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What is #PAYPAL and How Does It Work?

As you head into your Financial Minimalist journey, many questions about your finance will cross your mind. How are you going to pay your bills? What are your budget and expenses? “What payment system suits you best? We need to get paid, right? We’re minimalists, but we have bills to pay. Our finances still need to be organized, even though money isn't the focal point of our lives.


So, let’s take a look at a simple question – what exactly is PayPal, how does it work? The easy answer – it is a way to send and receive payments. While there is a little more going on. Let’s take a closer look and describe in-depth what this payment system is all about and see how it might help you manage your finances.



A Brief Overview of PayPal


PayPal has been around for quite some time now. It is an easy platform to send and receive money. Some people, however, may not fully understand how PayPal operates. Well, PayPal was a forerunner to what we currently know as cryptocurrency. It’s not cryptocurrency (don’t get me wrong) but it functions in a similar way.


PayPal is an American online financial service company that allows users to transfer money or pay for items using a secure internet account. PayPal was founded in December 1998 by Max Levchin and Peter Thiel. It was acquired by eBay corporation in 2002. With headquarters in San Jose, California, the payment service is available in most countries and it is free to create an account.


Payment is accepted in many different currencies and you can set up an account for personal or for business use. The users can add bank accounts, credit cards, or debit card details to pay or receive money with PayPal. A user can set the default payment method.

Besides paying for any product or service using PayPal, users can also receive money through PayPal. You can purchase with a PayPal account from many online or offline sellers. You will often find the PayPal logo on their webpage.


As a PayPal user, you’re able to:


● Transfer cash from your bank account to your PayPal account.

● Cash advance from a credit card via PayPal.

● Transfer money from one PayPal account to another.

● Instantly transfer money from PayPal to your connected bank account.

● Get an email of your PayPal account details.

● Get a PayPal debit to make real global purchases from your PayPal account.


The cool thing is, when you make payments with PayPal, all those funding sources are protected inside your PayPal wallet. So, all the seller is going to get is your name, email address, and shipping address (if your purchase requires a shipment). Your sensitive information, like the bank accounts numbers, credit card numbers, expiration dates, security codes, and the actual billing address associated with these funding sources are protected behind the PayPal barrier inside your wallet.


Consider, you go shopping on 15 different websites and you put in your credit card number on all of these sites. This means that there could be 15 different chances that your information is stored in their database. If such websites get hacked, and their data is stolen, your confidential banking information can be compromised. Obviously, this isn’t a good thing. But when you pay with PayPal, none of your information is provided to the seller. They will only get your name, email, and shipping address.


For the sellers, PayPal makes receiving payments very easy. There are different PayPal payment services that you could integrate on your retail website to receive payments. You can take payments over the phone, or use the PayPal app. It all drops into a single account into your PayPal account and the money is typically available instantly. So, there’s no batching out at the end of the day, something you find with a lot of other credit card processors.


How It Works


Most of PayPal operates in US Dollars. However, there are a lot of currencies around the world that can operate through PayPal. All you need is a bank account, such as a checking or savings account, or even a credit card or debit card, and PayPal serves as a digital wallet. When you need to send money to someone, that money will come either from the bank account or credit or debit card.


Once the money has been transferred to your PayPal account, it would do one of two things. It can be paid out to someone directly into their PayPal wallet or you can just keep it in your PayPal wallet.


With PayPal, if you’re transfering funds from a bank to PayPal then from PayPal to a savings or a checking account at a bank, there are no fees attached. Now, if you do have a merchant account or a credit card you’re using, there are what is called “merchant fees.” Anytime you have a credit card transaction, merchant fees apply.


You typically don’t have to pay merchant fees as a customer. But as a service or product provider, merchant fees are unavoidable. These fees are usually in the range of 2-5% depending on the credit card that you’re using. A Visa card is typically the least expensive. Discovery and American Express cards can get up there as far as merchant fees go.


Let’s say that you’re a vendor using PayPal. You’ve created an invoice for $50 and sent it out to your client. That client gets the invoice and uses a credit card to pay. Now, they don’t need a PayPal account to pay you, but they can – either way would work. If they have a PayPal account, they can just buy using their wallet balance. When they pay using a credit card, they get charged $50. However, you as the vendor would only receive about $47 or thereabout because of the merchant fees.


Signing up with Pay Pal


You can use PayPal to send money securely with no fees or minimum as long as both users have an account. You can also use PayPal on your web browser, tablets, or via the app on a mobile device.


How to Set Up a PayPal Account


There are two types of PayPal accounts – personal and business PayPal accounts. While the former is recommended for use in your personal life, the latter is best for businesses. It's pretty much the same, although the layouts are a little bit different.




● Here is what a personal PayPal account looks like. This is the summary page, which also serves as the website’s homepage. You will have your PayPal balance. Yours would be zero dollars if you just signed up. This is your digital wallet. This money will sit there forever if you don’t transfer the money to your bank account. This is why it is always important to link your PayPal account to your bank account first. If you wanted to transfer funds out, it just requires you to click on send money. If you wanted to add some money to your PayPal and use your PayPal account to pay for goods and services, click on the three dots beside the balance statement and it would bring up your bank account.




Money added to PayPal from your bank incurs no fees. That’s why adding a bank account is the best way to use PayPal.


● The Wallet page allows you to link a debit or credit card or bank account. It’s the same option that came up when you signed up initially, but you could always come back and do it.



● On the business account, it is called Money, instead of a wallet. Click on the Link a Bank option to add your bank. You will be shown a list of banks to choose from.



● To link your card, you would be asked to fill in the fields containing your credit or debit card number, your card type, expiration date, and security code.

● When you’re ready to take your money out of PayPal, click on the transfer money option. You can transfer to your bank or you could request a check by mail.


Sending Money


● Make sure the other party already has a PayPal account. Ask for their account details.

● The Send & Request page allows you to send and receive money from someone. To do this, type in their name, email, or phone number and press NEXT. This money would be sent to their PayPal. If they don’t have PayPal, they will need to create one to access the funds.



If you are sending someone $100, for instance, select the currency type and then input the amount. You can then indicate why the payment is being made.