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How PayPal Works

Using PayPal: Sending Funds

Though PayPal rose to stardom via eBay, one of the keys to PayPal's success has been its ability to expand beyond that market. You can use it to send money to a friend, donate to charity and buy items online. In order to send money using your PayPal account, you'll need one of two things:

  • Funds already transferred to your PayPal account before the transaction
  • An instant transfer account, usually a checking or savings account, from which PayPal will withdraw the necessary funds to cover the transaction

From there, it's just a matter of knowing your recipient. To send money to a person, all you need is the email address associated with that person's PayPal account. For an organization or business, you can usually send money from a PayPal link at its website.

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From the sender's perspective, PayPal is a free service. In fact, if you send money directly from a checking or savings account, there are never any fees involved. The one exception would be if you pay for something by taking a cash advance from your credit card. While PayPal might not charge you for this service, your credit card provider probably will.

After you send money, the record of your transaction should appear on the Activity page at PayPal.com. If necessary, you can search that history for a specific time in the past. If you click the "details" link for a transaction, you can view all the details, including the amount, date, recipient and a unique transaction ID used by PayPal to track your transaction. If you ever dispute a transaction, customer service will use this transaction number when handling the dispute from both sides, sender and recipient.

If a website only accepts credit cards and not PayPal, you can still use funds in your PayPal account to make a purchase. To do this, you'll need to request a PayPal debit card which operates on the MasterCard network. You can use that card number with any merchant who accepts MasterCard, and the funds will be deducted from the PayPal account. This service is free but has a daily spending limit of $3,000. That debit card can also be used at ATMs to withdraw up to $400 in cash daily from your PayPal account, and it can earn 1 percent cash back on purchases if you're enrolled for PayPal Preferred Rewards [source: PayPal].

In the next section, we'll see how both personal users and merchants can use PayPal to accept payments.

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