1. Resources
  2. PayPal Chargebacks
PayPal Chargebacks Resources Hub

PayPal Chargebacks Resources Hub

Your guide to using PayPal as a payment facilitator. We cover the PayPal chargeback process for both merchants and consumers—specifically, how the platform stacks up against other service providers in terms of protections for both parties.

PayPal Chargebacks: All the Rules, Fees, & Time Limits You Need to Know

PayPal Chargebacks: All the Rules, Fees, & Time Limits You Need to Know

If you’ve ever done any online shopping, odds are that you’ve at least heard of PayPal. With roughly 360 million active users, Pay is by far the world’s largest online payment system. In fact, nearly 90% of online shoppers use PayPal.

PayPal users—both buyers and sellers—count on the company to provide safe online transactions. But how does the service work? Is it a viable option for merchants and cardholders? And, does it offer any real protection against PayPal chargebacks or fraud attacks?

Let’s take a closer look at some of the benefits and challenges of PayPal’s services.

PayPal: Pros & Cons for Merchants

PayPal Holdings, Inc. is a financial technology company primarily known for facilitating online money transfers between buyers and sellers. By connecting a user’s payment card to an “electronic wallet,” the company provides a safe alternative to traditional payment channels such as checks.

Besides security, the comprehensiveness of PayPal's services is perhaps its greatest feature. The free app offers peer-to-peer transfers. They also facilitate payment processing for online vendors, allowing for bill-pay options, interest-free “buy now/pay later” services, and more. Users can pay through a connected bank account or credit card, with rewards or QR codes, or even with cryptocurrencies.

There are multiple other reasons for both buyers and sellers to consider PayPal as well:

Simple Registration

Simple Registration

Establishing a PayPal account is a quick and easy process. Users can be up and running in minutes.

Ease of Use

Ease of Use

PayPal has straightforward pricing for merchants. Users can monitor their account from a mobile device.

All-in-One Options


With traditional services, merchants will need a processor, a merchant acquirer, a payment gateway, and several other services to facilitate payments. With PayPal, there is no need for these extras—all the necessities of conducting transactions from beginning to end are included. This also simplifies record-keeping, as all necessary transactional information is in one place.

Global Exposure

Global Exposure

PayPal operates in over 200 countries and in more than two dozen currencies.

So, there are clear benefits to using PayPal to conduct payments. Of course, there are some drawbacks to using PayPal as well:

Fees Add Up

Fees Add Up

PayPal’s standard fee is more expensive for merchants, on a per-transaction basis, than a standard processor.

Additional Restrictions

Additional Restrictions

PayPal can freeze an account at their own discretion or limit the amount available for withdrawal.

Another unique aspect of PayPal payments is that users can dispute charges. There’s an important distinction to make here between a PayPal dispute and a PayPal chargeback.

How PayPal Disputes & Claims Work

PayPal facilitates payments in two basic ways. On one hand, merchants can accept payments from customers directly through PayPal. They can also let customers pay through PayPal using a credit card. In this case, PayPal works like the merchant’s acquiring bank.

If something goes wrong, though, the buyer may want to undo the purchase. If they made the purchase through PayPal Checkout, the buyer may dispute the charge directly through PayPal. This is an internal matter between two PayPal users and could be eligible for PayPal dispute resolution.

The merchant and the buyer will need to try and work out the situation themselves first. If they cannot, then the dispute can be escalated to a claim. PayPal will then step in to mediate.

Learn about PayPal disputes & claims

Using the Resolution Center to Resolve PayPal Disputes

The PayPal Resolution Center is a portal that lets merchants and buyers deal directly with each other to resolve issues. Merchants aren’t assessed a fee for this, and all parties benefit from faster claim resolution. By comparison, a conventional bank chargeback could take weeks, or even months, to resolve.

Customers can use the PayPal Resolution Center to report transaction issues or ask PayPal to investigate a potential problem with a transaction.

Sellers can respond to customer inquiries and transaction problems. The feature is a great resource for buyer/merchant collaboration and dispute resolution.

That said, the PayPal Resolution Center is only an option for transactions conducted using PayPal’s payment services. If the customer bypassed both PayPal and the merchant to file a chargeback with the bank, it means PayPal is only serving as a merchant processor and acquirer. The dispute center will not be able to help.

Learn about the PayPal Resolution Center

The Rundown on PayPal Chargebacks

That covers PayPal disputes. Circumstances change, however, if the buyer used a credit card, and PayPal was merely facilitating the purchase while operating as the merchant acquirer. In this case, the buyer must contact the bank for a PayPal chargeback to get their money back.

A PayPal chargeback occurs when a customer does not use a PayPal account, bypassing PayPal and going straight to the bank to contest a payment. In that case, resolving the dispute is out of PayPal’s control. Regardless of the PayPal chargeback policy, what happens next is at the issuer’s discretion.

If the issuer finds in the cardholder’s favor, the bank will withdraw the funds from the merchant’s PayPal account. The funds get returned to the buyer, while the merchant loses out on the revenue.

What if the cardholder’s claim is incorrect or invalid, though? In this scenario, PayPal will assist the merchant in communicating with the bank and collecting information about the transaction. However, that’s about as far as their involvement goes. It’s ultimately up to the merchant to manage PayPal chargebacks.

PayPal chargebacks can be every bit as bad as bank chargebacks. Let us show you how we can help. REQUEST A DEMO

Does PayPal Assess a Chargeback Fee?

If a merchant receives a chargeback on the PayPal platform, the business will incur a PayPal chargeback fee in the currency of the original transaction listing. The company deducts this non-refundable fee directly from the merchant’s account.

The amount of the fee varies depending on the currency used. For example, the PayPal chargeback fee is currently set at $20 for transactions conducted using US Dollars.

Again, however, PayPal differentiates between outside chargebacks and internal disputes. PayPal dispute fees apply to transactions disputed via their online dispute resolution process.

If a merchant’s PayPal dispute ratio exceeds 1.5% and they processed more than 100 sales transactions in the previous three calendar months, they will be charged a high-volume dispute fee (in the US, $30 per dispute). Otherwise, they’ll pay the Standard $15 Dispute fee for each dispute.

Learn more about PayPal chargeback fees

PayPal Chargeback Time Limits

As described above, a PayPal chargeback occurs when a customer side-steps PayPal and the merchant altogether and approaches their bank to receive a refund. This means the case will be handled by the cardholder’s issuing bank rather than PayPal.

In most cases, cardholders have 120 days to file a chargeback. However, the time limit will depend on the card brand, as well as the chargeback reason code tied to the chargeback.

Once a chargeback has been filed, the merchant has ten days to respond. Otherwise, the chargeback will be finalized. If the merchant wants to fight the chargeback, though, this process could be extended by several weeks or even months.

Learn about PayPal chargeback time limits

Does PayPal Offer Payment Protection?

PayPal offers three payment protection programs to safeguard both buyers and sellers. Each one provides a different type of protection, but the three are often confused because the names are so similar. Here’s a quick breakdown of them:

PayPal Purchase Protection

PayPal Purchase Protection

PayPal Purchase Protection is an option for buyers if an order is significantly different than described, or was never delivered at all. If users believe they are the victim of fraud or merchant abuse, they should check to ensure the transaction in question qualifies for Purchase Protection. If so, that buyer can make a claim directly with the merchant through the PayPal Resolution Center.

Filing a dispute with PayPal implies some type of fraud on the part of a seller. Purchase Protection kicks in if the merchant won’t work with the customer, or the two parties cannot agree on a resolution. At that point, PayPal is asked to intervene. If the customer wins the claim, the money will be taken from the seller’s account and refunded.

Learn more about PayPal Purchase Protection
PayPal Chargeback Protection

PayPal Chargeback Protection

PayPal Chargeback Protection helps shield merchants from fraud, particularly friendly fraud, or invalid chargebacks filed by customers. In some cases, the buyer may believe they are the victim of fraud, or mistakenly think a chargeback is the same as a refund. In other situations, the fraudster may be using the chargeback system to “cyber-shoplift” and get merchandise for free.

Chargeback Protection may apply if a cardholder files a chargeback with their bank instead of contacting the merchant through the Resolution Center. The issuing bank and the card network will handle these cases. PayPal will facilitate the case and potentially help the merchant with evidence, but otherwise, the company is largely removed from the process.

By proving that the claim is valid, the merchant may eventually get the purchase funds back. If the chargeback results from a merchant mistake, however, the customer will receive a full refund. The merchant will be charged a nonrefundable fee from PayPal in either case.

Learn about PayPal Chargeback Protection
PayPal Seller Protection

PayPal Seller Protection

PayPal Seller Protection is similar to Chargeback Protection. One key difference is that, instead of calling the bank to make a claim, the buyer uses the PayPal Resolution Center to dispute or reverse the transaction.

Under this arrangement, merchants may qualify to retain the full purchase amount if a chargeback is filed on an eligible transaction. The merchant would also avoid paying related chargeback fees, including PayPal’s $20 per-chargeback fee.

PayPal’s Seller Protection only covers two kinds of buyer claims: unauthorized transactions (i.e. fraud) or “item not received” claims. It specifically doesn’t apply to claims for which an item was significantly different than what the customer ordered.

Learn about PayPal Seller Protection

How to Prevent PayPal Chargebacks

There’s good news: the strategies merchants use to prevent PayPal chargebacks are largely the same ones they would use to prevent chargebacks under any other circumstances. Merchants simply need to:

Deploy the Right Fraud Tools

Deploy the Right Fraud Tools

Fraud is dynamic. It evolves constantly as technologies change, so risk mitigation strategies must be equally adaptive.

Card network tools such as Address Verification Service (AVS), card security codes (CVV), 32D Secure 2.0 (3DS2), and Visa Account Updater (VAU) are all methods of validating a shopper’s identity. Using two (or all of them) together can increase accuracy.

Eliminate Errors

Eliminate Errors

Merchant error accounts for 20-40% of the average merchant’s chargebacks. By taking steps to eliminate these errors, merchants may substantially reduce the number of PayPal chargebacks issued against them.

Examples include making improvements to the customer experience and ensuring effective communication. It also touches on optimizing every stage of the transaction process, from site design to order fulfillment.

Fight Invalid PayPal Disputes & Chargebacks

Fight Invalid PayPal Disputes & Chargebacks

Friendly fraud disputes can be initiated unintentionally by something as simple as a customer inquiry. They can also be deliberate cases of chargeback abuse.

One step merchants can take to prevent PayPal chargebacks resulting from friendly fraud is to challenge invalid disputes. Banks may take a refusal to fight illegitimate disputes as an admission of guilt. When merchants fight back against friendly fraud, though, it sends a message. It helps build a better reputation, a stronger relationship, and discourage future chargeback abuse.

Learn how to prevent PayPal chargebacks

Is PayPal a Good Choice?

Ease of use, a diverse range of features, and solid name recognition combine to make PayPal a good option for both consumers and merchants to consider. PayPal is a reputable company with the highest safety and consumer protection standards in place. They even offer additional programs to ensure buyers and sellers are treated fairly.

That said, the service isn’t perfect, which can be especially true when it comes to customer disputes. The company’s protections are limited, but a PayPal chargeback can be every bit as much a headache as one from the bank. 

True fraud prevention and risk mitigation requires a more comprehensive approach. To learn about chargeback management help that goes beyond the minimal assistance offered through PayPal and other processors, talk to Chargebacks911® about a free chargeback analysis today.

We’ll run the numbers; You’ll see the savings.
Please share a few details and we'll connect with you!
Over 18,000 companies recovered revenue with products from Chargebacks911
Close Form
Embed code has been copied to clipboard