How Does PayPal on eBay Work?

Creating a PayPal Account
To use PayPal for purchasing items on eBay, a bidder must first create a PayPal account. This can be done quickly and easily by visiting www.PayPal.com. The user must provide a name, address, phone number and email address, then choose a log-in name, password and the answers for two security questions. Although the addition of a credit card or bank account information is optional, one of these funding sources must be added to the PayPal account for items to be purchased via PayPal on eBay. An email is then sent to the user with information about terms of use and account verification procedures.
Paying With PayPal on eBay
After an eBay auction has ended, the winning bidder is directed to a payment page that indicates the available options. The user may select PayPal, and will then be redirected to the PayPal site to confirm the payment amount. Depending on the items being purchased, other information may also be confirmed, such as the shipping address and instructions to the seller. After the payment is made, PayPal emails the buyer and the seller with a record of the transaction. This information is also available for viewing in the 'Account History' tab of the seller's and buyer's accounts.
How Money is Transferred
When a PayPal payment is made for an eBay purchase, PayPal deducts the money from the buyer's PayPal account. These funds are taken from either a bank account or charged to the buyer's credit card, depending on the options selected by the buyer when the account was created. The money is then deposited in the seller's account, minus a small transaction fee that PayPal charges the recipient of transferred money. There is no charge to the person sending the money (in this case, the buyer). The payment remains in the seller's account until it's used to make online purchases or withdrawn into a bank account.