How PayPal Makes Money

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Contributor, Benzinga
February 22, 2022

Though the push to digitalize almost every aspect of society has encountered some resistance — particularly in the areas of online privacy and cybersecurity — the binary code that undergirds modern transactions enjoys near universal support for its capacity to facilitate convenient, rapid-fire payments.

Not surprisingly, then, financial technology (fintech) firm PayPal Holdings Inc. (NASDAQ: PYPL) has witnessed its stock rise — both figuratively and literally — over the years, laying the vital framework for the next generation of business processes. Specializing in digital payment transaction services, PayPal has been instrumental not only in streamlining peer-to-peer (P2P) currency settlements but also paving the way for myriad innovations such as the gig economy and blockchain-related functions.

While intriguing, the above narrative may leave you wondering how PayPal makes money. Primarily, the company generates revenue through fees that it charges for transactions occurring in its network. Within this broad revenue stream lie multiple subsegments. For instance, as a popular international brand, PayPal charges a fee for personal transactions involving foreign currency exchange, thus sparking multiple conversion opportunities through one central business.

How PayPal Makes Money

Unlike other tech firms that deploy multiple (and sometimes disparate) businesses, PayPal stays true to its brand identity: offer a friendly, intuitive and ultra-convenient platform to send, receive and store money digitally. As a result, how PayPal makes money is likewise straightforward.

Transaction revenues

According to the company’s fiscal year 2020 revenue segment breakdown, the vast majority of PayPal’s revenue — a whopping 93% — arrived courtesy of transaction-based fees. In addition to the namesake business, the digital payment processing specialist also features other sales channels, such as PayPal Credit, Braintree and Venmo.

Value-added services

The remaining 7% of revenue stems from what PayPal calls value-added services. This category includes sales generated from partnerships, referral fees and subscription fees, along with cost of services to merchants and consumers. As well, the platform earns interest and fees on its loan receivables line item.

PayPal Stock Price

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Obviously, one of the most conspicuous factors in helping to decide whether PYPL stock is right for you is its share price — the current market value of one unit of an equity stake in PayPal. However, whether you’re interested in the digital payments specialist or some other company, you should realize that the stock price alone doesn’t provide much information.

Before pulling the trigger, you should ascertain characteristics that contextualize the share price, such as the issuing company’s float (the total number of shares available for retail investors to trade) and its price-earnings ratio (the relationship between share price and its earnings per share).

Don’t make the mistake of judging a security to be cheap or expensive based on its share price alone. Rather, conduct your due diligence to understand what that number actually means.

YTD from Benzinga Pro

Where to Invest in PayPal

Modern investors — just like consumers — demand convenient access and rapid-fire execution, attributes that the burgeoning field of online brokers readily provide. Below is a list of platforms to consider.

PayPal Past

Commanding one of the most colorful origin stories among publicly traded companies, PayPal initially started life as an encryption software for personal digital assistant (PDA) devices. However, Max Levchin, a Ukrainian-born computer scientist who conjured up the concept, soon realized that the market for such a cryptographically intensive system was extremely limited. At that point, investor Peter Thiel suggested the software be used to store money — essentially, a digital wallet.

Inspired, Levchin set out to create cryptographically secure IOUs that could be transmitted from one PDA to another. Originally, the founders labeled the venture Confinity. But when Levchin upgraded the capacity of the underlying IOU transmission system to operate beyond the confines of hand-held devices, the brand PayPal was born.

Now that the network was in place, Luke Nosek, another founding member of PayPal, set out to launch a viral campaign to gin up interest in the P2P payment processor. Through the promise of a $10 deposit for a sign up, along with a bounty of $10 for every new referral, word spread quickly.

Still, PayPal wasn’t the only gunslinger in town. Within the rapidly competitive digital payments arena, — led by Elon Musk — emerged as a key rival. Indeed, Musk launched a staggeringly audacious shock-and-awe campaign, promising $20 for each new user to his platform. Eventually, with negative cash flows turning the waters of this nascent industry blood red, the two companies merged in March 2000.

However, it soon became apparent to any modestly cognizant observer that this marriage of convenience and necessity would not be a happy one. Executives and officers from the two merged entities would often clash, partially because of differences in leadership and corporate governance. As well, Musk’s efforts to phase out the PayPal brand in favor of failed due to the latter’s invoking the prurient content industry.

Inevitably, a revolt occurred, with the founders threatening to quit unless the combined entity removed Musk as CEO. With the board of directors relenting, Musk found himself out of a job — that is before leading Tesla Inc. (NASDAQ: TSLA) and SpaceX. Thiel, on the other hand, became interim CEO of PayPal, setting the stage for its present-day status.

PayPal Present

Though contemporary investors are most familiar with PayPal’s initial public offering (IPO) that occurred in July 2015, this debut was actually the company’s second bite at the capital market apple. The first happened in 2002, which generated immense interest among retail investors. However, online auctioning platform eBay Inc. (NASDAQ: EBAY) — which previously attempted a sort of gunboat diplomacy to cajole PayPal into accepting multiple buyout offers — agreed to acquire the payment processor for $1.5 billion.

At the time, the takeover made sense for both entities. While PayPal featured the technical acumen to cover a wide range of digital wallet and payment services, the vast majority of eBay auctions accepted PayPal payments. Eventually, as both businesses matured, executives decided to spinoff PYPL as a separate entity, sparking its second IPO.

Today, the company is a full-fledged digital payments ecosystem, featuring robust P2P transactional mechanisms along with business application tools for entrepreneurs. Thanks to budding interest in the gig economy or non-traditional work arrangements where participants receive financial compensation on a per-project basis (as opposed to salary basis), PayPal is well-positioned to advantage the shifting trends of the new normal.

Better yet, the company’s enormous relevance has translated into meaningful fiscal performances. For instance, during the initial onslaught of the COVID-19 pandemic, the disruption in revenue channels caused multiple companies to lose ground for full-year 2020. That wasn’t the case for PayPal, which not only generated year-over-year (YOY) revenue growth to $21.45 billion but did so emphatically to the tune of nearly 21%.

Last year, the company posted top-line sales of $25.4 billion, translating to a YOY growth rate of 18%. Unfortunately, during its most recent financial disclosure for the fourth quarter of 2021, PayPal fell short of its earnings-per-share consensus target. With investors worried about the prospect of PYPL stock getting ahead of itself, many stakeholders rushed for the exits.

While it’s impossible to know when the current volatility will end, the core relevance for PayPal hasn’t changed. If anything, the payments platform has become even more pertinent. As Benzinga editor Adrian Zmudzinski stated, PayPal has been doubling down on its efforts to integrate access to cryptocurrencies within its payment ecosystem. Therefore, it’s not out of the question for the company to become a one-stop-shop for digitalized transactions.

PayPal Future

Ironically, one of the guiding principles of PayPal may stem from an old, hackneyed adage: if it ain’t broke, don’t fix it. While the underlying message of mediocrity may be anathema to the fintech firm and the spirit of innovation, it could very well be the key to success.

According to analysts from Grand View Research, the global digital payment market reached a valuation of $68.61 billion last year. By 2030, they project that total sector revenue could hit over $361 billion, representing a compound annual growth rate (CAGR) of 20.5% between 2022 to 2030. Thus, PayPal simply holding its position in the payments space could yield significant organic growth.

As well, the company enjoys fortuitous tailwinds stemming from the COVID-19 crisis. According to a post from MIT Sloan School of Management, the gig economy can help reduce unemployment and debt loads by providing displaced workers with prospects to earn money through various side gigs until they transition back to full-time positions.

However, the nature of the labor market today implies that many people, particularly those hailing from younger demographics, prefer the independent contractor lifestyle. Therefore, by opening a PayPal account, such individuals can expand their horizons beyond their usual confines as the platform enables foreign-currency conversions.

On a related note, PayPal’s inroads into expanding its cryptocurrency offerings is another segment to watch. As the Bank for International Settlements (BIS) noted late last year, COVID-19 forced the implementation of mitigation measures across various functionalities, including digital payment processing. While this silver lining produced positive outcomes for internet-connected users, certain BIS contributors stress that infrastructure for payments must be open and cost efficient.

Put another way, the collective response stemming from the pandemic could accelerate efforts to democratize financial access and catalyze greater social equity. While such an initiative would be extraordinarily difficult to implement with fiat currencies because of their centralized administration, decentralized assets — such as virtual currencies — could better foster access to capital through efforts such as microtransactions.

With PayPal spearheading crypto-related projects, it could help connect developing and frontier markets to capital influxes and participation.

PayPal: The C-Suite

While investors tend to focus on a company’s underlying business, no organization can survive indefinitely without a strong core of leaders. Below are some of the people who help keep the wheels turning at PayPal.

Dan SchulmanPresident and CEO

Commanding unparalleled experience and acumen in the payments and mobile technology industries, Schulman radically transformed expectations regarding money management. Under his leadership, PayPal was named as one of the top companies on JUST Capital and Forbes’ JUST 100 list.

Peggy AlfordExecutive Vice President, Global Sales

Driving the international expansion and distribution of PayPal’s product footprint, Alford has been instrumental in turning the digital payments specialist into a worldwide household name. She is particularly known for fostering diverse teams, sparking a broad range of innovative ideas.

John RaineyExecutive Vice President, Global Customer Operations and CFO

Leveraging more than 20 years of financial management experience, Rainey runs the books at PayPal, leading its corporate accounting and financial operations, planning and analytics. In addition, he spearheads the company’s customer service experience profile, ensuring the brand’s relevancy.

Frequently Asked Questions


Can you earn interest on PayPal?


Recently, the payment processing specialist has taken a major step toward eventually replacing your bank account, with users able to earn an anticipated 0.40% APY on their holdings — or six times the national average per PayPal’s website.


Is PayPal profitable?


Recently, the payment processing specialist has taken a major step toward eventually replacing your bank account, with users able to earn an anticipated 0.40% APY on their holdings — or six times the national average per PayPal’s website.