Chargebacks

2022's Official Guide to Fighting PayPal Chargebacks

A Merchant's Guide to PayPal Credit Card Chargebacks

Table of Contents

  1. Does PayPal Protect Sellers Against Chargebacks?
  2. What Is the PayPal Seller Protection Program?
  3. What Is PayPal's Chargeback Fee?
  4. How Do You Dispute a PayPal Transaction?
  5. How Does PayPal Deal With Chargebacks?
  6. How Do You Fight PayPal Chargebacks?
  7. Is a PayPal Chargeback the Same as a Claim?
  8. The Bottom Line on PayPal Chargebacks
  9. How Long Can You File a Chargeback on PayPal?
  10. How Long Do You Have to Respond to a PayPal Chargeback?

In recent years, the number of payment methods e-commerce merchants can choose to accept has increased precipitously. A variety of cryptocurrencies and BNPL providers have sought to gain acceptance among merchants, and the major credit card networks have been creating their own alternatives to popular services. Despite the flurry of new options, one of the most widely-accepted alternative payment methods is also one of the oldest: PayPal

New call-to-actionPayPal came onto the scene at a time when many customers were still nervous about giving out their credit card number to merchants, 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: chargebacks.

PayPal disputes and chargebacks will find their way to any merchant who accepts these payments sooner or later, and when they do, it's best to be prepared. How do PayPal chargebacks work, and what do merchants need to know to handle them effectively?

Does PayPal Protect Sellers Against Chargebacks?

PayPal can insulate merchants from some of the hassle of handling card payments, but they can’t prevent chargebacks from happening. However, PayPal's Seller Protection Program will absorb the costs for chargebacks associated with certain eligible purchases.

There will always be buyers filing chargebacks with their banks, whether legitimate or illegitimate, even though PayPal also has a dispute process of its own that customers can use to handle any problems they have with a merchant.

According to PayPal, sellers are charged a non-refundable chargeback fee any time a cardholder files a chargeback. In some cases, however, merchants may have this fee waived through the Seller Protection Program.

What Is the PayPal Seller Protection Program?

PayPal's Seller Protection program can protect certain transactions from chargebacks and their associated fees. This means that if you sell something to a buyer and they dispute the transaction, you may be eligible 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" claim. It does not protect from other types of claims.

Note that Seller Protection protects merchants from disputes made through the PayPal Resolution Center as well as from chargebacks resulting from customers contacting their bank to dispute the debit or credit card charge that funded the transaction.

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.


What Is PayPal's Chargeback Fee?

Sellers do not incur chargeback fees from PayPal on transactions that are protected under the PayPal Seller Protection Program. Transactions that do not meet these criteria are charged a fee of $8, or $16 if they exceed PayPal's dispute threshold.

Fight & Recover Chargebacks - Get The GuideBeginning in December of 2020, PayPal switched from charging a $20 chargeback fee only when the buyer filed a chargeback with their bank to charging an $8 dispute fee for all transaction reversals.

If a dispute made through the PayPal Dispute Resolution Center is escalated to a claim, the merchant will be charged the new fee.

As part of the new rules, PayPal established a dispute threshold for merchants. If the merchant had more than 100 sales in the past full three months and more than 1.5% of those sales led to a dispute, the seller will be charged a High Volume Dispute Fee, which is double the standard fee.

How Do You Dispute a PayPal Transaction?

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.

How Does PayPal Deal With Chargebacks?

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

  • 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
  • Seller submits their evidence that the chargeback should be denied to the PayPal Resolution Center
  • PayPal reviews the evidence
  • PayPal passes the evidence to the buyer’s issuing bank
  • Issuing bank reviews the evidence and makes a decision on the chargeback case
  • Issuing bank notifies the buyer and PayPal of their decision. PayPal notifies the seller of the decision and updates the case status in the Resolution Center

How Do You 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.

Is a PayPal Chargeback the Same as a Claim?

PayPal claims are a different mechanism than chargebacks. With a claim, the purchaser can turn over their problems to PayPal. PayPal freezes the funds and calls for the customer and the merchant to negotiate the problem.

If they are unable to negotiate the problem, then PayPal will step in with moderation to arbitrate the claim.

During a PayPal chargeback, the buyer has their account frozen. With a claim, however, they can make further purchases with their PayPal account.

While a PayPal chargeback may take a minimum of 6 weeks to resolve, a dispute takes a maximum of 1 month. However, if the merchant and buyer cannot reach an agreement, PayPal offers a solution that they see as in both parties' best interest.

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 many of the customers contacting you through PayPal's platform might instead be filing costly chargebacks if the option wasn't available. Resolving any issues with the customer directly is always the better option.

FAQ

How Long Can You File a Chargeback on PayPal?

PayPal users can file chargebacks up to 180 days after a transaction.

How Long Do You Have to Respond to a PayPal Chargeback?

Sellers who receive a chargeback on PayPal have 10 days to respond to it.


Thanks for following the Chargeback Gurus blog. Feel free to submit topic suggestions, questions or requests for advice to: win@chargebackgurus.com

Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes