How Does PayPal Make Money? Revenue Model Explained

Launched in 1998, US-based payments company PayPal provides merchants and consumers with a platform to send and receive online, mobile, and in-person payments worldwide. The company earns revenues from transaction and other service fees.

PayPal had 429 million active accounts at the end of June 2024, down from 431 million a year earlier, although the average number of transactions per account increased to 60.9 million from 54.7 million over the same period.

The company recently announced the expansion of its partnership with Shopify in the US. It will become an additional online card processor for Shopify Payments via its PayPal Complete Payments solution for marketplaces and platforms, which will contribute to PayPal’s revenue in the future.

How does PayPal make money? This article looks at the company’s divisions and sources of revenue.

Table of Contents Table of Contents

1. Key Takeaways
2. H2: PayPal's Financials: Revenue Growth Through Years
3. Future Growth Plans
4. The Dark Side of PayPal: Controversies, Criticism & Challenges
5. PayPal Competitors
6. The Bottom Line
7. FAQs
8. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. H2: PayPal's Financials: Revenue Growth Through Years
3. Future Growth Plans
Show Full Guide
4. The Dark Side of PayPal: Controversies, Criticism & Challenges
5. PayPal Competitors
6. The Bottom Line
7. FAQs
8. References

H2: PayPal’s Financials: Revenue Growth Through Years

The latest PayPal revenue breakdown shows that the company’s revenues increased by 8% year on year during the second quarter of 2024 to $7.9 billion, up from $7.3 billion a year earlier.

 As of September 2024, PayPal’s market capitalization, or market value, was $71.93 billion. It has gained 8% since 2023 and climbed from $44.3 billion in 2015.

PayPal’s Business Model

PayPal’s products include several brands it has acquired over the years, including Venmo, Zettle, and Honey. It has 12 subsidiaries that contribute to PayPal revenue streams.

PayPal’s business model involves making money from merchants and consumers. Opening an account and sending PayPal payment is free, but the company charges merchants fees for processing their transactions and consumers for transferring or converting money.

The company splits its revenues into two categories:

• Transaction Revenues
  These are the fees PayPal charges merchants and consumers to facilitate transactions based on the Total Payment Volume (TPV) on its payments platform. They also include the fees it charges for currency conversion, cross-border transactions, instant transfers to bank accounts, cryptocurrency transactions, and fines for customers violating its contract terms.
• Revenues from other value-added services
  Income PayPal receives from partnerships, referral fees, subscription fees, gateway fees, card reader sales, cash advances and other services, as well as interest and fees on loans and customer balances.

Merchant Services

PayPal provides retailers and other merchants with a range of services to receive and manage their customer payments. Its payment platform allows merchants to accept payments from credit and debit cards, PayPal, Venmo, and other digital wallets, cryptocurrencies, and gift cards, as well as other local payment methods in various countries.

In addition to payment processing, services include fraud prevention, risk management, and access to credit and data analytics to help businesses improve sales.

Consumer Services

PayPal’s consumer services center on its digital wallet, which allows them to pay retailers using their preferred payment method. Users can also make peer-to-peer through PayPal, Venmo, and Xoom. PayPal provides lending services to consumers in certain countries.

The Venmo digital wallet is a popular mobile application in the US used to make peer-to-peer payments and purchases from certain merchants.

The Xoom international money transfer service allows consumers to transfer money, pay bills, and reload prepaid mobile phones.

Future Growth Plans

PayPal put in place a new management team in November 2023, which is executing a transformation strategy “to position PayPal for long-term durable and profitable growth”.

This involves “enhancing customer experiences for our next phase of growth,” according to the company’s quarterly presentation, and raising its investment in its growth initiatives.

“Over the last year, we have been working to transform our global business from a series of products and services into a multifaceted omnichannel and open platform capable of generating value in multiple ways throughout the commerce ecosystem,” the company stated in its earnings call.

• For large enterprises, PayPal is focusing on an expanded DoorDash relationship, improving branded checkout flows, and bringing Fastlane—which prefills payment details—to market.
• For small and mid-sized businesses, PayPal aims to increase its transactions through PayPal Complete Payments.
• In consumer markets, the company is focusing on improving its in-app offers with major brands, driving Venmo’s monetization, and meeting consumer demand for in-person payments with expanded omnichannel capabilities.

The company has raised its full-year guidance for transaction margin dollars to low-to-mid single-digit growth and earnings per share to the low-to-mid-teens, up from its previous estimate of mid-to-high single digits.

The Dark Side of PayPal: Controversies, Criticism & Challenges

While PayPal is at the forefront of online payment services, it has faced controversies.

PayPal Competitors

PayPal competes with a number of other payment platforms, including:

The Bottom Line

PayPal’s business model is based on its ability to facilitate digital payments while generating revenue through a mix of transaction fees, subscription charges and financial services.

PayPal’s strategy, which includes acquisitions, partnerships, and expansion into new financial products, is undergoing a refresh in 2024 as the company aims to establish a future growth trajectory.

FAQs