# PayPal

> PayPal — historic wallet and third-party acquirer

The historic payment wallet (1998), a pioneer of global e-commerce. It acts at once as a consumer wallet ("Pay with PayPal"), a third-party acquirer for merchants, and an EMI in Europe. More than 400M active accounts.

_Category: acteur_

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## 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

```mermaid
flowchart LR
    User["Consumer<br/>(PayPal account)"]
    PayPal["PayPal<br/>(EMI)"]

    subgraph FUNDING["Funding sources"]
        BANK["Bank balance (account details)"]
        CARD["Payment card"]
        BAL["Internal PayPal balance"]
    end

    Merchant["Merchant"]

    User -->|"Pays €50"| PayPal
    FUNDING -->|"Linked to the account"| PayPal
    PayPal -->|"Credit (instant)"| Merchant
```

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.

## Sources

- [PayPal Holdings, Inc. — Form 10-K (FY 2024)](https://www.sec.gov/Archives/edgar/data/1633917/000163391725000019/pypl-20241231.htm) — U.S. Securities and Exchange Commission, 2025
- [PayPal Reports Fourth Quarter and Full Year 2024 Results](https://s205.q4cdn.com/875401827/files/doc_financials/2024/q4/PYPL-4Q-24-Earnings-Release.pdf) — PayPal Holdings, 2025-02
- [PayPal (Europe) S.à r.l. et Cie, S.C.A. — CSSF authorisation](https://supervisedentities.apps.cssf.lu/index.html?language=en#Authorisation/EME) — CSSF Luxembourg

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Source: https://openfinanceguide.com/en/glossary/paypal