E-commerce owes a lot to PayPal. They’ve helped countless businesses to expand and grow by providing them with an easy, affordable, and secure way to accept credit card payments online without having to sign up for a costly payment processing platform. While PayPal does have many features in place that help reduce fraud and protect sellers from losing revenue, they don’t have the power to stop buyers from requesting chargebacks from their card-issuing banks, even in cases of “friendly fraud” where the buyer has made no attempt to resolve problems with the seller directly.
Even merchants who exclusively use PayPal for accepting online payments have to concern themselves with chargeback prevention. Chargebacks can be extremely costly for merchants—when fees and associated costs are factored in, the typical chargeback ends up costing a merchant more than double the amount of the original transaction in dispute. It is therefore a matter of great importance for merchants to do everything they can to protect themselves from chargebacks by preventing, avoiding, and fighting them whenever possible.
Chargebacks occur for different reasons, and different approaches are called for when dealing with chargebacks in all their variations. When merchants are dealing with chargebacks that result from PayPal transactions, there are four major options for dealing with them that they can choose from.
Option #1: Let It Go
The simplest approach is to just accept the chargeback as one of the costs of doing business. While chargeback fees can be expensive, fighting them can be costly too—especially if it takes you away from your other, profit-making business operations.
Letting a chargeback slide is also generally the best way to handle legitimate chargebacks that result from theft, fraud, or merchant error. It’s unlikely that you’ll succeed in fighting these chargebacks, and in these cases, the person requesting the chargeback usually deserves to get their money back
Option #2: Fight with an In-House Team
When you’re feeling overwhelmed by chargebacks, it can be tempting to assemble your best employees into a crack team of chargeback-fighting warriors, gathering evidence and submitting responses to smack down chargebacks as soon as they pop up.
The main advantage of this approach is that it tends to be secure and affordable, and it works well for businesses that have to deal with high-value chargebacks. However, it can be difficult for an in-house team to keep up with the frequent changes banks and card networks make to their chargeback rules and procedures. The cost savings can also be cancelled out quickly if you’re pulling employees away from other tasks to work on chargeback management
Option #3: Use Automated Tools
Many developers have released software tools that automate the process of responding to chargebacks. These tools can be useful for merchants who deal with chargebacks that occur for predictable reasons, or who get a relatively low volume of chargebacks, but medium-sized or larger businesses may have a hard time finding automated chargeback tools that can work effectively at the scale of their operations.
Software tools tend to have a low win rate in chargeback disputes, and they rarely provide truly useful insights into the root causes of your chargebacks.
Option #4: Hire the Experts
Sometimes, a chargeback problem can grow to the point where the only sensible solution is to call in the cavalry. A good chargeback management firm will have a solid knowledge of the industry backed up by years of combined experience, which should enable them to not only fight your chargebacks effectively, but to provide you with reports, insights, and suggestions that help you identify your vulnerabilities, fix issues with your business that are causing chargebacks to get filed against you, and greatly reduce your overall chargeback volume.
The downside is that an inexperienced or low-quality chargeback management firm can end up costing you lots of money while providing few benefits. If you do end up deciding to hire chargeback experts, it’s important to research your choices carefully, ask the right questions, and go with a chargeback management company that has a track record of success and transparent business practices that make it easy for you to know that you’re getting a good return on your investment.
Businesses that process e-commerce and other card-not-present transactions—including the over 17 million who use PayPal for payments—are quickly learning about the risks and realities of chargebacks.
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