While setting up PayPal method please make sure that “Merchant ID” you have provided is correct. You can get the merchant ID from your PayPal account. You can contact PayPal if you don’t know the merchant ID.

Also make sure to give return, cancel and notify URLs. These are used when you are redirected back to your site from PayPal after cancelling or completing payment.

Notify URL:

The URL to which PayPal posts information about the payment, in the form of Instant Payment Notification messages.

Example,

http://www.yoursite.com/?ptype=notifyurl&pmethod=paypal

Cancel URL :

A URL to which PayPal redirects the buyers if they cancel checkout before completing their payments. For example, specify a URL on your website that displays a “Payment Canceled” page.
Default – PayPal redirects the browser to a PayPal webpage.

Example,

http://www.yoursite.com/?ptype=cancel_return&pmethod=paypal

Return URL :

A URL to which PayPal redirects the buyers after they complete their payment and get back to the site.

Example,

http://www.yoursite.com/?ptype=return&pmethod=paypal