How PayPal credit card processing works for your business.

Apr 12 2021 | PayPal editorial staff

PayPal facilitates online payments for hundreds of thousands of ecommerce ventures. Explore why you should use or pay with PayPal and how it can work for you.
How PayPal works.
If you sell goods online, you’ve probably heard of PayPal. We offer an online payment service that enables you to accept bank or credit card payments for the items you sell. When a customer pays for his or her purchases, we process the payment and transfer the funds to your PayPal account.

PayPal facilitates online payments for hundreds of thousands of e-commerce ventures, as well as traditional brick-and-mortar companies with an online presence. Read on to learn how it can work for your business, too.

A step-by-step guide to PayPal.
PayPal’s mission is to “build the web’s most convenient, secure, cost-effective payment solution.” But what is it that PayPal does, exactly?

A typical PayPal transaction sequence:
1. The transaction starts when a customer (let’s call her Mary Ann) comes to your website. Let’s say Mary Ann finds a sweater she wants to purchase and clicks the Buy button on the product page. At this point, PayPal gets to work behind the scenes.

2. Mary Ann sees a shopping cart or checkout page next. Depending on the type of PayPal service you choose, she might see a shopping cart page integrated with your website. In other instances, she’ll see a shopping cart or checkout page hosted at the PayPal site (branded with your business’s logo).

3. After reviewing the checkout page, Mary Ann clicks the Pay Now button. This directs her to a payment page, hosted by PayPal. If you choose PayPal Payments Standard, your customer will be taken to the PayPal site to complete the transaction. With PayPal Checkout or PayPal Payments Pro, that process is integrated into your site, so Mary Ann never leaves it.

4. If she has a PayPal account of her own, Mary Ann can simply enter her username and password, and the rest of her personal information – address, phone number, etc. – is retrieved from our database and automatically entered onto the payment form. (If Mary Ann doesn’t have a PayPal account, she can create one.)

At the PayPal login, she’ll also see the option to “Stay logged in for faster purchases.” Called One Touch, this feature keeps her logged in on the device she’s using, so if she comes back to your site or another site using PayPal, buying is even faster and easier.

At this point, her PayPal transaction is complete. If she chooses to pay with a credit or debit card, she’ll continue through the following steps.

5. If Mary Ann chooses to pay with a credit or debit card, she’ll enter her contact and card information in the web form and then click the Pay button to authorize payment. Behind the scenes, Mary Ann’s credit card information is encrypted and transmitted to PayPal, and then we contact the issuing bank for Mary Ann’s credit card. Assuming that her credit line can cover the purchase, the issuing bank authorizes the transaction, and the sale is approved. This process only takes a few seconds.

Note: All PayPal transactions take place on web pages that utilize Secure Sockets Layer (SSL) encryption. This protects your customer’s personal data from prying electronic eyes and identity thieves.

6. Mary Ann sees a confirmation page with a message (sent by us) that says her purchase has been completed. At that point, we’ll notify you of the purchase via email.

7. Once notified of the purchase, you can start processing the order. You can also opt to send a confirmation email of your own, letting Mary Ann know the purchase has been put into your system and notifying her of the approximate ship date.

8. When the funds are confirmed from the credit card company, they’re deposited into your PayPal account – minus applicable fees. This infographic  has an easy-to-understand breakdown of how exactly the money gets to you.

9. Once the money reaches your PayPal account, which usually happens within minutes of making the sale, you can leave it in your account for use in paying business expenses or withdraw it to your bank account (which usually takes 2-3 days).

The whole process is easy for the customer to understand and navigate, which means buying from you is a great experience. And it’s easy for you to use, too, so you can keep driving your business forward. 

The contents of this site are provided for informational purposes only. You should always obtain independent, professional accounting, financial, and legal advice before making any business decision.

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Frequently asked questions.

Add PayPal as a payment option to any checkout with PayPal Checkout (formerly known as Express Checkout). It can be set up in minutes and offers the convenience and security of PayPal, turning more shoppers into buyers.

How does it work?
With PayPal Checkout, your customers can complete transactions in just a few steps, using their shipping and billing information already stored securely at PayPal to check out so they don’t have to re-enter it on your site. When PayPal Checkout is configured with the default settings, customers must have a PayPal account to complete a payment.

PayPal Checkout is available to any merchant that has API access, and any customer with a PayPal account can use Checkout for their purchases. PayPal Checkout has many options that support many different checkout flows. See our Developer website for more information.

PayPal Fundraising

PayPal offers discounted transaction rates for confirmed 501(c)(3) charities for certain payment types, with no setup, statement, withdrawal, or cancellation fees (subject to application and pre-approval).  The rate for confirmed Charity Transactions will be 1.99% + $0.49 and 2.39% + $0.49 for Virtual Terminal transactions. 

The rate for Donation Transactions, as defined by the User Agreement, will be 2.89% + $.49 and does not include protections. There are no monthly or set-up fees with donation transactions. You only pay processing fees when you receive a donation.  

To learn more about ways PayPal supports fundraising and charities, visit our Fundraising page.

Please see How do I accept Donations with PayPal?

PayPal Payments Pro:  

PayPal Payments Pro is a fully customizable payments system that lets you accept all major credit and debit cards and PayPal payments. You create the online checkout experience that’s right for your customers – from branding and look-and-feel to back-end integration. The rate for Payment Pro will be 2.89% + $0.49 and does not include Seller Protection or Chargeback Protection. A monthly fee of $30 applies. 

American Express transactions:  
The rate for PayPal processing online card payments with American Express will not change and will continue to be processed at a rate of 3.50%

Virtual Terminal

Virtual Terminal allows merchants to accept payments virtually anywhere they have Internet access, with no card swipe or software to install, and is ideal for merchants who receive orders by phone, fax, or face to face. The rate for Virtual Terminal will be 3.09% + $0.49 and does not include Seller Protection or Chargeback Protection. 

Please see What is Virtual Terminal and how does it work?

Send/Receive Money for Friends and Family

The rate for Send/Receive Money for Friends and Family will not change on August 2, 2021. You can make a personal payment to anyone in the U.S. for free as long as you’re using your PayPal balance or a bank account and you’re not making an underlying commercial transaction. There's a charge for payments made with a debit or credit card. Friends & Family transactions are not protected by Seller Protection. 


Send/Receive Money for Goods & Services

You can request payment from customers with just an email or phone number, but they will need to sign up for PayPal if they do not have an account to complete the payment. When you perform a Send/Receive Money for Goods and Services transaction, you are protected by Seller Protection on eligible transactions. Limits apply. The rate for Send/Receive Money for Goods & Services will be 2.89% + $0.49

Please What's the difference between friends and family or goods and services payments?

How can I raise financial support for my business?
Whether it’s a non-profit or for-profit, we make it easy for people to support your business with donations. You just need to set up a shareable donation link that’s hosted by PayPal, so you don’t need a website or do any coding.

How do I get started?
To get started, set up your donation link. If you want to, you can customize your landing page to include a personal message and a thank you gift voucher. You’ll get a link and a QR code that you can share by email, text, social media, chat, and more.

If you’ve got a website, you can also set up a donation button that you can customize and easily add to your website.

What’s required?
You must have a business account with PayPal to set up a donation link. This isn’t available in all markets and some business categories are not eligible. 
Mine is a for-profit business. Can I accept donations?
Donations may be treated as income. Reporting requirements vary by location, so be sure to check with your tax authority for more details. You’ll want to consult with an accounting professional for specific guidance.

How do I know if I receive a donation?
The donations will be processed by PayPal and typically show up in your account within minutes. Sometimes, to make sure transactions are secure, it may take longer to get your money and you can read more about why this may happen. You’ll receive the normal transaction notice by email and you’ll see the details in your account with PayPal. 

Will I know who has made a donation?
The names and email addresses of your donors will be part of the transaction details.

Are the donations subject to PayPal transaction fees?
Yes, you’ll pay your normal transaction fees on donations. Read more about fees.

How can I change the logo that’s displayed in my donation link?
Log in to PayPal and go to Settings. You can change or edit your logo image in Business information.

How does the optional gift voucher work?
When you set up a donation link, you can include a gift voucher for a discount on a future purchase, a complimentary product or a gift with purchase. Your gift voucher will be described in your donation link and donors can redeem it when they next make a purchase. 

How are gift vouchers redeemed?
You can decide how redemption will work best for your business. For example, they could show their donation receipt or reference the PayPal transaction ID with their next order. When you set up your gift voucher, you’ll include instructions for how donors can redeem their gift voucher.

How does donate with PayPal work with Google?
If you have a claimed Google Business profile, you can add the donation link to help generate awareness. If you don’t have an account with Google My Business, you can sign up at There are some eligibility criteria for participation in Google My Business.

How do I add a link to my Google Business profile?
Go to Google My Business and paste your link in the section named “Your donation link”. The link will automatically appear in your business profile Google Search and Google Maps.

How can I change my donation link?
Log in to Google My Business and click the link to PayPal to create a new or update an existing donation link.

What info do you share with Google?
To help us ensure that things are working as well as possible, we share with Google the aggregated performance of the donation links we host. You can read more about how Google protects your info and how you can manage your privacy in the Google privacy policy.
About Guest Checkout
Buyers don’t always have the option to complete their purchases without using or creating a PayPal account. This option is presented based on several risk factors, including but not limited to the buyer's PayPal purchase history, PayPal cookies stored on the buyer's computer, the buyer's location, and/or a credit assessment.

By enabling Guest Checkout within your PayPal account settings, buyers will have the option to check out using a debit or credit card, without the need for a PayPal account login.
Products Without Guest Checkout Functionality 
The following products do not offer a guest checkout experience:
  • CreateBillingAgreement, CreateRecurringPaymentsProfile, Express Checkout using Billing Agreements or Recurring Payments. You can find these references in your API logs. If you're unsure whether or not your system uses these API operations, please reach out to your developer or cart provider to check your logs.
  • PayPal HTML Installment, Subscription, and Automatic Billing buttons. To have guest checkout for these products, you will need the Enhanced Recurring Payments product.
  • REST Billing Agreements
  • PayPal HTML Donation button where the checkout is a recurring payment.
Guest Checkout Requirements
Before you can enable Guest Checkout in Checkout, you’ll need to meet the following requirements:With a Checkout custom-coded solution, there is an additional step:
  • Set SOLUTIONTYPE=Sole in your initial SetExpressCheckout API call.
    • If you’re using a third-party shopping cart, you’ll need to work with them or your developer to implement this variable.
    • As long as SOLUTIONTYPE=Sole is passed in the SetExpressCheckout API, Guest Checkout will be enabled.
    • In order for SOLUTIONTYPE=Sole to work, you must have PayPal Account Optional set to On within the PayPal account settings (see below).
    • Many third-party carts provide an Enable Guest Checkout option in the Administration view of their Checkout module.

Here’s how to enable the PayPal account optional setting:
  1. Hover over your name in the top right corner.
  2. Click Account Settings in the drop-down menu.
  3. Click Website payments under 'Products & Services' on the left of the page.
  4. Click Update beside 'Website preferences'.
  5. Select On under 'PayPal account optional'.
PayPal Payments Pro
If you’d like to have a more consecutive checkout process that allows buyers to check out with or without creating a PayPal account, consider using a PayPal Payments Pro account (known as Website Payments Pro in some countries).

With PayPal Payments Pro, you can accept credit card transactions directly on your website with no reference as to who the processor is, as PayPal will be transparent to the buyer as your credit card processor.

PayPal Payments Pro is not available in all countries - check the developer portal to see if it’s available to you.

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