The simple idea behind PayPal -- using encryption software to allow people to make financial transfers between computers -- 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 more than 100 million accounts worldwide [ref].

In this article, we'll show you how to use PayPal, find out how the transactions are made, and learn something about the company's history. We'll also examine some of the complaints about PayPal's business practices.

PayPal is an online payment service that allows individuals and businesses to transfer funds electronically. You can use it to pay for online auctions, purchase goods and services, or to make donations. You can even use it to send cash to someone.

A basic PayPal account is free. You can send funds to anyone with an e-mail address, whether or not they have a PayPal account. They'll get a message from PayPal about the funds, and then they just have to sign up for their own account.

Funds transferred via PayPal reside in a PayPal account until the holder of the funds retrieves them or spends them. If the user has entered and verified their bank account information, then the funds can be transferred directly into their account. Other ways to withdraw your funds are listed below.

Methods of withdrawing funds from a PayPal account

Signing up for PayPal is quick and doesn't even require you to enter any bank account information, although a checking account or credit card is required to use many of PayPal's features. From the PayPal homepage, just click on the "Sign Up Now" button. At the next page, you'll choose whether you want a personal, business or premier account. If you just plan to use PayPal for the occasional eBay auction or online purchase, a personal account is the right choice. If you intend to use PayPal to accept payments for your own business, then a business or premier account would be more suitable. If you select a personal account, you can upgrade in the future.

Click on "Sign Up Now" to set up a PayPal account.

From there, you will go to a page that asks for your basic personal information -- your name, address, telephone number and e-mail address. You will also be required to enter two security questions in case you lose your password, and you have to enter a randomly generated series of letters and numbers, which help prevent fraud. Once you confirm your account by following instructions you'll receive via e-mail, the sign-up process is done.

Adding a valid, current credit card to your account will allow PayPal to confirm your address (if it matches where you receive your credit card statements). Having a confirmed address shows both buyers and sellers that you are less likely to be a scammer. You can also use your credit card for PayPal's Expanded Use service, which allows you to draw money from the credit card, instead of just from a bank account.

Get verified to move funds between your bank account and your PayPal account.

If you want to add funds to your PayPal account from your checking account, or vice versa, you need to enter and verify your bank account with PayPal. When you enter your account number and routing number, PayPal will make two micropayments to that account. These payments are usually about 5 cents. PayPal will then ask you to enter those amounts in order to verify the account (they'll show up on your bank statement). After you enter them, your bank account will be ready for use.

In the next section, we'll discuss PayPal's infrastructure.