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Business Operations Business Models

How Does PayPal Make Money (Business and Revenue Model)

The PayPal business model

How Does PayPal Make Money?
Here’s what you should know:
  • What is PayPal, and how does PayPal work?
  • How does PayPal make money?
  • Transaction Fees
  • Revenue From Other Value Added Services
  • PayPal’s Subsidiaries, Acquisitions, and Exits
  • PayPal’s profit and revenue
  • What is the PayPal business and revenue model?
  • PayPal’s funding and market cap

How does PayPal make money? Here is a full, in-depth, breakdown of their two (2) revenue streams and the different products and services they offer, as well as the PayPal business model, their year-over-year revenue, and how PayPal works.

What is PayPal, and how does PayPal work?

PayPal, a subsidiary of eBay, is an online payment service that allows customers and merchants to electronically send and receive money.

How PayPal works is: Once you sign up on PayPal’s website and choose between opening a “Personal” or “Business” account. You can then link a debit card, credit card, or bank account after filling out all the required fields. Once done, you can start sending and receiving payments.

Founded in 1998 by Ken Howery, Luke Nosek, Max Levchin, Peter Thiel, Yu Pan, and Elon Musk, PayPal has more than 377 million active accounts and handled $936 billion of total payment volume in 2020 alone.

Some of PayPal’s competitors include Cash App, Stripe, Zelle, Venmo, and other online payment services.

PayPal App in Apple App Store | PayPal Business Model | How Does PayPal Make Money?
Source: Apple App Store

How does PayPal make money?

According to page 5 of PayPal’s 2020 Form 10-K, PayPal handled $936 billion of total payment volume and had 377 million active accounts, of which are 29 million merchant accounts, in 2020. So how does PayPal make money off of all that payment volume and active accounts?

Below is a breakdown of how much money PayPal makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are the 2 ways of how PayPal makes money (in 2021):

PayPal has a revenue model that makes money in two (2) ways – transaction fees and revenue from other value added services.

#1. Transaction Fees

PayPal makes money primarily through transaction fees. In fact, $19.92 billion or 92.7% of PayPal’s total revenue came from transaction fees in 2020.

Transaction fees apply to both customers and merchants using PayPal.

For customers, these include fees on transactions like buying and selling cryptocurrencies, receiving donations, sending and receiving money, currency conversions, withdrawing money from PayPal, and other consumer fees.

And for merchants, these fees are applied to things like commercial transactions, receiving charity transactions, micropayments, using PayPal Here, and other merchant fees.

PayPal Transaction Fees Cost:

  • For customers: free to 5% + fixed fee depending on the transaction type
  • For merchants: 1.90% to 4.99% + fixed fee depending on the transaction type

Note: 92.7% of PayPal’s total revenue in 2020 came from transaction fees.

#2. Revenue From Other Value Added Services

PayPal also makes money through another 5+ revenues that they lump together on their income statements as “revenues from other value added services.” Combined, these services totaled $1.53 billion in revenue for PayPal in 2020.

According to page 35 of PayPal’s 2020 Form 10-K, PayPal labels revenue from other value-added services to be “revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services we provide to our merchants and consumers. We also earn revenues from interest and fees earned primarily on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances.”

Note: These services totaled $1.53 billion of PayPal’s total revenue in 2020.

PayPal’s Subsidiaries, Acquisitions, and Exits

Aside from PayPal being acquired by eBay for $1.5 billion, PayPal has had its own fair share of acquisitions as well.

To date, PayPal Holdings, Inc. has made a total of 22 acquisitions. On top of that, PayPal also had 16 investments, 4 lead investments, and 4 successful exits.

PayPal Acquisitions
Source: Crunchbase

PayPal’s profit and revenue

In 2020, PayPal reported $21.45 billion in revenue.

Note: Because PayPal Holdings, Inc. is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of PayPal’s publicly released financial reports, including annual reports, through  PayPal’s investor section on their website.

What is the PayPal business and revenue model?

PayPal makes money through a few revenue models that they combine within their company, they are:

  • Fee-for-service (FFS) business model
  • B2B2C (partnerships) business model
  • Interest revenue model
  • Subscription based business model
  • Mergers & acquisitions (M&A) business model

PayPal’s funding and market cap

According to PayPal’s Crunchbase profile, PayPal has raised $216 million over 5 rounds and has a market cap of $323.75 billion as of August 2021.

PayPal was acquired by eBay on July 8, 2002, for $1.5 billion.