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?
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.
PayPal charges two types of fees for disputes. Their Chargeback Fee is assessed when a customer contacts their bank to dispute a transaction funded with their debit or credit card. Dispute Fees, the other type, are charged when a customer disputes a purchase through PayPal.
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.
Here’s what happens when a customer files a chargeback against a PayPal transaction:
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:
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.
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.