Many businesses like to use PayPal for their online transactions—they’re a familiar and trusted name, and there’s virtually no barrier to entry. PayPal offers convenience and security to merchants who want to be able to accept card transactions but might not want to take on the task of processing payments themselves. PayPal can insulate you from some of the hassle of handling card payments, but they can’t prevent chargebacks from happening. 

When a buyer has a dispute with a seller over a PayPal transaction, they are encouraged to deal with it through the PayPal Resolution Center, where they can hash out an agreement directly or refer the matter to PayPal for adjudication. However, buyers still have the right to dispute a charge with their bank, even if it went through PayPal. If buyers find PayPal’s process unsatisfactory or decide to bypass them entirely, disputes can easily turn into chargebacks.
 

PayPal Chargebacks

PayPal Chargeback Dispute Process

Here’s what happens when a customer files a chargeback against a PayPal transaction:

1. The buyer contacts their credit card issuing bank and requests a chargeback

2. The issuing bank notifies PayPal’s merchant bank

3. PayPal’s merchant bank notifies PayPal of the dispute and withdraws funds from PayPal

4. PayPal notifies the seller of the dispute, and funds related to the chargeback are placed on a hold

5. The seller submits their evidence that the chargeback should be denied to the PayPal Resolution Center

6. PayPal reviews the evidence

7. PayPal passes the evidence on to the buyer’s issuing bank

8. The issuing bank reviews the evidence and makes a decision on the case

9. The issuing bank notifies the buyer and PayPal of their decision

10. PayPal notifies the seller of the decision and updates the case status in the Resolution Center
    
    

PayPal Chargeback Time Limit

While card networks can allow up to 14 days to dispute a chargeback, PayPal requires a response from the seller within 10 days.

This is to allow their in-house team time to review the evidence and pass it along to the issuing bank.

PayPal’s Chargeback Fee 

Sellers do not incur chargeback fees from PayPal on transactions that are protected under the PayPal Seller Protection Program or are funded with a credit or debit card. Transactions that do not meet this criteria are charged a fee regardless of the outcome of the case.

The fee is to cover PayPal’s involvement in the chargeback process and is $20 for all transactions in U.S. dollars, with varying rates for international transactions.

Handling PayPal Chargebacks 

Merchants are advised to adapt their chargeback fighting strategies to account for the unique aspects of the PayPal chargeback process. The optimal approach for fighting PayPal chargebacks depends on the type of products or services being sold.

Here are suggestions for the best compelling evidence to provide for each situation.

Physical Goods 

• Original item or auction description, including photos
• Transaction receipt with shipping and billing information
• Seller Protection verified information (if the transaction is eligible)
• Shipment tracking number, with time stamp
• Delivery receipt with a delivery address that matches the shipping address provided by the buyer (signature confirmation may be required for transactions over $750)
• Copies of any correspondence between the buyer and seller
• Proof of any refunds issued prior to the chargeback filing
• Proof of any replacement products shipped
• One-page cover letter explaining the seller’s reason for disputing the chargeback

 
Digital Goods 

• Original item or auction description, including photos
• Transaction receipt with billing information
• Copy of the seller’s return policy and terms & conditions
• Reports that prove that the product was downloaded or used by the buyer (this needs to include identifying information such as the buyer’s name, email, or IP address)
• For digital goods that are physically shipped, the delivery receipt with a delivery address that matches the shipping address provided by the buyer
• Copies of any correspondence between the buyer and seller
• Copies of previous completed transactions that were not disputed (in cases where the chargeback is for a recurring billing transaction)
• Proof of any refunds issued prior to the chargeback filing
• One-page cover letter explaining the seller’s reason for disputing the chargeback
  
  

Digital Services 

• Copy of the service agreement signed by the buyer and seller, outlining all the deliverables and timeline of the service to be provided
• Transaction receipt with billing information
• Copies of the service cancellation policy and terms of service
• Copies of any correspondence between the buyer and seller
• Service delivery acknowledgement signed by the buyer
• Copies of previous completed transactions that were not disputed (in cases where the chargeback is for a recurring billing transaction)
• Proof of services rendered to the buyer (for digital marketing services and similar businesses)
• Proof of any refunds issued prior to the chargeback filing
• One-page cover letter explaining the seller’s reason for disputing the chargeback
  
  

Service Providers 

• Copy of the service agreement signed by the buyer and seller, outlining all the deliverables and timeline of the service to be provided
• Transaction receipt with billing information
• Copies of any correspondence between the buyer and seller
• Service delivery acknowledgement signed by the buyer
• Copies of previous completed transactions that were not disputed (in cases where the chargeback is for a recurring billing transaction)
• Proof of any refunds issued prior to the chargeback filing
• Proof of any replacement services or products provided to the buyer
• One-page cover letter explaining the seller’s reason for disputing the chargeback
  
  

Fighting Back the Smart Way

While the chargeback process for a PayPal transaction can be slightly different, the essential components of a successful chargeback dispute—a timely response, compelling evidence, and a solid cover letter—are universal.

As with any other chargeback problem, it may be helpful for merchants who deal with a high volume of chargebacks to look for qualified, dependable chargeback experts to help them curate and present the evidence that will preserve their revenue, while showing them how to implement business improvements that will prevent chargebacks from happening in the first place.

Businesses that process e-commerce and other card-not-present transactions—including the over 17 million who use PayPal for payments—are quickly learning about the risks and realities of chargebacks. 

This comprehensive guide, A Merchant's Guide to PayPal Chargebacks, will help you effectively handle PayPal disputes, claims and chargebacks in order to protect profits.