How Does PayPal Make Money?

What is PayPal?

PayPal is a fully electronic payment and banking system. It is one of the first and certainly the largest processors of online payments and peer to peer money transfers on the internet. Founded nearly twenty years ago in 1998 by famous entrepreneur and Tesla creator Elon Musk, it was originally called X.com before being sold.

The platform allows users to purchase things online from retailers and other sites, as well as send money to other individuals directly. There are many ways they allow payments to be processed, the most common being money that is actually held in your personal PayPal account itself. You can also link outside traditional checking accounts, credit cards, or debit cards to your PayPal account and use those to make purchases through the site as well.

It was designed to make paying for goods online both simple, and more importantly safe. In the early days of the internet many people were rightfully concerned about entering their personal credit card data into a multitude of different websites. There was no way to ensure the security of how those sites stored that information or who was on the other end actually doing the processing. Being able to store all of your payment methods in one convenient place, with an additional buyer and seller guarantee of protection, it very quickly took off in popularity.

How PayPal makes money

By far the most significant source of revenue for PayPal is processing fees when you perform transactions. Every time you send money into or out of the platform, or use the service to make purchases with your balance itself, you or the merchant, or sometimes both, are charged a small percentage of that fee.

These are generally only a few percentage points, or even fraction of a percentage for larger merchants, but with literally billions of payments being processed annually the revenue can add up very quickly. The most recent data available for 2016 shows a revenue of nearly $11 billion. With no physical branches and other expensive overhead that traditional banks have to account for, it is also a very profitable venture.

Recent developments

Over the last few years PayPal has been aggressively expanding their banking offerings and other ways that they make money. They have begun offering their own lines of limited credit which carry interest rate charges and other fees, greatly adding a major source of income to their portfolio.

They also have begun offering a business and personal debit card that can be used to take money out of your online account at an ATM or as a cash back transaction when you make a purchase at a retailer. It is guaranteed that they are always looking at creative ways to make money.

Fun facts

PayPal founder, then known as X.com, Elon Musk used the money from his sale of X.com to help start both Tesla and the company SpaceX. Just a couple of weeks ago Musk launched his very first Tesla vehicle into space using one of his own SpaceX rockets!

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