5 PayPal Chargeback Scams & How to Prevent Them
Table of Contents
- PayPal shipping address scams
- PayPal overpayment scams
- PayPal fake email scams
- PayPal phishing email scams
- Hacked PayPal scams
- Fake charities
- What can you do to prevent PayPal scams?
- How can you spot a PayPal scammer?
- How does PayPal deal with scams?
- What is a PayPal Business Account?
PayPal has a reputation for safety and security, which makes it the first choice for many eCommerce businesses who need a way to accept online payments, or want to offer customers a faster process than entering credit card information.
Unfortunately, fraud and criminal activity does still occur on PayPal. Like any other payment processor, they face a daily onslaught of scams, hacks, and fraud attempts that intend to steal money and resources from merchants and cardholders alike. Because of its position as an online payment processor, however, if faces challenges both familiar and unique, and many customers and merchants alike are discovering that making payments through PayPal comes with its own set of risks.
Any merchant who regularly transacts business over PayPal should be aware of these five common scams.
PayPal shipping address scams
After a purchase is made and the payment has been placed in the seller’s PayPal account, the scammer asks the seller to ship their purchased item to an invalid delivery address.
After several failed delivery attempts, the shipping company flags the item as undeliverable in their system. The scammer then contacts the shipping company and gives them a new, valid shipping address.
When the scammer gets their shipment, they file a complaint with PayPal claiming that the item was never delivered. The seller has no proof of delivery, because their transaction detail shows only the original, invalid address.
PayPal’s Seller Protection doesn’t cover shipments made to addresses that aren’t on file, so the seller loses both the item they shipped and the payment funds.
To avoid these schemes, check that the shipping address is valid before sending the item, and talk to your shipping company about making sure customers can't reroute purchases.
PayPal overpayment scams
Sometimes, a scammer may make a payment to a seller’s PayPal account that exceeds the cost of the item they are purchasing. Then they will contact the seller, explain that they overpaid, and ask for the remaining balance to be paid back to them.
After the seller sends back the overpayment amount, the scammer sends a complaint to PayPal claiming that their account was compromised and that they never meant to send a payment to the seller in the first place. PayPal reimburses the full original payment back to the scammer, and even if the seller hasn’t shipped out the purchased item yet, they’ve still lost the “overpaid” amount they sent back.
Fortunately, this scheme is easy to avoid. In cases of overpayment, sellers should simply refund the entire purchase and request a payment of the correct amount.
PayPal fake email scams
Scammers may send forged emails to sellers that appear to be from PayPal, stating that the scammer paid money into the seller’s account and that PayPal has placed a hold on the funds and will not release them until the seller sends a shipment tracking number.
PayPal does not work this way; they do not hold funds in escrow. The scammer is hoping that the seller will rush to ship the item and send over a tracking number in order to receive the money. Once the item has been shipped, it’s too late—the scammer will get an item that they never paid for, and the seller will eventually realize that PayPal was never holding money for them.
Some fraudsters may attempt to make a convincing copy of a normal PayPal sale notification email.
Since many merchants take the customer information from these emails and ship the item out right away, a fake email could result in a real product shipment. Since this scam doesn't go through PayPal's systems at all, there's nothing they can do to protect sellers from it.
PayPal phishing email scams
Another fake email scam involves sending sellers an email that appears to be from PayPal indicating that funds have been transferred into their account pending confirmation, with a link or button for the seller to click that will make the money available to them.
The link leads to a fake PayPal site that will ask for the seller’s login credentials. If the seller enters their email and password into the fake site, the scammer will be able to use them to log into the seller’s actual PayPal account, from which they can make payments or withdraw funds.
Traditional phishing scams offering millions of dollars for a small investment in time and money have been around almost as long as email. Now, these scammers are targeting PayPal users. These fraudsters will ask for a small amount for some sort of processing fee or documentation with the promise of big financial returns in terms of lost inheritances or other found money. Obviously, they never plan on sending you any money, and simply walk away with the smaller amount you sent. Despite the fact that this scheme has become fairly well-known, millions of people still fall victim to it every year.
Hacked PayPal scams
Once a scammer has hacked into somebody else’s PayPal account (as in the case of the phishing email scam), they can make purchases and send payments with the money from the account they have taken over.
A seller might receive notice of a purchase and ship an item, only to later be told by PayPal that the transaction was fraudulent and that the transaction must be reversed. PayPal's Seller Protection Program can reimburse merchants in these situations if the transaction is eligible. Merchants using PayPal should ensure that they are meeting all the requirements of the Seller Protection Program in order to protect themselves from purchases made with hacked accounts.
While not exclusive to PayPal, fake charities are a common scam, especially after widely publicized disasters. Scammers set up a PayPal account and one or more social media pages claiming to be a charity organization devoted to helping people impacted by the disaster. They then use paid advertising or bot accounts to spread posts by the fake charity account encouraging people to donate. The trickiest part about this scheme is that most people never even realize they've been scammed, thinking their money went to charity when in fact it went into a scammer's pocket.
What can you do to prevent PayPal scams?
The good news about PayPal scams is that there are several actionable steps merchants can take to prevent or avoid them.
- Before accepting a payment, look out for red flags. Requests to rush shipments, accept partial payments, or accept payments split up between multiple PayPal accounts are all strong indicators of fraudulent activity.
- Items that have a high resale value or are in high demand are especially attractive to fraudsters. Before shipping out especially valuable items, double check shipping and billing addresses to make sure they match.
- Even customers with valid credentials may commit friendly fraud out of ignorance or impatience. When shipping high-value items, insist on signature confirmation on delivery.
- Sign up for PayPal’s Seller Protection Program and PayPal will reimburse you for certain types of fraud.
- Block customers who file disputes or make fraud claims. Fraudsters will often target the same seller several times if no action is taken against them.
- When receiving any email from PayPal, check the actual email address, not the sender name, to make sure it's legitimate. If in doubt, log in to your account in a new tab to confirm the information.
- Only ship purchases to the address provided in the transaction details.
Many instances of fraud happen because sellers don’t know the warning signs to watch out for. If you know what to look for, you can exercise caution and protect yourself from scammers, thieves, and hackers.