# What is PayPal and how does it work?

Jessica Washington · August 4, 2026

> PayPal was founded in December 1998 as Confinity, focused initially on developing security software for handheld devices before pivoting to a digital...

PayPal was founded in December 1998 as Confinity, focused initially on developing security software for handheld devices before pivoting to a digital wallet.

In 2000, Confinity merged with X.com, an online banking company founded by Elon Musk, which later became PayPal in 2001 after a rebranding.

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PayPal went public in February 2002, and its stock was offered at $13 per share, quickly rising to over $30, marking a successful initial public offering.

By 2002, PayPal was acquired by eBay for $1.5 billion, becoming the primary payment method for eBay transactions, significantly boosting its user base.

PayPal operates in over 200 markets and supports 25 currencies, facilitating cross-border transactions and catering to a global audience.

The platform allows users to send money via email, mobile apps, and through its website, making it accessible for those without traditional banking services.

PayPal uses a unique payment processing system that employs tokenization, which replaces sensitive card information with a secure token, enhancing transaction security.

The company has over 426 million active accounts as of March 2025, reflecting its extensive reach and popularity in the digital payments space.

PayPal's business model includes fees for transactions, usually around 2.9% plus a fixed fee based on the currency, which supports its operations and development.

PayPal has introduced features like "PayPal Credit," allowing users to make purchases and pay over time, similar to a credit card, which has increased its service offerings.

The platform has implemented advanced fraud detection systems that analyze user behavior and transaction patterns to identify suspicious activity in real-time.

PayPal's mobile app includes features such as QR code payments, enabling users to make transactions quickly and contactlessly in physical stores.

The company has expanded its services to include cryptocurrency trading, allowing users to buy, sell, and hold Bitcoin, Ethereum, and other digital currencies directly within the app.

PayPal has a unique dispute resolution system, offering buyer and seller protection to mitigate risks associated with online transactions, which builds trust among users.

In recent years, PayPal has focused on integrating with various e-commerce platforms and software, enhancing its utility for online merchants and businesses.

PayPal's architecture is built on microservices, allowing for scalability and flexibility in its operations, which is crucial for handling millions of transactions per day.

The company has made significant investments in artificial intelligence to improve customer service through chatbots and to enhance security measures against fraud.

PayPal has faced regulatory scrutiny in various countries regarding its compliance with local financial regulations and anti-money laundering laws.

PayPal actively promotes financial inclusion, aiming to provide financial services to underserved populations worldwide, which is part of its corporate social responsibility strategy.

Despite its success, PayPal continues to face competition from other digital payment platforms such as Square, Stripe, and traditional banking institutions that are innovating their online services.

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