PayPal 101: How PayPal Works, 2013

By Paul Gil, About.com Guide

Answer: as a middleman financial broker, PayPal makes its profit by charging a percentage of the money it transfers for you.

• PayPal is Free for Buyers and for Sending Money to Someone Else. Once a buyer sets up a Paypal account, then it costs nothing to send money to a vendor. The funds are withdrawn from the user's credit card or bank account, or both. PayPal does not charge buyers to send money.
  
  
• PayPal Commonly Charges Money Receivers (Sellers) a 30 Cent Fee + (1.9% to 2.9%) Surcharge. PayPal will only charge you to receive funds. Using a special surcharge formula, PayPal will bill you whenever you receive a payment from a buyer.

If you are sending money to a friend or family member (someone who is not a registered seller), you can opt to pay for the PayPal surcharge yourself.

Paypal Fee Table:

1. For receiving transfers under $3000 USD: the fee is 2.9% + $0.30 USD.
2. For receiving transfers $3000.01 to $10,000: the fee is 2.5% + $0.30 USD.
3. For receiving transfers $10,000.01 to $100,000: the fee is 2.2% + $0.30 USD.
4. Receiving transfers over $100,000: Paypal charges 1.9% + $0.30 USD.

As you might guess, smart sellers will increase their prices to offset this charge on their side of PayPal.

Next: "What Can I Use PayPal For?"