World Applied Programming, Vol (3), Issue (9), September 2013.

396-400
ISSN: 2222-2510
2013 WAP journal. www.tijournals.com

PayPal as the Most Loved Payment System among

Merchants and Buyers in Online Transactions
Masoud Nosrati *

Ronak Karimi

Kamran Makekian

Mehdi Hariri

Eslamabad-E-Gharb Branch,
Islamic Azad University,
Eslamabad-E-Gharb, Iran.
minibigs_m@yahoo.co.uk

Eslamabad-E-Gharb Branch,
Islamic Azad University,
Eslamabad-E-Gharb, Iran.
rk_respina_67@yahoo.com

Eslamabad-E-Gharb Branch,
Islamic Azad University,
Eslamabad-E-Gharb, Iran.

Eslamabad-E-Gharb Branch,
Islamic Azad University,
Eslamabad-E-Gharb, Iran.

Abstract: PayPal is a global e-commerce business allowing payments and money transfers to be made through
the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods,
such as checks and money orders. It was founded in 1998 that facilitates the transfer of money from one party to
another over the internet. It provides secure channel for online transactions through a very simple platform. In
this paper, we are going to have a brief look to this most loved payment system. Also, we will get into the
PayPal APIs which provides the payment facilities. At the end, a comparison between PayPal and ordinary
merchant accounts is presented.
Keywords: PayPal, payment system, online transaction, merchant account, PayPal API, secure payment, online
selling, payment options

I. INTRODUCTION
PayPal is an online payment service founded in 1998 that facilitates the transfer of money from one party to another over
the internet. Payments can be made for goods, services, and online donations can be made as well. This service is not
free; however PayPal only takes a small percentage of the money whenever a transfer is made. PayPal processes millions
of dollars every day, and recently exceeded $6 million per day in mobile transactions alone!
Getting started with PayPal is very easy and that fact has contributed to their success over the last decade. It takes only a
few minutes to sign up for an account and your bank and credit cards can be linked to the account just as fast.
Transferring money to your PayPal account from your bank account is done at no charge as well! The simplicity of
PayPal is exhibited by the 94.4 million people worldwide using the service. If you are a merchant, it would be very wise
to consider adding PayPal as a payment option simply because so many people have a PayPal account.
Another reason PayPal is so popular is because of their tight security. PayPal treats its customers financial security as
their highest priority and has many safeguards in place to ensure this. One of the most obvious security features is that
your bank and credit card numbers are stored by PayPal, so nobody from the website you are purchasing from will ever
be able to see this information. Almost all merchants would never consider doing anything nefarious with their
customers credit card numbers, however sometimes the numbers can be misplaced or seen by the eyes of a criminal and
PayPal eliminates this possibility [1].
The current incarnation of PayPal is the result of a March 2000 merger between Confinity and X.com. Confinity was
founded in December 1998 by Max Levchin, Peter Thiel, Luke Nosek, and Ken Howery, initially as a Palm Pilot
payments and cryptography company. X.com was founded by Elon Musk in March 1999, initially as an Internet financial
services company. Both Confinity and X.com launched their websites in late 1999 [2]. Both companies were located on
University Avenue in Palo Alto. Confinity's website was initially focused on reconciling beamed payments from Palm
Pilots and X.com's website initially featured financial services. Both services offered email payments as a feature.

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At Confinity, many of the initial recruits were alumni of the Stanford Review, also founded by Peter Thiel, and most
early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. On the X.com
side, Elon Musk recruited a wide range of technical and business personnel, including many that were critical to the
combined company's success, such as Amy Klement, Sal Giambanco, Roelof Botha of Sequoia Capital, Sanjay Bhargava
and Jeremy Stoppelman.
To block potentially fraudulent access by automated systems, PayPal used a system (see CAPTCHA) of making the user
enter numbers from a blurry picture, which they dubbed the Gausebeck-Levchin test [3].
The idea behind PayPal is simple: Use encryption software to allow people to make financial transfers between
computers. That simple idea has turned into one of the world's primary methods of online payment. Despite its
occasionally troubled history, including fraud, lawsuits and zealous government regulators, PayPal now boasts over 100
million active accounts in 190 markets worldwide.
PayPal is an online payment service that allows individuals and businesses to transfer funds electronically. Here are
some of the things you might use PayPal for:

Send or receive payments for online auctions at eBay and other Web sites
Purchase or sell goods and services
Make or receive donations
Exchange cash with someone

You can send funds to anyone with an e-mail address, whether or not they have a PayPal account. To receive the funds,
though, the recipient must have a PayPal account associated with that e-mail address. Basic PayPal accounts are free, and
many financial transactions are free as well, including all purchases from merchants that accept payments using PayPal.
If you have a PayPal account, you can add and withdraw funds in many different ways. You can associate your account
with bank accounts or credit cards for more direct transactions, including adding and withdrawing money. Other
withdrawal options include using a PayPal debit card to make purchases or get cash from an ATM, or requesting a check
in the mail [4].
A quick and easy solution to begin taking payments online is to look into third party payment options such as Amazon
Simple Pay, Google Checkout, and PayPal. All three of these e-commerce giants have options that allow even the most
modest retailer to get their feet wet in the ocean of online transactions [5].
II. PAYPAL APIS
PayPal is the most popular platform for receiving online payments today. The ease of opening a PayPal account and
receiving payments compared to opening a merchant account with a traditional payment gateway is probably the number
one reason for its popularity, with a close second being the comprehensive API that PayPal provides for its payment
services. In this post, I will break down some of the techniques and approaches to working with the PayPal API, in order
to make integration and troubleshooting simpler and easier [6].
PayPals NVP API makes it simple to integrate payments into your application. As the merchant, your web application
constructs an NVP string and transmit it via HTTPS (HTTP Secure) to the PayPal authorization server, and PayPal sends
back an NVPformatted response that your web application parses for the information relevant to the payment. Figure 1
shows this basic request and response workflow, which is typical of just about any web application [7].

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Figure 1. Typical NVP request and response

The request identifies:

The name or method of the API operation to be performed and its version
PayPal API credentials
Operation-specific parameters formatted as name/value pairs
The PayPal API server executes the operation and returns a response containing:

Acknowledgment of success or failure (including any warnings returned in case of failure)

PayPal tracking information specific to the API operation
Response-specific information required to fulfill the request

Some PayPal products such as Express Checkout require calls to multiple API operations, while others such as Direct
Pay (part of Website Payments Pro) only require one call. Well review Express Checkout in the next chapter, but Figure
2 is included to illustrate its typical flow, which should look pretty familiar and intuitive if youve ever used PayPal.
Either way, interacting with PayPal products is just a series of API calls that allow you to accomplish a wide variety of
tasks. A few examples of the possible transactions PayPal products support include:

Accepting PayPal as part of a streamlined checkout process

Charging a credit card
Capturing previously authorized payments
Reauthorizing or voiding previous authorizations
Paying single or multiple recipients
Issuing full or partial refunds
Searching transactions histories
Retrieving details of specific transactions
Processing payments involving more than one party
Setting up recurring subscription charges
Accepting Donations

With a broad understanding of how payment transactions are implemented, lets briefly segue into an overview of GAE
and how to implement HTTP requests, the essential skill required to interact with PayPal APIs [7].

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Figure 2. A typical Express Checkout in which a merchant site establishes a session with PayPal and
then redirects the buyer to PayPal for specification of shipping and payment information.
Once the buyer confirms transaction details, PayPal redirects the buyer back to the merchant
site where it regains control of the checkout and can issue additional requests to PayPal for
final payment processing

III. PAYPAL OR MERCHANT ACCOUNT?

Here is a comparison between PayPal and merchant account for selling goods online by Small Business website [8].
Some of general reasons of PayPal popularity is listed in the table like: no application fees, easy use, low budget, etc.

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Table 1. Comparison of PayPal and ordinary merchant accounts

PAYPAL

MERCHANT ACCOUNT

Low budget, easy to install

Invisible, highly flexible

WHAT IS PAYPAL?
PayPal is an all-inclusive external payment solution. This means
that people leave your web site to pay their bill, and then come
back to your web site when they're done. PayPal handles all the
security for you which is nice. All you have to do is tell PayPal
how much to charge, and they do the rest.

WHAT IS A MERCHANT ACCOUNT SOLUTION?

A merchant account solution can be provided by one company
or two. Either way you'll need a gateway and a processor. The
end result will be an internal payment solution where you
control the entire process and customers never leave your web
site. Your site handles security and manages all the data.

HOW MUCH DOES PAYPAL COST?

PayPal doesn't have any upfront costs. There is no application
fee, no setup fee and no monthly fees for the basic package.
PayPal will deduct a percentage from each payment people make.
This way if you don't make any money, you don't spend any
either.

HOW MUCH DOES IT COST?

Application fees range from $99 to $600 here and monthly fees
can also vary widely. Our advice is to never apply at your bank
for a merchant account. They are always too expensive. In
addition to those fees, there will be per transaction fees that
vary.

HOW DOES SHIPPING WORK WITH PAYPAL?

Shipping can be a problem with PayPal. The number one
complaint we get from PayPal users is the inability to calculate
specific shipping amounts. While PayPal offers several shipping
packages, real-time shipping calculations with UPS or FedEx is
not available.

HOW DOES SHIPPING WORK?

Shipping works any way you want it to. We can create a realtime shipping situation where you get accurate UPS calculation
for example. We can do tiered shipping, flat rate shipping or
any other shipping because merchant accounts are flexible.

WHAT ARE PAYPAL'S BENEFITS?

PayPal is extremely easy to use and it's a name that people trust.
If you are starting a brand new business, people will trust making
a payment through PayPal. Accepting international payments is
also a breeze with PayPal. Last but not least, the operating costs
are low and it's easy to install.
WHAT ARE PAYPAL'S DRAWBACKS?
The shipping issue is a symptom of PayPal's biggest drawback...
flexibility. Because PayPal is a self-contained 3rd party system,
you have to work with the tools they give you. You can't create
coupon codes that give 5% off. You can't highly customize your
email receipts and so on and so forth.
OVERALL OPINION OF PAYPAL:
PayPal is an excellent payment solution for a business on a low
budget that wants to get up and running quickly and easily. In the
long term you may outgrow it and move to a more flexible
merchant account solution.

WHAT ARE THE BENEFITS?

The biggest benefit is flexibility. You can offer coupon codes,
you can create customer accounts, you can create mailing lists...
anything. If you can think it, you we can do it for you.

WHAT ARE THE DRAWBACKS?

The biggest drawback is cost. Additionally, accepting
international payments with merchant accounts can be very
tricky. Other than that, there's the customer trust factor. If you
are a brand new business you have no track record of trust
although there techniques we can use to build trust in those
situations.
OVERALL OPINION OF MERCHANT ACCOUNTS:
The merchant account is a supremely flexible solution that will
grow as your business grows. In the short term it will cost more
to get up and running but in the end it's usually worth it.

REFERENCE
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]

A Brief Introduction to PayPal. Available at: http://www.cart32.com/about-us/blog/item/535-a-brief-introduction-to-paypal

Plotkin, Hal (September 8, 1999). "Beam Me Up Some Cash". CNBC.com (web).
PayPal article. Available at: http://en.wikipedia.org/wiki/PayPal
How PayPal works? Available at: http://money.howstuffworks.com/paypal.htm
Alternative Payment Options. Available at: http://www.cart32.com/about-us/blog/item/302-alternative-payment-options
Getting Started With the PayPal API. Available at: http://coding.smashingmagazine.com/2011/09/05/getting-started-with-thepaypal-api/
Matthew A. Russell (2012) PayPal APIs: Up and Running, 2nd edition, OReilly publication.
Selecting the Best Payment
Solution for You: PayPal vs. Merchant
Account.
Available at:
http://www.webtys.com/small_business/article_paypal_vs_merchantaccount.php3

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