If you don't know anything at all about PayPal, start here. If you're familiar with PayPal, but haven't signed up, yet, please read Do You Need PayPal?.
So, what is PayPal, really?
Well, um, it's, uh, sorta like...even their "About Us" page doesn't say exactly what they are--just what they do--and what they do is process online payments for a fee. I had to go all the way back to a press release from 2002 to get the phrase "leading Internet payment service" to get this article started. It might be easier to say what they aren't.
PayPal acts as an agent for its customers, depositing your funds in FDIC approved institutions, or charging your purchases to your authorized credit cards.
According to their user agreement,
"PayPal acts as a facilitator to help you accept payments from and make payments to third parties. We act as your agent based upon your direction and your requests to use our Services that require us to perform tasks on your behalf. PayPal will at all times hold your funds separate from its corporate funds, will not use your funds for its operating expenses or any other corporate purposes, and will not voluntarily make funds available to its creditors in the event of bankruptcy or for any other purpose. You acknowledge that (i) PayPal is not a bank and the Service is a payment processing service rather than a banking service, and (ii) PayPal is not acting as a trustee, fiduciary or escrow with respect to your funds, but is acting only as an agent and custodian."
Is it safe to use?
eBay and PayPal have a team of about 1000 employees, working 24/7 on account security and fraud prevention. It's far more likely for an inexperienced user to fall for an email scam than for any hacker to get at your personal information through PayPal. Check out their Security Center for hints, tips, and detailed information on all security issues.
How Does It Work?
Register your email address, bank account, and credit card with PayPal. After that, it's all automatic. PayPal takes money out of your checking account or bank account when your account balance drops below $0. When people pay you, your account balance goes up, and is eligible for dividends through a money market fund. You can withdraw money into your checking account, deposit money from your checking account, and apply for both debit and credit cards. All of these transactions are available, online, and for download, through PayPal's sophisticated reporting system.
History
PayPal has been around since 1998, went public in February of 2002, became profitable late in 2002, and was acquired by eBay in the middle of 2002.
Anyone with an email address can use PayPal. You can send and receive payments, deposit and withdraw funds, open a merchant account with a free shopping cart, list your store in their directory, make and accept donations, handle subscriptions, and even receive payments from "make money online" business opportunities. For more information on PayPal small business features, please read PayPal Merchant and Auction Tools.
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