Chargebacks

2021'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?

PayPal has become one of the most widely accepted payment methods for online purchases, behind only credit and debit cards. The vast majority of eCommerce merchants accept PayPal at checkout, and that level of reach means that PayPal has a great deal of responsibility when it comes to dealing fairly with both customers and merchants. Like most online payment methods, PayPal transactions can lead to disputes and chargebacks, and just like most payment methods, merchants need to know the ins and outs of how PayPal chargebacks work.

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


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. 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. Merchants can however get protection from this fee through the Seller Protection Program.
 

What is the PayPal Seller Protection Program?

PayPal does have a Seller Protection Program that can protect certain transactions from chargebacks, reversals, and their associated fees. This means that if you sell something to a buyer, and they dispute or reverse the transaction, you may be eligible to retain the full purchase amount and avoid any related chargeback fees paid (for debit and credit card-funded transactions). It does not however, prevent consumers from disputing a transaction with their bank directly.
 
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.


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 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 PayPal chargeback fee is $20 for all U.S.-based transactions, with varying rates for international transactions.

If a purchase isn't covered under PayPal Seller protection there is a $20 chargeback fee from PayPal. There can also be a host of other fees if the consumer's bank becomes involved or if the consumer opts to circumvent the Resolution Center


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.
 

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyMerchants 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 at minimum 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.

 


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