PayPal Chargeback Protection

December 20, 2021 | 7 min read

Paypal Chargeback Protection

Seller Protection or PayPal Chargeback Protection? Which Service Covers What?

Chargeback protection is an umbrella term for technology or features that shield merchants from chargeback fees. This can include proactively stopping disputes, or it can mean dealing with the damage after the fact.

As a payment platform, PayPal offers two proprietary, branded protection programs: PayPal Seller Protection, and PayPal Chargeback Protection. Both offer a level of insulation from fraud. The two programs differ significantly in how they work and what they cover, though.

The Two Sides of PayPal Protection

The protection offered by PayPal is somewhat different from what you’d receive in other situations. To understand this, it’s important to note that PayPal differentiates between an internal PayPal dispute and a chargeback.

With most merchants, processors, and financial institutions, the terms “chargeback” and “dispute” mean pretty much the same thing. A customer has an issue with a transaction, and so they contact their bank to ask for a forced refund.

Most companies only process payments. PayPal, however, functions as both a payments platform and a processor. Customers can use the app as a digital wallet, transferring money from a bank account to merchants who accept PayPal. At the same time, any merchant—even those that don’t accept PayPal—can use the company for processing credit cards.

Seller Protection? Chargeback Protection? Fraud Protection? Let the Experts Guide You Through the Confusing World of PayPal Chargebacks.


PayPal utilizes different terminology for different sides of the business. If a customer paid using a credit card that was processed through PayPal, a disagreement would result in a chargeback. Under the same circumstances, a payment made using PayPal as the payment platform would result in a PayPal transaction dispute.

Because they are separate processes, the two accompanying protection programs go by different names. Transaction disputes are covered by PayPal Seller Protection, while chargebacks are backed by PayPal Chargeback Protection.

What Is PayPal Seller Protection?

PayPal Seller Protection covers you in the event of claims, chargebacks, or reversals resulting from unauthorized purchases, or items your buyer didn’t receive. This only applies in situations where the buyer used PayPal directly. The buyer had a balance in their PayPal account, for example, and used that to make an online purchase from you as a vendor.

PayPal only gets involved with transaction disputes if the two parties cannot reach a mutually agreeable resolution. At that point, the dispute must be escalated to an actual claim. If the transaction is eligible for PayPal’s Seller Protection, you can request the transaction amount be frozen while PayPal conducts an investigation and attempts to resolve the dispute.

PayPal Seller Protection Requirements

Your PayPal account must be in good standing to benefit from Seller Protection. You must also respond to any information or documentation requests within the designated timeframe.

Physical goods and merchandise must have been shipped to the address listed on the transaction. Where applicable, you’ll need to supply proof of shipment, proof of delivery, and/or signed delivery confirmation. PayPal recently extended Seller Protection coverage to intangible or digital goods, and these requirements would be different for digital goods.

For eligibility, you must provide compelling evidence demonstrating that:

  • Your customer received the goods or services, or benefited from the transaction.
  • The intangible item or digital good was delivered or provided as described.
  • The service was completed as described.

You must also comply with any terms and conditions that apply to the purchase, and with all technical integration requirements specified by PayPal. Finally, you must also have paid standard transaction fees on the transaction.

PayPal Seller Protection Limitations

There are no limits or caps associated with Seller Protection. However, there are many situations in which coverage does not apply:

  • Claims for reason of Significantly Not as Described.
  • Items that are delivered in person (including at retail point of sale).
  • Items equivalent to cash, such as gift cards.
  • Financial products or investments of any kind.
  • Payments sent using PayPal’s “Friends and Family” feature.
  • Payments that use PayPal Payouts, Mass Pay, PayPal Direct Payments, Virtual Terminal Payments, PayPal Business Payments or PayPal Here.

If any of the above apply to the transaction, you would not be covered by PayPal Seller Protection.

What Is PayPal Chargeback Protection?

Chargeback Protection is PayPal’s advanced risk mitigation feature. This may apply if a cardholder disputes a charge on a card transaction processed through PayPal (in other words, files a chargeback).

The company will actually reimburse eligible merchants who have paid the higher rate (currently 0.40% per approved transaction) to receive Chargeback Protection. This means that PayPal Chargeback Protection will effectively “insure” transactions against bank chargebacks.

Sound too good to be true? Well, there are some requirements and limitations you need to understand.

PayPal Chargeback Protection Requirements

For starters, Chargeback Protection is an “opt-in” feature, and there is a fee involved. Also, Chargeback Protection is only available to merchants who have a PayPal business account, and who have enabled Advanced Credit and Debit Card Checkout.

Chargeback Protection provides active risk decisioning on Advanced Credit and Debit Card transactions. This works as follows:

  • All Advanced Credit and Debit Card checkout transactions are monitored for potential fraud.
  • Suspicious transactions are manually reviewed for risk of fraud.
  • If an “unauthorized” or “item not received” chargeback is filed on a transaction authorized by PayPal, you will be required to submit additional information, such as proof of delivery.
  • Once the information is received, PayPal will waive the chargeback fee and remove the hold on the disputed amount.

PayPal Chargeback Protection Limitations

As we mentioned, Chargeback Protection only applies to PayPal business accounts (in good standing) using Advanced Credit and Debit Cards (ACDC) checkout. To claim the benefits of Chargeback Protection, you will still need to respond to the original customer inquiries through the PayPal Resolution Center (see the “Seller Protection” section above).

Also, Chargeback Protection only applies to “unauthorized” and “item not received” chargebacks. No other chargebacks are eligible. This includes, but is not limited to, chargebacks filed for which the given reason is any of the following:

  • Broken Item
  • Significantly Not As Described
  • Refund Not Processed
  • Duplicate Charge

There are no yearly caps on ​losses, and no fixed duration or contract. There are also​ no revenue requirements, and no cancellation fees. Also, Chargeback Protection does not specify any items that are excluded.

A Word About PayPal Fraud Protection

As if all the different terminology here wasn’t confusing enough, PayPal also offers something called Fraud Protection Advanced. This is an adaptive machine-learning solution that helps you mitigate fraud, reduce losses, and protect your business’s growth.

This chart shows how the program differs from Chargeback Protection:

Chargeback Protection Fraud Protection
Chargeback Protection is a built-in, risk decisioning tool available to eligible PayPal merchants for a fee. Fraud Protection is a built-in, fraud analysis tool provided to ACDC PayPal merchants for no added fee.
PayPal uses risk models and analysis in real-time to accept or reject transactions based on their risk level. Merchants set risk rules and filters within the Fraud Protection tool, determining which orders to accept or reject.
PayPal will waive any chargeback fees and will release the disputed amount to the merchant for any “unauthorized” or “item not received” chargebacks that may later occur upon receipt of the requested information from the merchant. Merchants carry the liability for any chargebacks that may occur when using Fraud Protection.

The shielding that comes with Chargeback Prevention is more comprehensive. If you opt in to that program, Fraud Protection will be automatically disabled.

You Need to Address Chargeback Sources

Built-in protection against chargebacks is a great asset for some merchants. However, while it may insulate you against some losses, it doesn't address the underlying issue that caused the chargeback.

Totally relying on any single form of chargeback protection will leave you vulnerable. The only way to reduce chargebacks over the long haul is a proactive prevention strategy that addresses disputes at their true source.

If you’re feeling overwhelmed by chargebacks, maybe it’s time to get back to the business of running your company. Chargebacks911® can take card-not-present chargebacks and other dispute issues completely off your plate and up your ROI. Contact us today to learn more.

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