Educational content only. We analyze PayPal services through the lens of Sarf (Currency Exchange), Wakalah (Agency), and the prohibition of Riba (Interest) in balance holdings. We do not issue fatwas.
PayPal is the world's most popular digital wallet, offering everything from simple checkout to business financing. For Muslims, the core question is not whether the app itself is halal, but whether the specific features—such as holding balances, using credit lines, or cross-border currency exchange—meet Shariah standards.
Scholarly consensus overview
PayPal as a Payment Agent (Wakalah)
When you use PayPal to pay for a purchase on eBay or a merchant site, PayPal acts as a Wakil (Agent). It takes money from your linked bank account and gives it to the seller. This is a simple transfer of funds (Hawalah) and represents a service for which PayPal can charge a fee.
Verdict: Using PayPal as a checkout bridge (Linked to a Debit Card) is widely considered permissible by contemporary scholars.
Feature Checker
The Issue of Wallet Balances
When you hold a balance in your PayPal wallet (e.g., money sent to you by a friend), that money sits in PayPal's bank accounts. In some countries, PayPal may earn interest on that pooled money.
- The Concern: Since you have essentially lent this money to PayPal, any interest they earn on it can be seen as an indirect benefit you are facilitating for them (or potentially receiving if they offer "Savings" products).
- Recommendation: Many scholars advise against keeping significant funds in a PayPal balance. It is better to withdraw funds to a Shariah-compliant bank account as soon as they are received.
Balance & Interest Check
A key concern with digital wallets is whether the money sits in an interest-bearing account.
PayPal Credit and Riba
PayPal offers a "PayPal Credit" service, which is a virtual credit line. If you do not pay off your balance within a promotional period (usually 4 months), you are charged a high interest rate.
Verdict: Interest-bearing credit products like PayPal Credit are Non-Compliant. Signing a contract that agrees to pay interest is prohibited in Islam, even if you intend to pay it off early.
Sarf: Currency Exchange Rules
When PayPal converts GBP to USD, the rules of Sarf (Currency Exchange) apply. Islamic law requires that currency exchange happen "hand-to-hand" (simultaneously) and at a clearly defined rate.
Digital transfers are considered simultaneous enough for modern scholars, but the **conversion fees** added by PayPal are often hidden within the rate. Provided the rate is disclosed at the time of the transaction, this is generally seen as a permissible service charge.
Where scholars usually draw the line
- • Prohibited Industries: You cannot use PayPal to buy or sell products that are inherently haram (alcohol, gambling). PayPal's own Terms of Service also restrict some of these areas.
- • Linked Accounts: If PayPal is linked to an interest-bearing credit card, the underlying transaction remains problematic, regardless of using the PayPal bridge.
Summary
- Transactional Bridge: Compliant. Using PayPal to facilitate a purchase is a valid agency (Wakalah).
- Wallet Balances: Permissible but discouraged for long-term holdings. Best practice is to keep the balance at zero.
- PayPal Credit: Non-Compliant. Avoid any feature that involves interest-bearing debt.
Safer Settings Guide
Avoid "Pay with PayPal Credit" Default
Ensure your default funding source is your Bank Account or Debit Card, not 'PayPal Credit'.
- Go to Wallet
- Select your Debit Card
- Click "Set as Preferred"
Decline "Pay in 3" Offers
At checkout, PayPal often aggressively pushes "Pay Later". Ignore these prompts to avoid entering risky contracts.
Transparency
How we wrote this
We reviewed PayPal's UK User Agreement and Credit terms. We referenced scholarly research on Digital Payment Systems from the International Islamic Fiqh Academy and various contemporary UK Fatwa councils.
- AAOIFI Shariah Standard No. 1 (Trading in Currencies)
- Islamic Fiqh Academy: Resolution on Electronic Transfers
- Mufti Faraz Adam: "Is PayPal Halal?"