You must have a business PayPal standard account set-up with Instant Payment Notification turned on and a bank account linked to the PayPal account for activation. See PDF below.
Review the ABOVE PDF attachment for important information about setup of your Paypal account.
Login to your back office administration area
Click on System – Settings Wizard
In the settings wizard left navigation click on Site Wide Settings – Payment Processing
Under Offsite Payment Processing on the right side, click the Change Setup link next to PayPal Standard.
In the Business Name field enter your PayPal account username. Paypal has recently changed their terminology. In Paypal, you can make a "Business Name". The name you enter there should not be what you enter in backoffice. You should enter the user name (email address) that is used to login to paypal in the backoffice.
Set Test Mode to No.
Enter the Currency Code for your currency type.
Click the Make Changes button to save these settings.
If you are using PayPal Standard only, you will want to disable the other forms of payment processing.
Under Current Integrated Settings on the left side of the page click the Disable link next to Current Status. This will disable onsite payment processing.
Under Offsite Payment Processing on the right side of the page click the Disable link next to Worldpay to turn off Worldpay payment processing.
Additional Settings Needed in your PayPal Account
IPN must be enabled on your PayPal Account:
Once your account has been created and verified with PayPal you will need to make sure Instant Payment Notification is turned on in your PayPal settings.
PayPal Account Optional must be set to Yes in your PayPal Account.
This allows your customer to pay with a credit or debit card without having a PayPal Account.