It works kindof like a bank, in that you can send, receive, and store money in it as a secure account for as long as you'd like.

So is it FDIC insured? And is it registered as a bank, or merely a money transmission service even though it can holds funds for extended periods?

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    Already answers to your question so just posting as a comment, but it used to be a bank. PayPal started as a feature of an early online bank called x.com. When I signed up it was still in that state and their website was paypal.x.com. – briantist Sep 15 '18 at 0:46
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    Paypal Europe have a banking licence in Luxembourg. – vclaw Sep 15 '18 at 16:41

According to the PayPal FAQ:

How does the FDIC protect PayPal?

PayPal is not a bank and it is not insured by the FDIC. FDIC insurance does not protect you against the risk of PayPal’s insolvency.


No, PayPal is not FDIC insured. Yes, it works very much like a bank, but as of yet is has not been classified by the FDIC as a bank.

Also, PayPal does not WANT to be classified as a bank due to the restrictions that the fed places on banks (cash reserves, etc.)

Things can change, however. It's entirely possible that the fed can amend the rules to treat businesses like PayPal as banks, or it can leave them alone and keep this strategy of "pseudo" banking separate than traditional banks.

does that mean that Paypal works on an extremely thin fractional reserve?

Not in those terms, but in their 2017 Annual Report, their "Funds payable and amounts due to customers" is about 7 times the amount of cash on hand.

These liabilities are most likely considered unsecured junior debt, so if PP decided to declare bankruptcy, any bondholders would get paid fist, followed by unsecured debt, so it's very possible that the money could be lost.

  • So does that mean that Paypal works on an extremely thin fractional reserve? – Deirdre Monaghana Sep 14 '18 at 17:27
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    @DeirdreMonaghana No, PayPal doesn't make conventional loans, so fractional reserve has nothing to do with it. They do offer some credit card like services, but I doubt it is a large part of their business. – zeta-band Sep 14 '18 at 17:57
  • The money on deposit by customers is not in accounts payable. In the 2017 10-K balance sheet it is called "Funds payable and amounts due to customers" which was 19.7 billion USD as of December 31, 2017. That is about seven times cash at that time. investor.paypal-corp.com/… – Shannon Severance Sep 14 '18 at 20:02
  • @ShannonSeverance Thanks for the research. I hadn't gotten around to digging into their financials. – D Stanley Sep 14 '18 at 20:20
  • @zeta-band Are you sure? That 10-K filing lists over $6 billion in "Loans and interest receivable" under assets. – David Schwartz Jun 25 '19 at 17:39

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