What is PayPal and How Does it Work

PayPal works by utilizing thousands of separate servers running the Linux operating system, literal ‘blocks’ of servers that can be redistributed to perform different tasks in tandem with one another. These thousands of servers connect with an offline database of customer information to transfer data back and forth between payee and recipient.

However, the servers don’t share information with each other, so anyone trying to break into the system would have to scour the heavily encrypted servers one by one to piece together the relevant data. This separation of the servers allows PayPal to remain secure while quickly processing the millions of payments it receives, as it would be almost impossible to obtain access to the different servers simultaneously to gather data.

The process is best shown through a step-by-step transaction. When a product is bought, the buyer-who has supplied PayPal with their bank details – authorizes a transaction via credit card or This transaction is handled directly by PayPal, which contacts the seller’s bank, credit card association and card issuer, paying the various interchange fees necessary to process it.

The seller’s money is then deposited into a dedicated PayPal account. This process is mirrored for the merchant, but is processed on a completely separate server for security reasons. Finally, after a set period of time, the money is transferred to the buyer’s account in another completely separate transaction across another server.