Understanding PayPal (A Step-By-Step Guide)

If you’re, say, a freelancer and you get most of your work from abroad; you should be familiar with PayPal by now. Getting payment for your services from abroad used to be a major hassle about a decade ago, and for some people it still is.

It may take a little time to get everything in order. Bank accounts, cards, registering things, allocating things, nervous breakdowns, etc. It’s a mess out there. Things can get needlessly complicated and sticky.

International money transferring services such as PayPal has made our lives much easier. There are other similar services but PayPal is, without a doubt, the most popular. One of the upsides is that it integrates with just about anything. This means that chances are, whatever your online business venture is, PayPal will work.

In this article we’ll be having a look at how to understand PayPal, how to make it easier for South Africans to use it and the other alternatives you could take a look at.

First, What Is PayPal?

For a business starting up or as a freelancer selling your skills, it’s important to have an option for online payment.

PayPal is a service that allows national and international money transactions through the internet. The whole system of PayPal is based on email ID. So, basically, one email ID pays money to another email ID. It’s as easy as mugging an old, blind lady.

According to their website; ‘PayPal is the safer, easier way to pay and get paid online. The service allows anyone to pay in any way they prefer, including through credit cards, bank accounts, PayPal Smart Connect or account balances, without sharing financial information.’

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How To Start Using It

In order to use PayPal, you need to have a valid email ID and bank account.

Let us just say, right off the bat and without wasting time – First National Bank. The red tape can be an initial nightmare to deal with… But if you’re looking to receive funds through PayPal and withdraw them, you need an FNB account or at the very least an FNB Online Banking Profile. This is due to exchange control regulations. You can check out FNB’s PayPal Terms and Conditions HERE.

You may also have to check with your bank that they have activated your online shopping services.

Other banks, we’re not going to mention any names, but they know who they are – okay, it’s Capitec – might be a little confused.

Their staff might say to you:

‘Yes, PayPal works 100% with our bank.’

Which is a dirty lie. Your account and card may be able to register with PayPal. You may be able to receive funds and even spend them online, but you will not be able to withdraw them. For that, you need FNB.

More on that later.

Step One: Sign Up For A PayPal Account

Signing up requires you to choose from one of two profiles, Personal or Business. Personal is the way to go for online shopping, but if you’re a freelancer or similar – opt for Business.

Both of these have different procedures for signing up, but following the instructions shouldn’t be difficult.

You register with PayPal using your email address as your user ID and following that, you’ll be identified by your email address.

When registration is done, you enter your banking and card details into your profile by first allocating a bank account and then allocating a card to that account.

Step Two: Verify Your Bank Account

To verify that you have entered the correct bank account details, PayPal will make a small transaction. This will reflect on your bank statement and is refunded soon after. You may be able to access this right away via your online banking or you’ll have to wait for it to clear.

The reference number for this transaction is then used to complete verification.

Then, all you need to do is head over to your online banking page and link your PayPal to your bank account.

Your PayPal account should now be ready to send and receive money.

Step Three: Receiving Money

When you need to receive payment from someone, all they need is the email ID you used to register your PayPal account with. It doesn’t matter where the payer is located, that’s all they need.

When money has been transferred to your PayPal account you will get one of those great emails informing that you have received however much from whichever person.

Either you can keep your money in your PayPal account or you can transfer it to your bank / credit card account.

Some countries, however, such as India, do not allow you to keep money in your PayPal account for very long. So, money will automatically be transferred to your bank account soon after the payer makes payment. Luckily, in SA you have about 30 days to withdraw these funds. You may get a notification from time to time urging you to withdraw; however, PayPal assures us that we can ignore these.

Step Four: Sending Money

You can transfer money to anyone who has a verified PayPal account. All you need is their email ID.

You may go to your PayPal account and send the required amount to that email ID. PayPal will withdraw that amount from your bank account, or charge it to your credit card or withdraw it from your available PayPal funds.

Step Five: Fees

PayPal charges a transaction fee. Either the payer or payee has to bear this cost. The other party does not need to pay anything.

PayPal automatically takes its fee and then transfers rest of the money to the payee. Payer and payee should negotiate in advance as to who will pay the transaction fee.

If the payee is supposed to pay this fee then, let’s say for a payment of R100 you will just send R100 and they will receive this amount minus the fee deduction.

But if you’re supposed to pay the fee then you should transfer the payment amount + whatever the PayPal fee is.

Make sense?

Step Six: Withdrawing Funds

You’ll have to set up your PayPal service with FNB before anything can be withdrawn. This is usually pretty easy to do online if you already have an FNB account or Online Banking Portfolio.

If you don’t bank with FNB but would still like to link your current bank card, FNB makes this possible by acting as a sort of middleman. My Broadband offers a pretty helpful article with regards to doing this, which can be viewed HERE.

If you have any trouble doing this, the FNB staff at any branch would be willing to help you out and set it up for you.

After that, withdrawing funds is pretty simple via FNB’s online banking – under MY ACCOUNT and FOREX.

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The biggest fear associated with PayPal is that your account could be suspended at any time. This could happen because of certain complaints or when there appears to be suspicious activity. In that way, they’re much like Google (who run Google Wallet, of course) who will lock you out of your Google account for absolutely no good reason and ask you to answer a thousand irrelevant security questions, send a verification code to a phone number you haven’t used in years, and ultimately result in you abandoning all hope and creating a new account from scratch. Because whoever invented that two-step verification process hates human beings.

We digress. When a PayPal account is frozen, the money in the account cannot be accessed, perhaps even for months until they untangle whatever was wrong. The internet is full of these horror stories, so it’s worth mentioning.

Another drawback is that it can take up to a week for withdrawn funds to clear in your bank account. Also, there are a number of people who refuse to use PayPal, which may result in lost business.

PayPal’s international fees are considered really high. If you take a closer look, you’ll notice they charge a large premium for accepting international payments. Combine this with less-than-ideal exchange rates, and you’ll pay a hefty overhead for any international business.

The general opinion is that the pros of using PayPal outweigh the cons, and even if you don’t like it, there are no contracts that lock you in long term, so you can always change to a different option down the road.

The Other Guys

There’s more than one way to send money online. There are now so many, in fact, that choosing the best service for transferring cash has become a daunting task in itself. Having alternative options is always a good idea. This could come in handy if PayPal were to ever freeze your account.

So, how do you decide?

Some of the choice comes down to simple convenience. There are a number of options, including PayFast, PayGate, PayU or Payoneer – all of which seem to work pretty well for South Africans. These all involve slight differences in fees and services though, so it’s worth checking each of them out and deciding which works best for you or your business.

Disclaimer: Please note that we have written this article as a general guide for new users of PayPal, to assist them in setting up an account. We advise and recommend that PayPal’s website is used for the latest information. Since PayPal works best with FNB – FNB are also very helpful on this matter.


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