PayPal Chargeback Guide

E-commerce merchants have more payment options to choose from than ever before. Peer-to-peer fund transfer apps are making inroads into retail, stablecoin cryptocurrencies are viability, and lending solutions like Buy Now Pay Later are growing 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. What do merchants need to know about disputes and chargebacks on PayPal?

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?

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 and go over the best ways to handle them effectively.

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

Sellers are charged a non-refundable fee any time a cardholder files a chargeback. In some cases, merchants may be able to get this fee waived through the Seller Protection Program.

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.

The fee schedule varies based on the currency used. The Chargeback Fee is $20 for purchases made with U.S. dollar. The Standard Dispute Fee is $15, but if your seller account has more than 100 transactions and a dispute rate greater than 1.5% over the past three months, you will be charged the $30 High Volume Dispute Fee instead.

If your transaction qualifies for coverage under the PayPal Seller Protection Program, you won’t incur Dispute Fees.

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

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.

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 claim make take thirty days or longer. During that time, PayPal may ask for additional information or documents through the Resolution Center. The upshot of the claim process is that PayPal will make an effort to find a solution that serves the best interests of both parties.

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.

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