that it has been able to acquire several companies over the years, including Braintree (merchant services), Paydiant (mobile wallet), Modest (contextual commerce), TIO Networks (digital banking), iZettle (mobile payments), Xoom (cross-border payments) and Swift Financial (business funding). These acquisitions have helped PayPal expand into new markets and gain access to valuable data about customer behavior.

As you can see, there are a number of different ways in which PayPal makes money. They may not be the first company to have done so, but they have certainly perfected the art of monetizing their services. By leveraging their global reach and offering users access to a wide range of currencies, they ensure that they have access to as many markets as possible.

We hope you’ve found this article useful and that it has helped jumpstart your explorations into the world of online payments. As always, if there is anything you would like to know or any questions that remain unanswered, please feel free to reach out, we are happy to help in any way possible.

In the meantime, we would love to hear from you about your experiences with PayPal or anything else related to online payments! Thank you for taking the time to read our blog post.

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  1. Fortune
  2. PayPal
  3. PayPal
  4. Zettle
  5. PayPal
  6. Crunchbase

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