Britannica Money (2024)

PayPal is an American e-commerce company formed in March 2000 that specializes in making money transfers over the Internet. The company enables users to link their PayPal accounts to their own bank accounts and credit cards, making transfers and payments faster than analog ways of moving money.

How PayPal makes money

PayPal primarily generates revenue by charging transaction fees to merchants and consumers on a per-transaction basis. The digital payments platform also earns fees from several other activities and types of transactions, including:

• Cross-border transactions
• Currency conversions
• Expedited funds transfers to customers’ debit cards or bank accounts
• Cryptocurrency transactions

An Internet pioneer

PayPal was founded in 1998 when, as the company puts it, “money meant paper and coins.” Originally named Confinity, PayPal developed an early focus on digital payments for consumers and businesses. Its mission was to create the world’s first digital payment platform that would make money work faster and better. Peter Thiel, of Confinity, was among PayPal’s founders.

The payments platform experienced explosive growth, adding more than one million users by 2000. At that time, many users completed transactions within e-commerce and auction site eBay (EBAY); approximately 40% of all eBay transactions involved PayPal.

Confinity’s PayPal merged with X.com, an online bank co-founded by Elon Musk, in March of 2000. PayPal went public in February 2002, raising $70.2 million in its initial public offering.

The eBay era

In October 2002, eBay acquired PayPal for $1.5 billion, making PayPal the official payments provider for eBay.

PayPal continued to grow. By 2011, it had more than 100 million active users in 190 markets and 25 currencies. In 2013, the company acquired Venmo, the digital wallet of choice for millions of college students and small businesses, and the cross-border payments platform Xoom in 2015.

In 2015, eBay spun PayPal off into an independent company, but continued to use its services. PayPal shares began trading on the Nasdaq exchange under the ticker symbol PYPL.

The partnerships era

PayPal continued to expand aggressively by forming several high-profile partnerships, including:

• Visa
• American Express
• Discover
• Mastercard
• Bank of America
• Barclays
• Citi
• HSBC
• JPMorgan Chase
• Wells Fargo
• Google via Google Pay
• Apple via Apple Wallet

PayPal also started acquiring companies in 2017, including:

• Swift Financial for small business financing
• Zettle for in-store shopping
• Hyperwallet to expand PayPal’s business payout capabilities
• Simility to enhance risk services and fraud detection
• Paidy to expand PayPal’s presence in Japan and its buy now, pay later capabilities

PayPal continues to innovate

PayPal made a major technological leap forward in 2021 with the integration of cryptocurrency. The payments platform introduced Checkout with Crypto, offering customers a way to pay for purchases using digital assets.

PayPal innovated further in 2023 by introducing a stablecoin denominated in U.S. dollars called PayPal USD (PYUSD). Also in 2023, Venmo began supporting peer-to-peer crypto transfers.

In 2024 PayPal began incorporating artificial intelligence (AI) into the PayPal and Venmo platforms to personalize the user experience for individuals and merchants.

The dark side of innovation

Like most tech innovators—particularly those that involve money and user data—PayPal has seen its share of controversy over the years:

• Sanctions violations. PayPal in 2015 paid a $7.7 million settlement to the U.S. Treasury Department for processing payments for individuals involved with black market nuclear weapons and in sanctioned countries.
• Arbitrary account freezes and cancellations. PayPal in 2022 received news coverage for suddenly canceling without explanation the accounts of two independent news outlets—a move widely seen as being politically motivated. The payments platform became the defendant in a federal lawsuit in the same year, obligated to defend itself against claims that it froze and kept the funds of three individual PayPal users.
• Data breaches. Data has leaked out of PayPal’s platform on at least two major occasions. In 2017, the platform revealed that the personal identifiable information of over 1.6 million customers had been compromised.
• Data privacy. Also in 2017, PayPal’s Venmo revealed that anyone by default could view other users’ transactions, stating at the time that “it’s fun to share [information] with friends in the social world.” Although it maintained the public-by-default settings, the company has made it easier to make transaction histories and connections private.

What makes PayPal shine

Despite the controversies, a series of security advances have helped PayPal garner respect for its ability to prevent identity theft. The company implements anti-phishing and anti-hacking measures, and has developed a portable “key” device that requires manual activation before a transfer from a PayPal account is processed.

PayPal’s platform includes other embedded protections, such as the ability for consumers to contest and request refunds for transactions when they have been misled or cheated. Plus, its monitoring system can deactivate an account when suspicious or excessive activity is observed. And PayPal’s merchant solutions compete head-to-head with rival payments processor Square (SQ) in online and point-of-sale (POS) transactions.

“PayPal” is both a noun and a verb in modern language. The organization isn’t free from drama, but that alone speaks to the pervasiveness of PayPal in the digital financial landscape.