What is PayPal and how does it work? – Here’s what you need to know

Adam Rozsa
4 minute read

Without a doubt, there is no online payment service more known than PayPal. The company has been around since 1998 with a simple concept: they store bank account and credit card information so that consumers can make secure online payments without revealing financial information to merchants.

Over time, PayPal added more features such as PayPal-linked credit, debit and cash cards, e-commerce business perks, and wire transfer services through Xoom. But what is PayPal and how exactly does it work? In this article, we got you covered.

📝 Table of contents

How about an alternative option to PayPal? If you want to send money abroad and not get hit with mark-up and exchange rate fees, you might want to use an alternative like Wise. It can save you up to 9x and only takes a few minutes to open a free account.

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How does PayPal work?

PayPal can offer you a personal account or one for your business—depending on what you need.

They offer you a way to quickly and securely shop, make a payment, or transfer money. To do so, you only need an email address and mobile phone number to sign up. Then you can link a credit or debit card or a bank account to use their services.

Remember, PayPal requires users to verify all accounts to complete the setup which adds another layer of security to their services.

Once the account is set up, you can make a payment by using their website or the PayPal app to send money via an email address or mobile phone number of another PayPal user.

If an online store offers PayPal payments—most do as it’s widely accepted—you can complete a secure transaction through the merchant’s checkout cart—just look for the PayPal button on the site.

For online merchants, PayPal offers solutions to help with business management, customer service, and credit card and financing options. But you’ll need to provide extra information when setting up a business account.

To sum it up, PayPal kind of works as the middle-person between a payer and a payee, so there is no need to exchange card or bank account information. This is to make sure the security and privacy of a speedy transaction. Plus, PayPal provides purchase protection to consumers if a product isn’t delivered.

How to use PayPal

Creating a PayPal account is simple—especially with this step-by-step guide! There are two types of accounts: business and personal. And both accounts offer a range of potential uses.

Personal Accounts

To set up a personal account, just enter your first and last name, mobile number, address, and email address.

Then, you can receive money from anyone via your email address. The money is kept on your account, which can be moved to your bank account or used for personal payments on PayPal.

If you also link your credit card or bank account, you can send money online to anyone with a PayPal account using their email address, or you can shop online by selecting the PayPal logo at checkout.

Business Accounts

To set up a PayPal business account, you’ll need to provide some extra information like the name and address of your business, banking information, and the customer service contact information.

With this setup, your business has access to checkout services, a customer service email alias, and other business perks. But it’s important to be aware of the fees for your business.

Is there a fee to use PayPal?

To answer the question, it depends on what do you use PayPal for.

PayPal is free if:

  • You’re making a purchase from an online store or a brick-and-mortar location.
  • You want to send money to family and friends (personal account) in the US through a bank account or from your PayPal balance.

PayPal charges fees if:

Transferring money across the globe can get expensive. If you want to send money fast and save up to 8x, Wise can be a great alternative. Plus, with a Business account you can save up to 19x on fees, send and receive money, and hold funds in up to 55+ currencies with a Wise Business Account. Exchange money using the mid-market rate without mark-up fees through Wise.

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A quick example of an international money transfer

When sending money abroad via PayPal, you’ll pay hefty transfer and mark-up fees in the transaction. This means, you’ll need to spend a lot more to transfer the full amount – or your friend gets less money.

Let’s see a quick comparison! Say you want to send 1000 USD to your friend in the UK who’ll receive the money in GBP:

Transfer fee$5.00$8.26
Exchange rateExchange fee with a markupMid-Market Rate
Amount your friend will receive679.81 GBP710.70 GBP


As you can see, you could save more than 30 GBP with Wise. It’s free to open an account, so start why not start saving now on your international transfers?

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Alternatives to PayPal

PayPal is great for sending money within the US, but you may want to consider these alternatives to send money abroad – let’s see what are your options.


A solid London-based alternative to PayPal is Skrill. They offer low-cost money transfers both domestic and abroad in over 40 currencies.² Plus, you can manage your accounts through their intuitive app and easily withdraw funds to linked accounts. They also offer a prepaid Visa card that’s very helpful when traveling.³


Established in 2005, Payoneer has been a go-to service for e-commerce businesses for a while. They also provide a special focus on freelancers, vacation rentals and digital marketing services by offering integrations with popular platforms in these industries.

Payoneer allows you to transfer funds in your Payoneer account to local currencies in over 150 countries, but be aware of their fees as they can vary depending on the source of the transfer.⁴


Wise offers international transfers throughout the world with their online platform or highly rated mobile apps. They use smart technology and a peer-to-peer system that skips the ‘international’ part of a transfer. This allows them to connect banks all across the globe.

What does that mean for you? It means that you can save up to 8x using Wise to send money internationally at the real exchange rate.

Business owners can save money with a Wise Business Account by invoicing international payments at up to 19x cheaper. The account supports over 70 countries and 50% of the payments are instant or arrive in an hour.

Save up to 19x with a Wise Business Account 📈

  1. PayPal - What are the fees?
  2. Skrill - Send Money, Receive Money
  3. Skrill - The Skrill Visa
  4. Payoneer - Fees

All sources checked on 11 March 2021

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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