Paypal Scams

April 7, 2022 | 12 min read

Paypal Scams

The Top 9 Paypal Scams to Watch Out for in 2022

Honestly: who isn’t familiar with PayPal these days?

According to Statista, PayPal boasts nearly 350 million active users. That’s a massive incentive for merchants to get on board with PayPal payments. But of course, with numbers like these, fraudsters are paying attention, too.

PayPal scams are on the rise. Although PayPal is one of the world’s most popular payment platforms, scammers threaten to make these transactions less safe every day.

Today, we’ll discuss nine of the most common PayPal scams plaguing cardholders and merchants on the platform. We’ll see how these scams work, how they impact the parties involved, and what you can do to avoid them.

9 Common PayPal Scams Targeting Merchants & Cardholders

There are definite risks associated with accepting any card-not-present payment. Fraudsters prefer this channel because it is inherently more difficult to verify buyers. PayPal transactions are no exception to this rule.

Here are eight of the most common PayPal scams being perpetrated against cardholders and merchants this year, plus some tips as to how both parties should respond:

PayPal Scam #1 | Advance Fee Scams

Ever received an unsolicited email from a person you don’t know? Maybe they reach out to you about legal fees or other documents for which they have no actual evidence. The person asks you to wire a small amount to an unknown party up front. In return, they promise to reward you with a large sum of cash.

Of course, the funds you advanced to the other party vanish, and the reward money never shows up. Not only that, but any information you send to the other party can be used in additional fraud schemes like account takeover.

This is a modern version of a classic wire fraud scam, and it’s one of the oldest tricks in the book. However, victims still fall for it.

Pro Tip:

Never send money to people you don’t know! If an unsolicited offer seems too good to be true, then it probably is. You should ignore anyone asking for this kind of advance PayPal payment.

PayPal Scam #2 | Overpayment Scams

This one is tricky. In this scenario, a fraudster will make a purchase via a user’s account, overpaying for the cost of the goods. The individual then contacts the seller to request the difference.

The buyer will probably claim that the extra money was for shipping costs, or was a bonus for excellent customer service. If they ask you to wire the funds directly to the “shipping company,” though, this is part of the scam.

Of course, once the legitimate account holder realizes what happened, they will dispute the charge. By that point, you’ve already shipped the goods. The buyer is gone, having nabbed free merchandise, and getting stolen cash through the user’s account as a bonus.

Pro Tip:

Whatever the reason they provide, legitimate customers do not make overpayments. The attempt, therefore, is probably the result of a stolen credit card or breached account. You should flag the transaction immediately.

PayPal Scam #3 |Shipping Scams

There are a couple of other ways a cybercriminal might try to defraud you with a shipping scam. These include:

  • ‘Preferred’ Shipping: A fraudster attempts to get you to use their own shipping connection because of a ‘discount’ they might receive, or because the agency is one they ‘trust’ more.
  • Rerouted Shipping: If you use the faux buyer’s shipping account, they can contact the company and relay orders to an outside address. They can then claim that they never received the item and request a refund. As if that weren’t bad enough, once the actual account holder realizes they’ve been a victim of fraud, they can file a chargeback.

Pro Tip:

Never use any shipping accounts or make arrangements outside your preferred methods. Only ship purchases to addresses listed in the transaction details and flag any attempts to change your shipping process for potential fraud.

PayPal Scam #4 |Fake Account Scams

Fraudsters are pretty crafty about setting up fake PayPal accounts. These fake accounts can look just like the real thing, with a detailed profile of a person or entity who doesn’t really exist (a practice called synthetic identity fraud).

The two most frequent account scams are false charities and fake online shops. In either case, scammers catch your attention with flashy advertisements and trick you into making a donation or purchases via PayPal. However, your money just ends up getting taken by an imposter.

Pro Tip:

Never send unsolicited money to someone you don’t know. Also, do your homework before donating to any charities or making purchases from shops you’ve never heard of before.

PayPal Scam #5 |Shipping Label Scams

Shipping label scams occur when a fraudster, posing as a legitimate buyer, makes a purchase, but requests that you use their own pre-paid shipping label to cover shipping costs. The explanation will likely be that it costs them less, or they receive a discount for having things shipped this way. If you consent, they will send the package to an untraceable location.

Remember, to be covered under PayPal's Seller Protection policy, you must ship to the address on the Transaction Details page. So, once the cardholder disputes the charge, you’ll be forced to accept responsibility.

Pro Tip:

Again, never use any shipping accounts or make arrangements outside your preferred methods. To take this a step further, never accept shipping labels from customers under any circumstances, and flag all transactions associated with these attempts.

PayPal Scam #6 |Partner Scams

In this PayPal scam, you’ll be contacted by someone who claims they’d like to partner up with you to sell products. If you agree, they may ask you to sell items on a platform they control. It’ll be pitched as an exciting opportunity to get in on the ground floor of an up-and-coming platform. One problem: you’ll never receive any money.

In this case, the platform owner can pose as multiple buyers and make fraudulent transactions. You’d then be liable for these purchases once the cardholders discovered what happened.
The link takes you to a dummy page which asks for your login credentials. Once entered, the fraudster will gain access to your account, as well as any banking or address information on file.

Pro Tip:

You need to do your due diligence about anyone you plan to do business with. Confirm vendors and suppliers are who they say they are, and make sure that they’re running a legitimate operation. You don’t want to pass up a great business opportunity, but you don’t want to be so eager that you play into fraudsters’ hands.

PayPal Scam #7 | Phishing Scams

We could create an entire list dedicated to different phishing scams. For now, though, we’ll focus on one of the most common.

The victim gets a email that appears to be an official PayPal notification or a clickable link asking for verification. Often, the aim is to convince you that PayPal has put a hold on your account, or even that funds have been removed from your account. In response, you must follow the link provided to fix the problem. This is a PayPal scam email, though.

The link takes you to a dummy page which asks for your login credentials. Once entered, the fraudster will gain access to your account, as well as any banking or address information on file.

Pro Tip:

Watch where you click! If you receive an email asking you to type in any login information, STOP and take a hard look at it before proceeding. If the email came from PayPal directly, odds are they will not ask you to supply them with credentials they already have. It’s also a good idea to right-click and copy link addresses, then paste them into your browser, rather than simply clicking to follow from an email. You could get redirected to a malicious site without even realizing it.

PayPal Scam #8 | Affiliate Scams

A lot of businesses use affiliate marketing to bolster sales and increase revenue. Be aware that fraudsters are getting pretty good at gaming this system, though. As an advertiser, you might be charged for campaigns you never requested, or even get flooded with fake purchases from bad affiliates.

In this scam, you’d pay out commissions for unearned sales, and also lose production costs and incur chargeback fees.

Pro Tip:

You are not in control of affiliate accounts, but you can still pay for their mistakes. Ensure that your affiliates supply you with regular progress reports and never agree to pay for services not rendered.

PayPal Scam #9 | Friendly Fraud

This is not exclusive to PayPal. However, it is a common PayPal chargeback scam that you need to watch for. Friendly fraud, or chargeback abuse, is one of the fastest-growing threats facing eCommerce merchants.

Part of the problem is that the cardholder may not even realize they're doing anything wrong. Some buyers file chargebacks, believing they have a valid claim, without realizing what they're doing. In other cases, though, the buyer is deliberately abusing the chargeback process to get free goods (a practice commonly called cyber shoplifting).

Pro Tip:

Your options are limited in terms of friendly fraud prevention, as it's generally a post-transaction PayPal scam. However, you can try to recover your money by engaging in tactical representment.

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How PayPal Scams Affect Cardholders

PayPal users are on the front line of most PayPal scams, whether they realize it or not.

Given its increasing popularity with the general public, PayPal faces an unending barrage of scams year over year. According to the company itself, businesses that use PayPal lose $4.5 million per year due to fraudulent online transactions.

As with any credit card fraud, these scams can wreak havoc on an individual’s finances and personal life. Some of the consequences of PayPal scams for cardholders include:

Paypal Scams

Lost Funds

Like we mentioned before, chargebacks may take weeks, or even months to resolve. In contrast, you can often get your money back in just a few days with a simple refund.

Paypal Scams

Data Exposure

Sometimes, your data can be just as valuable as your money. Using credentials stolen from you, fraudsters can access the information you may have stored in your phone or computer, exposing more potential victims like your family members or friends.

Paypal Scams

Lost Credibility

A stolen identity could mean serious, long-term credit damage. While it is true that cardholders aren’t held responsible for most acts of fraud, the damage to your creditworthiness might take years to recover.

Paypal Scams

Legal Fees

A scammer could infiltrate your account and conduct criminal acts using your identity. If this happens, you may be on the hook for legal fees, and even potential penalties in the aftermath of the attack.

We won’t lie to you: fraud recovery can be complex, time-consuming, and costly.

Of course, cardholders aren’t the only potential victims. In most cases, merchants are the ones who end up holding the bill for fraud attacks.

How PayPal Scams Affect Merchants

After a PayPal scam attack, many cardholders can recover their funds using a PayPal dispute. If that happens, the seller loses the revenue from the sale, as well as any merchandise shipped. They also get hit with a PayPal dispute fee (usually $20 per transaction in the US).

PayPal disputes are similar to the chargeback process. They’re filed by cardholders via their PayPal accounts because the cardholder suspects they have been the victim of fraud. In other cases, the cardholder is committing an act of friendly fraud.

Of course, not all PayPal disputes are legitimate. Cardholders can abuse the process to engage in a practice called friendly fraud. Sometimes the friendly fraud is a matter of mistaken identity, wherein the cardholder doesn’t recognize the transaction or forgot that a payment was scheduled. Conversely, many acts of friendly fraud result from dissatisfaction with shipping policies. The customer changed their mind or simply didn’t wish to pay for the item in question.

When a chargeback is filed against the merchant for a PayPal purchase, PayPal will notify the merchant and allow them to respond with evidence of their side of the issue through their own three-step dispute resolution process. PayPal also offers merchants a chargeback protection plan.

How Can Merchants Prevent PayPal Scams?

Overall, PayPal is a great option for P2P and eCommerce payments. That’s not to say PayPal is perfect, though.

Reporting PayPal scams when discovered can help prevent future attacks. However, any PayPal scams reported by sellers would be, necessarily, retroactive. So, is there anything sellers can do to actually prevent PayPal scams before they happen?

No payment processor or payment platform is immune to fraud. Therefore, our best advice for merchants looking to limit PayPal scams are as follows:

Best Advice
  • Sign up for PayPal’s Seller Protection Program to be reimbursed for acts of credit card fraud.
  • Blacklist any previous offenders. Studies show that fraudsters will often target the same merchants multiple times.
  • Double-check shipping and account details before approving purchases, and optimize fulfillment pactices.
  • Can you track its effectiveness with key performance indicators (KPIs)?
  • Flag transactions for which the customer has contacted you to rush or change shipping locations.
  • Require signatures for shipping confirmation wherever appropriate (i.e. for high-value items).
  • Never ship to an address other than the one associated with the details provided by PayPal at checkout.
  • Be wary of ‘official’ PayPal emails or SMS texts asking for login credentials or other sensitive information.

It's easier to face PayPal scams once you know what you’re up against. Learning what to watch out for is just as important as the methods you employ to fight back.

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