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How Does PayPal Make Money?

Last modified: Dec 25, 2022

Do you ever use PayPal to pay for something online? If you do, you've used a service that generates billions of dollars in revenue each year. But how does PayPal make money? Let's take a look at how this payment processor works and how it generates income. Let's jump in!

About PayPal

PayPal Holdings is a payments processing company that has grown into a range of other services and fields. It was formed in 1998 by Ken Howery, Luke Nosek, Max Levchin, Peter Thiel, Yu Pan, and Elon Musk but went public in 2002 through an IPO. Shortly after, PayPal was bought by eBay and managed as a subsidiary until 2015.

After eBay split with PayPal in 2015, it became an independent publicly-traded corporation; it is currently listed on the NASDAQ under the ticker code "PYPL." PayPal's headquarters are in San Jose, California, in Silicon Valley.

Many different payment options are available on the company's platform. These include PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy. But how does the company make money? We'll get back to that in a short while.

PayPal's Business Model: How Does PayPal Work 

PayPal is an online payment platform that allows you to send and receive money anywhere in the world. You can use PayPal to pay for goods and services online or to transfer money to friends and family.

To use PayPal, you first need to create an account. Once you have an account, you can add your bank account, debit card, or credit card details to make payments. You can also choose between opening a "Personal" or "Business" account.

If you sell something online, you can also accept payments through PayPal. To do this, you will need to set up a business account; this account also provides you with additional features, such as sending invoices and requesting money from customers.

We're talking about a massive company that operates in over 200 countries and supports over 400 million active accounts, so you best believe that a lot is going on behind the scenes to make all of that happen.

How Does PayPal Make Money?

PayPal generates income using a variety of revenue methods that they integrate inside their organization, including:

  • Fee-for-service (FFS) business model
  • B2B2C (partnerships) business model
  • Interest revenue model
  • Subscription-based business model
  • Mergers & acquisitions (M&A) business model

Transaction Fees

These fees are charged to both consumers and businesses. When it comes to consumers, these fees are applied when they do things such as buying/selling cryptocurrencies, accepting donations, sending/receiving cash, currency conversions, withdrawing funds from PayPal, and so on.

Merchants are also charged these fees when they do things such as commercial transactions, receiving charity transactions, micropayments, using PayPal Here, and other merchant fees.


PayPal provides specific lending solutions to its businesses. For example, PayPal may lend to merchants with great confidence in their capacity to repay since it has high insight into their revenue source. These loans are commonly used to assist businesses during tough times.

Venmo Fees

How does PayPal make money from Venmo? For instance, Venmo provides related credit cards with double-digit APRs. Customers must pay a fee to withdraw funds from their accounts. In addition, Venmo offers instant transfers, but users must pay a fee to avoid delay. The wallet service also provides other features like crypto trading and payroll check cashing, for which it may make a decent amount of money. If you are interested in how Venmo makes money, we have coverage on that topic.

Partner Fees

PayPal makes money by partnering with retailers and other e-commerce companies. Honey is a great example; customers can use it to discover discounts and special deals at 40,000+ different online stores. In addition, these retailers frequently offer incentives to PayPal's Honey and other comparable third parties to increase website traffic.

This demonstrates the influence of PayPal's platform. In addition, it encourages its customers and Venmo users to try Honey to save money, thus creating affiliate referral revenue for PayPal.

Pay in 4

It allows you to pay for your purchase in four interest-free stages. Your first payment is due when you buy something. The following three prices are due 14 days after the first one. So, how does PayPal make money from Pay in 4? This allows PayPal to make money by charging customers late fees. In the future, retailers may be taxed (either monthly or per transaction).

Withdrawal Fees

If you want to withdraw cash from your PayPal account, it will send the money to your bank account for free. But if you want a check, there is a small fee. As a user, you can access your funds anytime, but that also has a small cost.


PayPal launched a Mastercard-branded credit card with reward incentives. The card gets 2% cashback on all PayPal purchases, has no annual fee, and has no limits on how cash rewards can be utilized.

If you prefer a transaction to a retailer, PayPal offers cashback rewards. This implies that PayPal gets a cut of the transaction amount by stimulating particular partnerships.

Bottom Line

How does PayPal make money? Fees, interest, and investments are the primary sources of revenue for PayPal. The company charges a fee for each transaction and earns interest on funds deposited in user accounts. Additionally, the company has expanded into other areas, such as peer-to-peer payments. 


How does PayPal make money on credit card transactions?

When someone uses a credit card to pay for something through PayPal, the credit card company charges PayPal a fee for processing the payment. This fee is around 3% of the total transaction amount. So, if someone pays for $100 worth of goods or services through a credit card, PayPal will keep 3% of that as profit. 

How does PayPal make money on Venmo?

Paypal earns a small fee on each transaction that goes through Venmo. In addition, Paypal also benefits from the interest earned on users' money sitting in their Venmo account balances. Given that Venmo is one of their most popular peer-to-peer payment apps, this adds up to a significant amount of revenue for Paypal.

What are the cons of PayPal?

There are a few potential cons to PayPal to be aware of:
Fee fees are involved if you're using PayPal to send or receive money. These fees can vary depending on the amount of money sent, the currency involved, and other factors.
PayPal may temporarily freeze your account if it thinks suspicious activity is happening. This can be frustrating if you're trying to access your funds and are unsure why your account is frozen.
PayPal is only available in some countries, so if you're living in or traveling to a country where PayPal isn't supported, you won't be able to use it.

Why did PayPal charge me a fee for receiving money?

This answers the "How does PayPal make money" question too. The company must generate some revenue from its services to continue in business. As a result, PayPal charges a fee for most transactions processed through its system. These fees are usually imposed on the individual or company that receives the cash.

Policy Advice is a website devoted to helping everyday people make, save, and grow money. While our team is comprised of personal finance pros with various areas of expertise, nothing can replace professional financial, tax, or legal advice.

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