If you have not done so, Read our FAQ! which answers most questions. I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns. More on reddit.com

Bring the best of human thought and AI automation together at your work. Explore Stack Internal ... When purchasing through PayPal it draws funds from my linked bank account in the amount of purchase price and applies it as payment to the merchant. This is exactly what my debit card does, so what ... More on money.stackexchange.com

Paypal is essentially an organized and trusted middleman between two parties. Back when eBay started out, believe it or not, it ran on the honor system and did okay, but not great for the most part. You won an auction then actually sent the seller a money order. S/he would get it and send you your item. Of course you could make a fake account sell something that never existed and wait for your money order and then disappear. So Elon Musk, (the guy you hear about in the news a lot with Tesla cars and South African scientist/businessman) creates PayPal as a secure way of moving money between parties on the internet. Buyers stopped getting ripped off because they offer buyer protection and eBay becomes secure. Why eBay didn't think of this at first is anyone's guess. eBay did make their own payment system but by then PayPal became so popular eBay bought Paypal and made Mr. Musk a billionaire. What does paypal do? It essentially acts as not only a middleman, but a virtual bank (but not a real bank at all) with real money linked to your real bank account. You can put money in, and take money out. You can pay with a credit card, you can pay with the funds in the account, you can pay with checks. It's effective as a third party between buyers who are not businesses. Say you, Edigi135 wants to sell me your cats and I want to pay with my credit card. Since you don't have a credit card machine, we use Paypal and it handles the transaction for us. Since Paypal is a trusted name, we both think there is no chance of either of us ripping each other off or me running away with your cats. I pay with my credit card, you see that the paypal transaction goes through then you send me the cats. Easy. PS-There are some problems with Paypal and I'm just going to use this space to devote some text to it. The inherent problem with Paypal is that it favors the buyer far far far more than the seller in terms of protection. There are thousands of scams, mostly on craigslist. If you sell an item these scammers will pretend to overpay you for an item. Sounds good so far. They claim to live far away so they want the item shipped. So the seller ships it and then the scammer says "wait I never got it/it's broken/this isn't what you said it was". They contact paypal and paypal refunds their money because they always side with the buyer. So not only are they getting their money back, you lost your item. On top of that, if you withdrew the money and refuse to refund it you could damage your credit! That's three strikes against you for one transaction. eBay doesn't have this issue because they offer seller protection. Outside of eBay, you are on your own. And as another user pointed out below, PayPal monitors accounts more harshly than banks. If I sell some stuff for $3000 then PayPal might go whoa! you haven't used your account in 5 years, hold on buddy while we check this out and hold your account for review. It's frustrating at times and they will often call you to confirm transactions. It gets cumbersome when really a money order becomes more attractive in that regard. Another thing that holds PayPal back is that you can not withdraw money quickly from the virtual account. For some reason it takes a whole five business days unlike a real bank. This makes transactions slow and tedious if you need money right away. I have sent money owned to friends via PayPal and they aren't particularly happy because now that money is stuck in their system for over a week. As of now, PayPal has become a tool for eBay and isn't used so much out of that context. You might see some cheaper and startup online vendors use it to take credit cards and that's about the extent of its usefulness today. More on reddit.com

PayPal is a mediator between people/businesses. It's pretty safe for transactions since you don't actually ever give anyone your banking info like account number or something like that. Especially when dealing with new/small businesses, people are often uncomfortable typing in their card info. The FDIC thing means that if you personally or PayPal itself gets hacked, your balance isn't insured. With your bank account, balances up to 50,000 (at least that's where I live) and insured by the government. That's why you shouldn't keep too much money on your PayPal. The relationship between PayPal and banks is non-existent far as I know. From your bank's perspective, PayPal is just a company you're paying (when you add to your balance). They have nothing to do with the transaction once the money leaves the bank account It's just an easy way to pay online without risking your card info. More on reddit.com