An Expensive Lesson Merchants Learn About PayPal Chargeback Protection
In recent years, technology has unlocked endless possibilities for those seeking new and innovative eCommerce sales channels. Naturally, our digitally-connected world is rife with opportunities for criminals to scam consumers out of their money. But, what about the merchants who get scammed by fake customers?
This is exactly what has happened to numerous retailers who were targeted by fraudulent buyers. The outcome was an expensive lesson learned about the limits of PayPal Chargeback Protection (and buyer protection programs in general).
In this piece, we’ll explore the benefits of PayPal Chargeback Protection and learn how to get the most from it by understanding its limitations. Here’s what’s in store:
- What is a Chargeback & How Does PayPal Protect Merchants?
- How PayPal Seller Protection Works
- Who Qualifies for PayPal Seller Protection?
- What New Merchants Don’t Know About PayPal’s Seller Protection Terms
- How to Protect Yourself from Chargebacks & Win Disputes with PayPal
- Conclusion
Now, let’s get to it.
What is a Chargeback & How Does PayPal Protect Merchants?
A chargeback is when a customer disputes a transaction with their bank or credit card company. If a merchant has not followed the Card Association Rules and Regulations, they can be held liable for the transaction. Chargebacks are also known as “chargeback reversals” and “disputes”.
Why Do Customers Wrongly File Chargebacks?
There are many reasons why customers file fraudulent chargebacks against merchants: some are outright scams, and others are honest mistakes made by consumers or even fraudsters posing as them. Or, in some cases, a customer may file a chargeback out of pure buyer’s remorse.
No matter the reason, one thing remains true about these scenarios: if you don’t have enough protection in place to prevent them from happening, you risk losing your business
What Does PayPal Do to Prevent Fraudulent Chargebacks?
Because customers make mistakes and fraudsters come in all shapes and sizes, PayPal has evolved to facilitate Seller Protection. PayPal’s seller protection is designed to help prevent retailers from falling victim to buyer scams. While the program is fantastic, it can’t solve each and every dispute alone.
When PayPal first announced its seller protection policy, it was billed as a major step forward in protecting merchants from fraudulent chargebacks. And, it is immensely helpful. Seller Protection offers merchants the opportunity to retain the full amount of a purchase when certain requirements are met.
How PayPal Seller Protection Works
Let’s say Bob is a merchant and he sells a gadget to Jane. Jane pays for it online, receives the item in the mail, then decides she doesn’t want it anymore. Without reaching out to Bob to set up a return, Jane contacts her bank, and they initiate a chargeback reversal on the payment.
A chargeback is essentially when an issuing bank (the bank that issued your credit or debit card) reverses the transaction between your customer and you. This happens when there are questions about the legitimacy of a transaction, for example: if someone claims they never authorized it in the first place.
It can also happen when funds have been taken from their account without them knowing about it or giving consent for such funds to be transferred out of their account in this way.
PayPal Seller Protection works on behalf of the merchant to safeguard legitimate sales for which the customer has no right to a refund.
Recommended: This is How to Earn Trust in eCommerce
Who Qualifies for PayPal Seller Protection?
Good news: if you’re a merchant that sells on eBay, Shopify, or any other platform that uses PayPal as a payment processor, you may qualify. You can also apply for Seller Protection after your first transaction by calling PayPal customer service. Get in touch at 1-888-221-1161.
Here are the basic requirements:
- The primary address on your PayPal account is in the US.
- You sell physical, tangible goods that are shipped to customers (or you meet the additional requirements for intangible goods).
- Your order is shipped to the address included in the Transaction Details page of your PayPal account.
- You respond to any of PayPal’s documentation requests in a timely manner.
- You ship within 7 days of the date a payment is received or within the timeframe specified on your sales page.
- You provide valid proof of shipment or delivery.
Furthermore, in the case of “unauthorized transaction” claims, you need to meet certain requirements and the transaction must be labeled “eligible” or “partially eligible” in your PayPal dashboard.
For more information, see PayPal’s full seller protection policy.
What New Merchants Don’t Know About PayPal’s Seller Protection Terms
For every merchant using PayPal, the fine print is a must-read.
PayPal does not provide protection for chargebacks that are filed more than 45 days after the transaction. If your customer files a claim with their credit card company more than 45 days after they received the product or service that they purchased from you, PayPal will not be able to help you in any way and it is up to you to resolve the situation yourself.
This means that if a customer files a chargeback with their credit card company on September 1st for an order placed by them on July 25th (which would be within 45 days), then yes—you can dispute it with PayPal and get back your money from them! However, if they file another complaint on October 5th about an order placed on August 10th (more than 45 days) then too bad for both of us because we’re out of luck here!
Next, Seller Protection can get you access to funds that would otherwise be held, but only if you meet certain requirements. For example, while requirements for proof of shipping and delivery are outlined in PayPal’s policies, you need to thoroughly read the terms to understand what counts. Not only do you need an “online and verifiable” tracking number, but also the date of shipment and an address that matches the address in your seller dashboard.
And, many items — such as real estate, vehicles, and business transfers — are completely ineligible.
Finally, trusted shipping carriers play a powerful role in a merchant’s eligibility for the seller protection program. If you’re working with a carrier because they’re cheap, but they fail to provide the minimum requirements, you could be ineligible for assistance through PayPal’s Seller Protection program.
How to Protect Yourself from Chargebacks and Win Disputes with PayPal
To protect your business and win chargeback disputes with PayPal, there are several things you can do.
First, consider using a chargeback management service. These services will help you dispute chargebacks with PayPal (the largest online payment processor) and other credit card companies/services.
Next, ensure that each and every tracking number for physical goods is entered in PayPal as soon as you have them. This way, if someone does try to file a fraudulent claim against you, they won’t be able to because they won’t have access to the necessary information needed by the credit card company or service in question.
Note that PayPal disputes for digital items are slightly different, but also require confirmation of any claims pertaining to the transaction from both parties.
Then, keep meticulous records of all communication with customers. When the dispute process begins, PayPal will want to see proof from both parties. The more concrete evidence that you can provide that you’re in alignment with best practices, the better.
Finally, if a chargeback is issued in favor of the buyer, make sure to blacklist the customer from ordering in the future. Look for fraud prevention apps, plugins, or add-ons for your eCommerce channel.
Conclusion
We’ll be honest, a chargeback is one of those situations where you’re either going to ride the wave or sink—and we hope it’s the former! We do want to let you know that once you’re in a situation like this, there is still hope. And, our best advice is to avoid falling into it from day one by keeping your business safe.
If protection against chargebacks is something that concerns you, then please let us know about any possible problems we may have missed here and how we can help.
Are you having a problem with PayPal chargebacks in Shopify? Download our free guide & PayPal dispute resolution templates today.
Ashley is a freelance copywriter and the founder of Aurajinn. She's been working in eCommerce and technology for over a decade. Here, she shares her best cyst-like gems of wisdom to help new and intermediate online sellers level up their operations.
