Your guide to 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.
Explore the PayPal Chargebacks Library
View article library
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 Let’s take a closer look at some of the benefits and challenges of the service, viewed through the lens of PayPal chargebacks and fraud threats.
PayPal actually handles customer disputes in three distinct ways. So, before we go any further, let’s clarify the difference between PayPal disputes, claims, and chargebacks.
Learn more about how PayPal disputes & chargebacks differ
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 fee varies depending on the currency used. For example, the PayPal chargeback fee is currently $20 for transactions 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 $20 Dispute fee for each dispute.
Learn more about PayPal chargeback fees
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 and 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. However, if the merchant wants to fight the chargeback, this process could be extended by several weeks or even months.
Learn about PayPal chargeback time limits
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; 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
PayPal offers three payment protection programs to safeguard both buyers and sellers. Each provides a different type of protection, but the three are often confused because the names are similar.
Here’s a quick breakdown of each:
PayPal Fraud Protection Advanced is a comprehensive set of tools designed to assist merchants in mitigating fraud losses.
PayPal Fraud Protection Advanced provides merchant users with a fraud scoring mechanism. It compares customer data and purchasing patterns with PayPal's extensive historical transaction data in real-time, helping identify transactions likely to result in fraud. This analysis generates a "potential fraud" score, which, when used as a basis for decision-making, enhances the ability to detect suspicious activities as they happen.
Fraud Protection Advanced offers features like customizable fields and filters for personal management. Moreover, it grants access to in-depth risk data reports and the option to receive alerts through webhooks.
The primary objective is to assist merchants instantly distinguish between authentic and fraudulent transactions, helping to preemptively combat fraud. This solution is compatible with transactions made using credit and debit cards. It also works with digital payment methods like Apple Pay, Google Pay, and Samsung Pay, among others.
Learn more about PayPal Fraud Protection Advanced
Accepting any payment without the card present carries inherent risks, as it's inherently more challenging to authenticate buyers. PayPal transactions are not immune to this, attracting fraudsters who exploit these channels for their schemes.
Below are a few common PayPal scams targeting cardholders and merchants:
Any one of the scams outlined above could lead to a PayPal chargeback. It’s true that PayPal has extensive consumer payment protections in place, and merchants also have chargeback protection available to them through the platform. That said, none of these systems can fully insulate a business from chargebacks.
Scams on the PayPal platform are a serious concern. We have good news, though: the strategies merchants use to prevent PayPal chargebacks are largely the same ones they would use to prevent chargebacks under any other circumstances.
To prevent PayPal chargebacks, merchants need to:
Learn how to prevent PayPal chargebacks
Ease of use, diverse features, and solid name recognition combine to make PayPal a good option for 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 require 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.
PayPal chargebacks are initiated not through PayPal, but through the buyer's credit card issuer. This occurs when the buyer disputes a transaction directly with their credit card company, bypassing the initial dispute and claim process offered by PayPal.
When a customer initiates a chargeback on PayPal, the transaction is disputed and the funds are temporarily withheld from the merchant while PayPal investigates. If the chargeback is upheld, the funds are permanently removed from the merchant's account and returned to the customer.
Yes. If you get scammed on PayPal, you can file a dispute directly with PayPal to potentially recover your funds. PayPal will review the case, and if your claim is validated, the money can be refunded to your account. You also have the option of contacting your card-issuing bank to request a chargeback, though this may take longer to resolve.
Yes. A PayPal payment can be reversed if a buyer initiates a chargeback, a dispute is filed, or if PayPal identifies a problem with the transaction. The reversal process involves an investigation by PayPal, and if justified, the funds are returned to the buyer's account.
The PayPal chargeback fee is currently $20 for transactions using US Dollars.
No. A chargeback is not a direct refund from the merchant to the buyer. Instead, it's a reversal of the transaction initiated by the buyer through their credit card issuer or bank and not through the merchant's refund process.
