What you should do about using Paypal

PayPal is undoubtedly the most popular "middleman service" for purchasing online in the world. Before 1998, making online purchases overseas (including sending money overseas)used to be a huge problem. But in 1998, PayPal brought a revolution in the money transferring habits of users globally.  (Ebay made the decision of its life when bought PayPal for $1.5 Billion in 2002 and included it as a checkout option in its interface. Though not an Ebay subsidiary anymore, but PayPal has never looked back since then). So, how is Paypal doing? Today, with a reach in around 202 countries, this company helps 197 million users transfer money all over the world. Please see below images for statistics and comparisons showing PayPal's annual revenue from 2010 to 2017. In the most recently reported period, the payment provider's revenue amounted to 13.09 billion U.S. dollars, up from 10.84 billion U.S. dollars in the previous year. Before answering the question of ‘How does PayPal make money?’, we have to understand PayPal’s business model and how does it operate first.  PayPal is no longer an online payment form. It is not just a financial technology company. It is a revolution in the digital money market. PayPal, though not a bank, provides features which are not less than any bank. PayPal, which started as an online payments solution, has now transformed itself into a powerful finance tool. (I am not going to delve into the details for this discussion) There are two types of accounts on PayPal – Personal & Business. With a personal account, you can send and receive money online from family or friends and pay for goods you’ve bought online or offline through your debit card, credit card or through your PayPal balance. However, PayPal charges a fee of 2.9% plus $0.30 USD of the amount when you pay using a debit or credit card. With a  business account, for the merchant who use PayPal services to sell goods (& services) online, the merchant pays a fee of 2.9% plus $0.30 USD of the amount they receive on the sale. Here comes the bottomline (pun intended): How does Paypal make money? Its revenue model spreads wide and deep to include many revenue sources. I include those more relevant to us, end users, holding personal accounts. Fees on transactions: Whenever money is sent from one PayPal user to another, that counts as a transaction. Almost every transaction comes with a fee, and this fee applies no matter what kind of Paypal transaction you engage in. (Note: Transaction is mot limited to buying ? paying online). Let us begin with what is most relevant to us will be when we use Paypal to buy and pay for things (be it goods or even services!). This fee is calculated= 3% of business transaction value + $0.30 per paypal transaction. Example, you bought an item for US$100. Using paypal, you would pay US$103 + US$0.30). Personally, I find the 3% relatively quite high fees for this mere service provided. This is also compared to VISA/MASTERCARD or AMEX. This is also in the context of many other online alternatives eg. Venmo, Square Cash, WeChat Pay, Alipay. (However, Wechat Pay and Alipay is not opened to foreigners yet. In the future countries that have Alipay, you cannot use it to buy from Taobao directly. You have to use the local Alipay to buy from Alibaba's separate platforms in your country eg. through Lazada which Alibaba has taken a major stake. Of course, you can use credit card to buy from Aliexpress but the prices there are much inflated above Taobao, Tmaill, etc. Also, I find the USD$0.30 per transaction, as defined by Paypal, rather uncomfortable. A transaction is not defined as a business exchange of good and money example a purchase order. Each time you used Paypal, it is seen as a transaction to paypal. (More on this in another post) International Payments: This then means that PayPal charges fees when you send/receive payments from a different country. The charges include currency conversion cost (if a different currency is used) and the international payment fee (which varies for different currencies). Do not forget if your credit card issuing bank is not in USD, then Paypal will convert based on THEIR exchange rates. (Hence please refer to useful post (by agong) in this BBS on using your own issuing bank rates) International Transfers: This fee is waived when sending money to friends or family, but not if you’re sending money using a debit or credit card. However, sending money like this also waives PayPal’s buyer protection, so think twice before using it as a loophole. P2P transfer withdrawal fees: PayPal lets you receive money directly through a custom link. However, PayPal charges you when you withdraw the same. The charges are pegged at 2.9% plus $0.30 USD of the amount received. Paypal Withdrawal Fees: If you would like to withdraw money from your paypal to your bank, a (rather hefty fee is leveied depending on different countries). There is a reason for this. Paypal wants to hold onto your monies as much and as long as possible. (More on this in another post) Balance Investments (ie interests from money deposited): The money kept as PayPal balance is deposited by the company in liquid investments which earns interest. The interest is a source of revenue for PayPal and is not shared with you. (More on this in another post) Legal disclaimer: The above is an amalgamation of many publicly available online sources. The above represents personal subjective opinions. There is no intention to prejudice individual opinions or sway public opinions.