Definition
PayPal is the most historic payment wallet in global e-commerce, created in 1998 (then Confinity), listed in 2002, acquired by eBay and then spun off in 2015.
It offers consumers an account to pay online without re-entering their bank details, and merchants a third-party acquiring solution that is an alternative to card PSPs. It is at once a wallet ("Pay with PayPal"), a third-party acquirer (PayPal Checkout), an EMI in Luxembourg (regulated by the CSSF, with the European passport) and a card issuer. More than 434 million active accounts at the end of 2024, across ~200 markets.
How it works for the consumer
The consumer links their account to a card or bank details and uses PayPal as a proxy: the merchant receives the payment without ever seeing the bank details.
How it works for the merchant
PayPal acts as a third-party acquirer: the merchant integrates PayPal Checkout, the customer pays via PayPal, PayPal credits the merchant account, which then withdraws to its bank. Typical fees: 2.9% + €0.35 per transaction, equal to or slightly above card PSPs like Stripe.
Business model
Merchant fees (2.5 to 3.4% plus fixed fees), margins on currency conversion, credit (PayPal Credit / Pay in 4), and float on balances. 2024 revenue: $31.8bn on a TPV of $1,681bn.
Regulatory status
- Europe: PayPal (Europe) S.à r.l. & Cie, S.C.A., an EMI in Luxembourg (CSSF since 2007), passported throughout the EEA, subject to PSD2 SCA.
- USA: money transmitter in every state, BaaS via banking partners.
- Asia: variable, often via a local partnership.
The peripheral services
Venmo (a US social P2P wallet, ~80M users), Xoom (international transfers), Braintree (a full-stack acquiring PSP), iZettle (mPOS), Honey (cashback) and PayPal Credit / Pay in 4 (BNPL).
Pay in 4 (BNPL)
PayPal offers an interest-free payment in 4 instalments (immediate + 3 monthly payments), with no application — in direct competition with Klarna, Alma, Younited Pay and FLOA. Available in France since 2020, for a volume of around €1bn in 2024.
Pros and cons
Pros: universality (434M accounts, accepted everywhere), trust (25 years, strong conversion when the button is present), buyer protection, one-click payment, multi-currency.
Cons: a merchant cost often higher than card, an extra margin on top of card fees when funded by card, a redirect-based UX less smooth than Apple Pay, possible freezing of funds in case of risk, and the status of a US player in head-on competition with Wero/EPI.
PayPal vs competitors
| Player | Type | UX | Merchant fees |
|---|---|---|---|
| PayPal | Wallet + acquirer | Average (redirect) | 2.5-3.4% |
| Apple Pay | Wallet (device) | Excellent | 0 surcharge |
| Google Pay | Wallet (device) | Excellent | 0 surcharge |
| Wero / EPI | EU bank wallet | Native | Low (to be defined) |
| Stripe / Adyen | Acquiring PSP | Excellent | 1.4 to 2.9% |
| Klarna | Wallet + BNPL | Good | 2 to 5% |
What PayPal is not
- Not a bank: an EMI, with no classic revolving credit beyond Pay in 4 / PayPal Credit.
- Not a classic acquiring PSP: a wallet plus a third-party acquirer, closer to Klarna than to Stripe.
- Not a network (like Visa/MC): no third-party issuers, it is a closed player.
- Not a PCI burden for the merchant: PayPal handles PCI compliance.
In the PSD2 / Open Finance ecosystem
PayPal is a major but closed player: it does not share its data in Open Banking, has rolled out its own strong authentication (passkeys + biometrics since 2022) for PSD2 SCA, and is in direct competition with Wero/EPI — a matter of European sovereignty. It is not a TPP, but for some merchants it serves as an alternative rail to PIS.
Concrete examples
- eBay: 100% of payments until the 2015 split, where PayPal remains dominant.
- Marketplaces: AliExpress, Etsy, Vinted, Cdiscount, La Redoute, ManoMano, Rakuten.
- Pay in 4: strong growth in 2022-2024, with a profitability challenge (risk provisions).
- Apple: the integration of Apple Pay into Safari is eating into PayPal's mobile share.
- Wero: EPI aims to become the benchmark European wallet and to win share back from PayPal on the continent.
- PayPal button: its presence raises the conversion rate according to PayPal's internal studies — a sales argument to handle with caution on the exact figures.