What Is PayPal and How Does It Work?
Updated on September 23, 2026 | 4 min. read
If you sell anything online, you've probably wondered whether you need PayPal on top of credit cards.
It's a fair question. PayPal takes a cut of every sale. In return, customers get a familiar way to pay without sharing their card details with you, and you get one more option at checkout.
This post breaks down how PayPal works, what it costs, and the difference between a personal and a business account, so you can decide what makes sense for you.
What is PayPal?
PayPal is a payment processing platform that’s available to regular users, consumers, and merchants who want to accept or send money online or in person. PayPal makes it easy to navigate online checkout without providing one’s personal financial information and allows merchants to send invoices, track payments, and more.
PayPal key features:
- Payment security: Purchases are protected by PayPal Purchase Protection. PayPal also offers fraud protection tools, such as a fraud management filter.
- Payment processor: PayPal isn’t just a money transfer service; it also processes debit and credit card payments. It even acts as a payment gateway too.
- Flexible payment methods: Customers can pay with all major debit cards and credit cards, including American Express. They can also pay with a prepaid card and PayPal Credit if they need to pay in installments.
- Mobile device app: Access transaction history and make payments on the go.
- PayPal Credit (Subject to credit approval): Qualify for PayPal Credit in seconds. You’ll have funds within 1-2 business days if you qualify. No annual fee.
- Receive money quickly: With PayPal Business, you can receive your money in minutes.
Receive and collect money online with PayPal
Your customers don't need a PayPal account to pay you. PayPal Guest Checkout lets them pay by card without signing up first.
They also have options if they do have an account. They can pay from their PayPal balance, a linked credit card, debit card, or bank account, or spread the cost using PayPal's Pay Later plans.
In-person solutions from PayPal
PayPal isn't only for online stores. PayPal Point of Sale lets you take payments face to face using a card reader that works with your phone or tablet.
Rates differ from online selling. Tapped or inserted cards cost 2.29% plus $0.09. If you key the card number in by hand, it's 3.49% plus $0.09. Customers can also pay by scanning your PayPal QR code, at 2.29% plus $0.09.
PayPal personal vs. PayPal Business accounts
A personal account is built for sending money to people you know and the occasional sale. If you're running a business, PayPal expects you to use a Business account.
A Business account gets you tools a personal one doesn't: sales reports, a business debit card, multiple user logins, and the ability to trade under your business name instead of your own. Fees are charged per transaction either way, so there's no monthly cost to switching.
Whichever you pick, finish verification by confirming your email and linking a bank account. Until you do, PayPal caps how much you can receive and withdraw.
Is PayPal free to use?
Yes. It's free to create a personal account and a PayPal Business account using your email address and a few other bits of information. There are no monthly or termination fees.
Only some optional services cost extra, including Payments Pro and having a virtual terminal. Additionally, PayPal will take a small cut for processing transactions.
Payment processing fees
PayPal charges a small payment processing fee for financial transactions. Fees vary by country.
In the United States, PayPal takes a 3.49% + $0.49 fixed transaction fee for transactions paid through PayPal Checkout in USD. For card and wallet payments, it takes 2.99% + $0.49. For international payments, add 1.50% on top.
Keep in mind that when you accept international payments, PayPal uses its currency conversion rates to convert foreign currency for you before completing the transfer of funds.
Withdrawal fees
It's easy to transfer your PayPal balance to your bank account. A standard transfer to a linked bank account is free and takes 1-3 business days. If you need the money right away, an instant transfer costs 1.50% of the amount, with a minimum fee of $0.50.
Key takeaways
PayPal lets customers pay you by card, bank, or PayPal balance, online or in person, without you handling their card details. There's no monthly fee to accept payments, but PayPal takes a percentage of every sale, so the cost scales with your volume.
If you invoice regularly, you'll need a PayPal Business account. A personal account is only worth keeping if you rarely get paid this way.
Before you commit, check the current rates on PayPal's fee page. They differ by payment method, by country, and by whether you're selling online or face to face.
