What is PayPal?
publication date: Oct 10, 2006
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author/source: Terry Robson
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PayPal is a secure service through which funds can be transferred from one PayPal account to another over the Internet.If you have a PayPal account you can transfer money quickly and safely over the Internet like millions of others.
Having said that, no funds are actually transferred. PayPal is just a running total of how much one account ”pays” to another and vice versa. Not until someone "cashes out" to transfer money to his or her “real” bank account does money actually move.
PayPal won't transfer funds unless the buyer has credit in his or her PayPal account or bank account. PayPal is not a bank. Thus, their accounts are not insured in the same way as a traditional bank account, however they do offer their own private insurance.
In order to participate in PayPal, you must sign up to be a member. It is a free service as long as you remain only a buyer. Sellers pay a commission.
In order to sign up, you are asked all the basic questions, plus you choose a login and a password. PayPal checks that your email is valid by sending you a number by email. You use that number to finish the sign up process.
After signing up, you are asked to enter either a credit card number or bank account. PayPal performs a check. If the account is active and has funds the job’s done. You'll be one of millions in 55 countries paying for goods online.
How Does PayPal Make Its Money?
To begin with, PayPal is not free if you are a seller. In fact, there's a fee structure to use the service. The maximum amount you can be charged is 1.9% or your sale plus a few pence.
But PayPal isn't only getting rich because of those fees. PayPal also makes money from interest. As long as PayPal holds your money in your PayPal account they gain interest. It's a process called a "float". Also when you take money out of your PayPal account the transfer is not immediate. Even after you ask for your money, there is still a waiting period.
So how does it work in practise? Suppose you see a teddy bear on eBay and you decide to but it. You will make a simple online transfer from your PayPal account to the sellers. If you have no money in your PayPal account it will be transferred to the sellers PayPal account directly from your bank account.
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If you only intend to be an occasional buyer you won’t necessarily need to have a PayPal account at all. For example if you want to buy a one-year subscription to Silver IT Club you can simply make an online transfer from your bank account to the Silver IT Club PayPal account. However if you want to subscribe by monthly payments you would need a PayPal account.
It isn’t difficult and Silver IT Club will lead you through the process when you subscribe.
The advantage of all this is that the seller has no access to the buyer’s bank account details because PayPal sits between buyer and seller.