PayPal is a third party merchant service that allows the transfer of payments or funds without the need for a payment gateway (see above). It is a secure service protected by SSL so all data is encrypted and virtually impossible to intercept.
PayPal provides insurance should any transactions be intercepted and data be stolen or lost. However this should never happen given the security of PayPal (they conduct thousands of transactions daily). Customers are redirected to PayPal once they checkout which may or may not be desirable for your site.