Understanding PayPal Disputes, Claims, and Chargebacks

July 03, 2025

E-commerce merchants have more payment options to choose from than ever before. Peer-to-peer fund transfer apps are making inroads into retail and lending solutions like Buy Now Pay Later have grown in popularity. While these platforms may circumvent the credit card networks’ chargeback process, most of them include some form of dispute mechanism.

Out of all the alternatives to payment cards, the most widely-accepted option is one that consumers have been using for more than two decades now: PayPal. Let's take a closer look at what merchants need to know about disputes, claims and chargebacks on this platform.

What is a PayPal Dispute?
What is a PayPal Claim?
What is a PayPal Chargeback?
What Is the PayPal Seller Protection Program?
PayPal Dispute and Chargeback Fees
How PayPal Handles Chargebacks
How to Fight PayPal Chargebacks
The Bottom Line on PayPal Chargebacks

PayPal stepped into the payments scene at a time when many customers were still nervous about giving out their credit card number over the internet, offering an alternative way to pay for things online.

Customers could create an account, add their bank or card information, and make purchases online while keeping their payment credentials secure.

While fears about using credit cards online have largely dissipated, the convenience of logging into PayPal rather than typing out a credit card number has helped the service remain popular with customers, and acceptance among e-commerce merchants has become nearly universal.

However, PayPal does still have one thing in common with credit cards: consumers have the right to dispute a fraudulent or unfulfilled purchase and get their money back.

PayPal disputes will find their way to any merchant who accepts these payments sooner or later, and when they do, it's best to be prepared. Let’s take a close examination of the PayPal dispute process , how chargebacks come into play, and go over the best ways to handle them effectively.

What is a PayPal Dispute?

A PayPal dispute occurs when a buyer has an issue with a purchase, such as the item not being received or not matching the seller's description. PayPal's Resolution Center allows the buyer to raise a dispute and communicate with the seller to resolve the issue. If the parties can't resolve the situation themselves, the dispute can be escalated to a claim

What is a PayPal Claim?

A PayPal claim occurs when a transaction dispute can't be resolved between the buyer and seller. When the dispute is escalated to a claim, PayPal steps in to evaluate the situation and make a final decision. Sellers are charged a dispute fee for each claim they receive.

What is a PayPal Chargeback?

A PayPal chargeback occurs when a buyer contacts their credit card issuer to dispute a transaction rather than going through the PayPal dispute process. The issuer may reverse the transaction, resulting in the withdrawal of funds from the seller's account and an addition dispute fee charged by PayPal. Sellers can contest illegitimate chargebacks by uploading evidence in the PayPal Resolution Center.

What is the PayPal Seller Protection Program?

PayPal's Seller Protection program can protect certain transactions from disputes. This means that if you sell something to a buyer and they dispute the transaction, you may be able to retain the full purchase amount.

In order to be eligible for PayPal Seller Protection, the seller must meet certain requirements, such as having proof of delivery for the purchase.

If these requirements are met, PayPal will protect the seller from any costs associated with an "unauthorized payment" or "item not received" dispute. It does not protect from other types of dispute. Chargebacks associated with an "unauthorized payment" claim are also protected.

While limited in scope, Seller Protection can provide a welcome relief for merchants in the situations where it does apply. Most merchants would benefit from taking steps to ensure that as many of their sales as possible are eligible for the program.

PayPal Dispute and Chargeback Fees

PayPal charges three types of fees for disputes and chargebacks:

Standard dispute fee: $15
High volume dispute fee: $30
Chargeback fee: $20

PayPal's standard dispute fee is what merchants will be charges for most claims and chargebacks. Disputes that are resolved before escalating to a claim don't result in a dispute fee. If PayPal decides a claim in the merchant's favor, the dispute fee may be refunded.

The high volume dispute fee applies to merchants with a dispute rate of 1.5% or greater over the previous three full months. Merchants with less than 100 transactions in that time period are exempt. High volume dispute fees are not refunded if the merchant wins the claim.

A chargeback fee is assessed for transactions made using PayPal's Card Payment Services, where the buyer doesn't log into a PayPal account or use PayPal's guest checkout system. In these transactions, PayPal is filling the role of a traditional credit card processor.

PayPal's fee schedule varies based on the currency used.

How PayPal Handles Chargebacks

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

The buyer contacts their issuing bank and requests a chargeback
Issuing bank notifies PayPal’s merchant bank.
PayPal’s merchant bank notifies PayPal of the dispute and withdraws funds from PayPal.
PayPal notifies the seller of the dispute, and funds related to the chargeback are placed on hold.
The seller may submit evidence that the chargeback should be reversed through the PayPal Resolution Center.
PayPal reviews the evidence.
PayPal passes the evidence to the buyer’s issuing bank.
The issuing bank reviews the evidence and makes a decision on the chargeback case.
The issuing bank notifies the buyer and PayPal of their decision. PayPal notifies the seller and updates the case status in the Resolution Center.

How to Fight PayPal Chargebacks

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.

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 the most compelling kinds of evidence to provide for each dispute scenario:

Physical goods

Original item 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 description
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)
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

Services

Copy of the service agreement signed by the buyer and seller, outlining all the deliverables and the 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

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 recover their revenue while showing them how to implement business improvements that will prevent chargebacks from happening in the first place.

The Bottom Line on PayPal Chargebacks

On the whole, PayPal chargebacks aren't massively different from normal credit card chargebacks. The main differences are the availability of the Seller Protection Program, the fact that PayPal reviews and submits the evidence the merchant provides on their behalf, and the fact that PayPal provides an alternate method for customers to resolve issues with their purchases.

While responding to customers through PayPal's Resolution Center does take time, it's important to remember that if the option wasn't available, many of the customers contacting you through PayPal's platform might be filing costly chargebacks instead. Resolving any issues with the customer directly is always the better option.