How PayPal Manages Their Money

02.27.08 | Online Finances | 0 Comments | by junger

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Ever wondered what PayPal is doing with your money when you are transferring it, receiving it, or just holding on to it in your account?

Fortune Small Business is taking a look at the online finance site, in reaction to the recent announcement that PayPal will hold some transactions for up to 21 days if it deems them "high-risk."

Any funds PayPal holds for dispersal are automatically deposited in a corporate bank account, which earns interest, according to Paypal representative Amanda Pires. The money is kept there until it's ready for distribution. PayPal, which processes payments for eBay auctions as well as e-commerce transactions from elsewhere on the Internet, counts interest payments on those funds as one of its revenue streams.

So what if you don't want to contribute to PayPal's interest and would rather accrue your own?

PayPal's Pires said accountholders should be aware that they have the power to collect interest for their own use on delayed funds. It's as simple as enrolling in the company's PayPal Money Market Fund, Pires said.

For enrolled accountholders, any funds earmarked for a hold are diverted into the Money Market Fund rather than PayPal's corporate bank account, Pires said. The dividends earned are credited to user accounts on a monthly basis.

I don't have any interest in opening a PayPal money market account, but I understand why and how they manage their money like they do.

It doesn't bother me, but if you're one of the sellers they hit with a 21-day hold on funds, I can understand the frustration.

Fortune Small Business - What PayPal does with your money

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