How does PayPal work?

PayPal is an all-in-one online payment solution that is both a merchant account and payment gateway. Established in 1998 and owned by eBay Inc., PayPal was one of the first companies of its kind devoted to digital payments. Its solutions can make set-ups quicker and easier and allow any merchants to accept credit cards in their ecommerce store. Due to its ease of use for customers, simple setup for merchants, the ability to transact in 100+ currencies, PayPal is the most popular online payment solution in the world with over 325 million active customers.

Costs

There are no set-up or cancelation fees, so merchants can switch to a different payment processor at any time. PayPal charges a flat rate and transaction fee, dependent on the volume of payments your business processes. PayPal charges between 2.2 and 2.9 percent of the total transaction, plus $0.30 per transaction. This fee structure is the same regardless of what type of credit card the buyer is using. In contrast, traditional merchant accounts can be more complex. Different cards may have different fees and security requirements, increasing the complexity for both merchants and paying customers.

Checkout features

Adding PayPal to an app, web and mobile site can help improve checkout conversion. With PayPal One Touch, customers can bypass guest checkout pages to avoid entering billing and shipping information, turning a multi-screen checkout process into an express lane on most devices—smartphone, tablet or desktop.

When customers are taken to the PayPal gateway, they are able to complete transactions very quickly if they already have an account. If not, they enter their credit card information as they would with any other payment gateway. The customer submits the payment, and after subtracting the fees, PayPal deposits the money into the merchant's account.

Payment security

Another reason for the popularity of PayPal is its security features. The platform does not send customer data to merchants after a transaction, reducing the possibility of a breach. Transactions also receive 128-bit encryption, fraud screening and address screening.

In addition, merchants that just use PayPal to process payments don't need to worry about Payment Card Industry Data Security Standard because they won't be retaining customer information - it stays with PayPals' platform. All transactions on the site take place on pages that utilize Secure Sockets Layer.