How Does PayPal Work (2026)?
PayPal is one of the most widely recognised payment platforms in the world, with over 430 million active accounts across more than 200 countries. In 2025 alone, the platform processed $1.53 trillion in payment volume. For many people, it is the default answer to the question of how to pay online or send money quickly to someone they know.
At its core, PayPal works as a digital wallet. You link a bank account or card, and PayPal handles transactions on your behalf without sharing your financial details directly with merchants or recipients. You can send and receive money using just an email address, phone number, or PayPal username.
For domestic payments in the same currency, PayPal is largely free and fast. But for international money transfers, the costs add up quickly. PayPal adds a 3% to 4% markup above the mid-market exchange rate on top of a transfer fee, which means you can lose a significant chunk of your money before it reaches the recipient.
This guide explains how PayPal works, what it is used for, how its fees compare on real transfers, and when it makes sense to use a specialist service like Wise, Xe, or Remitly instead.
What Is PayPal?
PayPal is an American financial technology company founded in 1998. It started as a way to send money electronically and grew into the world's most widely used online payment platform. PayPal Holdings, Inc. is listed on NASDAQ and also owns Xoom, a dedicated international money transfer service available in dozens of countries. Today, PayPal serves over 36 million merchants worldwide.
What Is PayPal Used For?
PayPal is used for online shopping, peer-to-peer payments, and business transactions. Millions of e-commerce websites accept PayPal at checkout, making it easy to pay without entering card details on each site. Freelancers and small businesses use PayPal to invoice clients and receive payments across borders. Friends and families use it to split bills and send money to each other quickly.
Internationally, PayPal is used to send money abroad, pay for goods from overseas retailers, and receive payments from foreign clients. For international money transfers specifically, PayPal's fees are significantly higher than those charged by dedicated transfer services. Understanding what PayPal is used for, and where its costs sit, is the first step to making smarter decisions about when to use it.
Who Owns and Regulates PayPal?
PayPal Holdings, Inc. is publicly traded on NASDAQ and headquartered in San Jose, California. In the United Kingdom, PayPal UK Ltd is authorised and regulated by the Financial Conduct Authority (FCA) as an Electronic Money Institution. In the United States, PayPal is registered with the Financial Crimes Enforcement Network (FinCEN) as a Money Services Business and holds money transmitter licences in each state where it operates. In Europe, it operates under an Electronic Money Institution licence issued by the Central Bank of Ireland. This multi-jurisdictional licensing makes PayPal one of the most comprehensively regulated payment platforms in the world.
How Does PayPal Work?
PayPal works by placing itself between the sender and recipient in a transaction. You fund your PayPal wallet using a linked bank account or card, and PayPal transfers the money to the recipient's PayPal balance. The recipient can then spend that balance online or withdraw it to their own bank account. Neither party needs to share sensitive banking details directly with the other.
How PayPal Processes a Payment
When you initiate a payment, PayPal checks whether the recipient has an account. If they do, the funds arrive in their PayPal balance almost instantly. If they do not, PayPal sends them an email inviting them to claim the payment by creating an account. PayPal uses 128-bit SSL encryption and monitors transactions around the clock for suspicious activity, providing an additional layer of security for both parties.
For domestic payments in the same currency, the process is typically fee-free when funded from a PayPal balance or linked bank account. For international payments involving currency conversion, PayPal applies its own exchange rate, which includes a spread of 3% to 4% above the mid-market rate. This markup is not always shown clearly before you confirm the transfer, which makes the real cost easy to overlook.
How to Use PayPal to Send Money
Using PayPal to send money is straightforward. Here is how to do it from the PayPal app:
- Open the PayPal app and log in to your account
- Tap the Send button at the bottom of the screen
- Enter the recipient's email address, phone number, or PayPal username
- Enter the amount and select the currency you want to send
- Add a note if needed, then confirm whether this is a personal payment or a payment for goods and services
- Choose your funding source: PayPal balance, bank account, or card
- Review the fees and exchange rate shown, then tap Send to confirm
Compare Money Transfer Rates
Before you send money with PayPal, it is worth checking what the transfer would cost with a specialist service. Use the tool below to compare rates across Wise, Xe, and Remitly in real time. On most international routes, the difference is significant.
PayPal Fees for International Transfers
PayPal charges nothing for domestic payments funded from a bank account or PayPal balance. International transfers are a different matter. Every cross-border payment involves two layers of cost: a transfer fee and a currency conversion markup. Together, these can make PayPal one of the more expensive ways to send money abroad.
PayPal Currency Conversion Fees
The most significant cost when using PayPal for international transfers is the currency conversion fee. PayPal takes the wholesale exchange rate and adds a markup of 4% for personal payments and friends-and-family transfers, and 3% for most other transaction types. On a £1,000 transfer, that 4% markup alone costs around £40 before the recipient receives a single penny.
On top of the conversion markup, PayPal charges a transfer fee of 5% of the amount, capped at a maximum of $4.99 (roughly £4). The cap keeps the transfer fee manageable on larger amounts, but the currency conversion markup has no ceiling and scales directly with the amount you send.
What PayPal Costs on a Real Transfer
The table below shows how PayPal compares to Wise, Xe, and Remitly on an indicative £1,000 international transfer, based on each provider's publicly stated fee structure.
Provider | Transfer Fee | FX Markup | Approx. Total Cost on £1,000 |
|---|---|---|---|
PayPal | 5% (max ~£4, capped at $4.99) | ~4% above mid-market (~£40) | ~£44 |
Wise | ~0.4% to 0.6% (~£4 to £6) | None (true mid-market rate) | ~£4 to £6 |
Xe | Low, varies by corridor | Competitive, near mid-market | ~£5 to £12 |
Remitly | Low or zero on many routes | Competitive rate | ~£2 to £8 |
On a £500 transfer, PayPal's conversion markup alone costs around £20, compared to roughly £2 to £3 with Wise. The gap grows with every pound you send.
PayPal vs Specialist Transfer Services
PayPal is a legitimate and well-regulated platform, but it was built primarily as an e-commerce payment tool, not a specialist money transfer service. Providers like Wise, Xe, and Remitly were built specifically for international transfers and price accordingly. All three are regulated by the same authorities as PayPal, so choosing them is not a trade-off on safety.
Wise
Wise uses the mid-market exchange rate with no markup added. The rate you see on Google or Reuters is the rate Wise uses. The only cost is a small transparent fee of roughly 0.4% to 0.6%, depending on the currency pair and payment method. On a £1,000 transfer where PayPal costs around £44, Wise typically costs under £6.
Wise is regulated by the FCA in the UK, FinCEN in the US, and equivalent bodies across the EU and beyond. It supports over 40 currencies and also offers a multi-currency account that lets you hold, convert, and spend money abroad at the real rate.
Wise uses the real mid-market exchange rate with no hidden markup. PayPal adds 3% to 4% on top of that rate, meaning you lose more money on every transfer. On international routes, Wise consistently costs 80% to 90% less than PayPal in total transfer costs.
- Mid-market exchange rate: no markup, no hidden spread
- Transparent fees shown upfront before you confirm
- Supports 40+ currencies across 160+ countries
- FCA regulated, funds safeguarded separately from company money
Xe
Xe is best known for its currency data and exchange rate tools, but it also operates a full international money transfer service. Xe offers competitive rates on both major and exotic currency pairs, with no transfer fees on many corridors. It is particularly strong for less common currency routes where PayPal's conversion costs are typically at their worst.
Xe is FCA authorised in the UK, FinCEN registered in the US, and regulated in other key markets. It offers fast transfers with real exchange rates and is a reliable option for anyone sending larger amounts where rate quality matters most.
Xe offers competitive exchange rates on major and exotic currencies alike, with no transfer fees on many routes. If you are sending money on a corridor where PayPal's spread is at its worst, Xe is worth comparing first.
- Competitive rates on 100+ currency pairs
- No transfer fees on many international corridors
- FCA authorised and FinCEN registered
- Fast delivery on most major routes
Remitly
Remitly focuses on remittance corridors, particularly routes from the US, UK, and Canada to destinations in Asia, Africa, Latin America, and the Middle East. It offers some of the lowest fees on these routes, often significantly cheaper than PayPal, and provides bank deposit, mobile wallet, and cash pickup delivery options.
Remitly is FCA authorised in the UK and FinCEN registered in the US. It offers promotional rates for first-time senders and transparent pricing before you confirm any transfer. For anyone sending money to family abroad on a regular basis, Remitly is consistently one of the most competitive options available.
Remitly specialises in remittance corridors from the US, UK, and Canada to major receiving countries. It is consistently cheaper than PayPal on these routes and offers multiple delivery methods so recipients can access funds in the way that works for them.
- Bank deposit, mobile wallet, and cash pickup options
- Low or zero transfer fees on major remittance routes
- Promotional rates available for first-time transfers
- FCA authorised and FinCEN registered
When to Use PayPal and When to Switch
PayPal has genuine strengths in specific contexts. Knowing when to use it and when to reach for a specialist service helps you keep more of your money.
When Using PayPal Makes Sense
PayPal is a strong choice for domestic payments, online shopping, and paying for goods and services where the merchant accepts it. It is near-universal on e-commerce platforms, free for most domestic transfers from a bank account or PayPal balance, and trusted by hundreds of millions of users globally. If someone owes you money and you both already use PayPal, sending a quick payment in the same currency is simple and costs nothing.
When a Specialist Transfer Service Is Better
For any international transfer involving currency conversion, a specialist service will almost always save you money. The 3% to 4% markup PayPal adds to the exchange rate is entirely avoidable. On a £500 transfer, you lose around £20 to £24 to PayPal's conversion cost alone. On a £2,000 transfer, that rises to £80 to £100 lost to the FX spread before the recipient sees anything.
Wise, Xe, and Remitly are all FCA regulated and FinCEN registered, exactly as PayPal is. They are simply cheaper for international transfers because they were built specifically for that purpose. If you are sending money abroad more than once, comparing rates before you confirm is the single most effective thing you can do to reduce what you lose on every transfer.
Frequently Asked Questions
How does PayPal work for international transfers?
PayPal works for international transfers by processing payments to recipients in over 160 countries. You enter the recipient's email or PayPal username, select the amount and currency, and PayPal converts the funds and delivers them to the recipient's PayPal balance. The recipient can then withdraw to their local bank account. PayPal charges a transfer fee of 5% (capped at $4.99) plus a currency conversion markup of 3% to 4% above the mid-market rate, making it significantly more expensive than specialist services on larger amounts.
What is PayPal used for?
PayPal is used for online shopping, peer-to-peer payments, business invoicing, and international money transfers. Millions of websites accept PayPal at checkout, and it is widely used by freelancers to receive payments from clients abroad. It is also used to send money to friends and family in other countries, though for international transfers its fees are considerably higher than those charged by dedicated transfer services like Wise or Remitly.
Is PayPal free to use?
PayPal is free for many domestic transactions, particularly when paying for goods and services or sending money to friends in the same currency using a bank account or PayPal balance. Fees apply when using a credit or debit card for domestic payments. For international transfers, fees always apply: a 5% transfer fee (capped at $4.99) and a 3% to 4% currency conversion markup above the mid-market rate. There is no way to avoid the conversion markup when sending money internationally through PayPal.
How does PayPal work for sending money to family abroad?
To send money to family abroad with PayPal, the recipient needs a PayPal account to receive and access the funds. You enter their email address or username, choose the amount and currency, and PayPal converts and delivers the money. From there, they can withdraw to their local bank account. The process is straightforward but expensive compared to services built for this purpose. Remitly, for example, often delivers directly to bank accounts and mobile wallets on major remittance corridors at a fraction of PayPal's total cost.
How long does a PayPal transfer take?
Domestic PayPal transfers arrive in the recipient's PayPal balance almost instantly. International transfers typically take one to three business days to land, depending on the destination country, the currency involved, and whether the recipient needs to withdraw the funds to a local bank account. PayPal also owns Xoom, which offers faster delivery options on some international corridors, including same-day delivery to select countries.
How does PayPal make money?
PayPal makes money primarily through transaction fees. On international personal transfers, it charges 5% of the amount (capped at $4.99) plus a 3% to 4% currency conversion markup above the wholesale exchange rate. On merchant and e-commerce transactions, it charges a percentage plus a fixed fee per transaction. PayPal also earns revenue from interest on customer balances held in PayPal accounts, instant withdrawal fees, and financial services offered to business customers.
Is PayPal good for international money transfers?
PayPal is convenient for international transfers because most people already have an account, but it is not the most cost-effective option. The 3% to 4% currency conversion markup can cost around £40 on a £1,000 transfer, compared to roughly £4 to £6 with Wise or Remitly. For anyone sending money abroad regularly or in amounts above a few hundred pounds, a specialist service will save a meaningful amount on every single transfer.
How does PayPal work compared to Wise for international transfers?
For international money transfers, Wise is almost always cheaper than PayPal. Wise uses the mid-market exchange rate with no markup, charging only a small transparent fee of around 0.4% to 0.6%. PayPal adds 3% to 4% to the exchange rate on top of its transfer fee. Both are regulated and secure, but Wise was built specifically for international transfers. On a £1,000 transfer, Wise typically costs around £5 compared to PayPal's £44, a saving of roughly £39 on a single transfer.
Can I use PayPal without a bank account?
Yes, you can use PayPal without a bank account by funding your PayPal wallet with a debit or credit card. However, using a card for payments adds processing fees, making transactions more expensive. To access PayPal's free domestic transfers, linking a bank account is recommended. For receiving money, PayPal also offers a debit card that lets you spend your PayPal balance directly without needing a traditional bank account.
Mohammad Humaid
Verified AuthorMo is the founder of MoneyTransferStore. As an expat who has experienced the challenges of sending money across borders himself, he set out to help others like him avoid hidden fees and unfair exchange rates on international transfers. With a background spanning fintech, payments, and Web3, Mo brings years of practical experience to building a platform focused on transparency and trust.
