PayPal is a huge platform, everyone uses it. But, not everyone knows how it works. So, today we’re going top go through the steps on how PayPal works and functions for your business.
So, PayPal has been around for a long time and if you’re not using it for small business, I highly recommend that you do. It’s an easy platform to send and receive money. You know, PayPal was a forerunner to what we currently know as cryptocurrency. It’s not cryptocurrency, don’t get confused, but it functions in a similar way.
So let me just walk you through the basics of how exactly PayPal works. Most of PayPal operates in USD, meaning US dollars, but it doesn’t have to. There are a lot of currencies out there in the world that can operate through PayPal and PayPal will take all of them.
PayPal will act as a digital wallet and when you need to send money to someone, you can draw the funds to your PayPal wallet. Once it’s in the PayPal wallet, it can be paid out to someone directly into their PayPal wallet. Once it goes into the other person’s PayPal wallet, then they can take that money through a transaction time of between three and five business days, that money can be put into their bank or their credit card or whatever it is.
Now, if you do have a business account, then there comes in the merchant fees. You typically don’t have to pay for merchant fees as a customer but as a service provider or a product provider, you’re definitely paying transaction charges. It can range up to three, four, five percent depending on the credit card that you’re using. As far as merchant fee goes, this is what happens when you use a credit card on PayPal, where do those fees get taken out?
Let’s say that you are a vendor on PayPal, you’ve created an invoice and you’ve sent it off to your client, that client gets that invoice and they’re going to pay it with a credit card. So, they open up their email, they reply to that email or click on the link in the email and decide to pay with a credit card. If they have a PayPal account, they can just pay with the money in their PayPal wallet or use the backup of the credit card as the funding source. Now, if they don’t have a PayPal account and they’re going to pay with a credit card, then the money first goes to a third party called a merchant account and after deduction of a certain percentage that is applicable, you’ll receive the rest of the amount in your PayPal account.
PayPal is also used widely for international money transfers. Since overseas money transfer needs conversion of money from one currency to another, PayPal charges around 3% to 5% of the amount as their transaction fees. The currency conversion rate of PayPal differs from country to country. To know about the rate of currency conversion charges, you can use certain tools like PayPal currency converter. PayPal currency converter basically calculates the transaction fees that you have to pay for transferring a certain amount to another country.