According to statistics, 37% of customers are more willing to buy when PayPal is provided as a payment option. But if you’re accepting payments on PayPal, you’re also at the increased risk of disputes and credit card chargebacks.
Disputes are a phenomenon that can harm your business in the long run and even result in the closure of your merchant account on PayPal. That’s exactly why it shouldn’t be left unattended.
That’s why in this guide, we’re going to tell you everything you need to know about PayPal disputes, how to stop them from becoming chargebacks, and how you can tackle them head on.
What are chargebacks and PayPal disputes?
A PayPal chargeback is when customers reach out to their debit or credit card company to reverse the amount paid for an order.
Typically, a customer can file a claim or a dispute on orders paid for through PayPal directly. But most tend to reach out to their credit or debit card company instead to seek resolution, which is then followed up by PayPal. The payment gateway then forwards the order details to the bank in picture on the behalf of the customers.
The bank will next determine if the order is eligible for a chargeback.
Customers can file chargebacks for many reasons. The payment bank will determine whether it is covered by one of their policies and initiate the payment.
Chargebacks protect debit or credit card users, guaranteeing that their funds are protected if the order is incorrect or they do not receive it at all. It's important to remember that chargebacks are not the same as regular refunds.
Customers' banks do not get involved when they request refunds.
PayPal will hold a set amount in your merchant account if a chargeback is legal. More chargebacks on your account results in higher reserve amount and delayed payments.
Let’s take a look at this in more detail.
What are the effects of PayPal disputes and chargebacks on your business?
When your PayPal account is charged back, you have everything to lose as a business. The cardholder and the payment bank are the only ones who profit from it. The customer gets their money back, while banks benefit from the processing cost.
Customers may also file fraudulent chargebacks, which banks cannot handle due to a lack of resources.
The financial cost of a chargeback is the first effect on your business. You must pay a chargeback fee to PayPal to process and facilitate the chargeback procedure. If a consumer files a complaint and keeps your item, you pay both the chargeback and item costs.
Second, if your account receives a large volume of chargebacks, your bank may label it a high-risk merchant account. This indicates that, in comparison to other merchant accounts, placing an order with your online business and making an online payment carries significant risk. The bank may cancel your merchant account in severe circumstances when you do not attempt to minimize or avoid chargebacks.
Also, more chargebacks result in delayed payments. When PayPal discovers many chargebacks on your account, it holds payments for a long time to keep the consumer end safe.
Chargebacks hurt your credibility in addition to financial losses. Customers are risk-averse. They will avoid placing orders with your store, resulting in lost revenue. Chargeback disputes take a long time to resolve since you are required to give the payment provider all the necessary paperwork and evidence.
What is the PayPal chargeback fee for customer disputes and claims?
Every chargeback costs you money as an e-commerce seller. As a result, it's critical to understand how much it costs to deal with chargebacks.
To handle and ease the chargeback procedure, PayPal deducts a portion of costs from your merchant account automatically. If your disputed transaction exceeds PayPal's dispute threshold, you'll be charged a fee of $8.
Before 2020, when a buyer filed a chargeback with their bank, the PayPal chargeback cost was $20. However, the fee for each transaction reversal was eventually decreased to $8.
What is the PayPal dispute threshold, though?
As part of their new policies, PayPal introduced a PayPal dispute threshold for merchants. PayPal will charge the seller a High Volume Dispute Price, which is double the usual fee if the merchant had more than 100 transactions in the previous three months and more than 1.5 percent of those purchases resulted in a dispute.
What are the reasons for PayPal disputes and chargebacks?
Before we get into reducing chargebacks on your PayPal merchant account, it's important to understand why they happen. Customers may request a PayPal chargeback for items they just purchased for many reasons.
- You didn't sync order details from your Shopify store to your PayPal account, and the customer couldn't access their order details.
- The customer's purchase was not delivered on time, or there were some shipping delays.
- Because the customer's product (s) were defective, they now want their money back.
- The customer's ordered product did not match their expectations or was not as stated on your website.
- The consumer has no recollection of the payment.
- The cardholder believes someone used their card to pay a transaction.
- Because the seller is no longer in business, the customer cannot receive a refund.
Customers may also make chargebacks that are not in good faith.
Even when everything is fine, they claim that they never received the product or that it was damaged. This is referred to as friendly fraud. It will come as a shock to learn that in 2020,
1 out of every 3 consumers committed friendly fraud by stating that products were defective or never received them.
Because there is no regulation controlling chargebacks, it is difficult for e-commerce businesses to dispute them. However, online merchants may take steps to protect themselves from false chargebacks.
We'll discuss these steps later in this blog.
What is the PayPal dispute process for chargebacks?
You need to understand how the chargeback process works as an online seller and PayPal merchant. This can help you understand your rights and avoid chargebacks in the future.
If a customer has an issue with an order, they will file a chargeback. They will contact their payment bank directly to request a reversal of their funds, citing one of the reasons for chargebacks stated above.
The payment bank will accept the claim and investigate if it fits into one of the categories. If the claim is genuine, the merchant's bank will be notified.
The buyer is given a conditional refund at this point. The funds are moved from the merchant's account to the customer's account. A chargeback reason code is assigned to the chargeback.
The merchant's bank account starts an investigation based on the reason code. The complexity of the case determines the duration of the inquiry. At this stage, the merchant's bank account will inform the seller.
The seller has 10 days to reply to the claim. The seller has the authority to give all required information and facts that may help in disputing the claim.
The customer's bank will make the final decision. The issuer bank will assess whether the chargeback claim is valid or not based on the facts. If this is the case, the merchant must refund the full amount of the transaction plus the chargeback cost. If the merchant fails to make the payment, the funds are automatically withdrawn from their account, including the chargeback fee.
Customers have fears about making online payments and want to be informed about their orders after making a payment. As a result, it's important that you update order information on your PayPal account immediately after the customer places an order. Customers may have post-purchase anxiety if they can't discover order details, which increases the likelihood of a chargeback.
Normally, you have to update order details in your PayPal account manually, which is a difficult and time-consuming process. However, Shopify tools like TrackiPal can let you automatically sync your order information to PayPal within two hours. You can even sync orders from the previous 60 days when you're onboarding for the first time. Isn't it great? To learn more about the app, click here.
How to prevent and limit chargebacks and chargeback frauds?
According to Mastercard data, the global chargeback volume reached 615 million in 2021. In 2023, this figure is expected to rise to $117.46 billion. Given the situation, you need to minimize or limit chargebacks as an online seller.
Even though eliminating chargebacks is difficult; you can always strive to reduce these PayPal disputes by following these best practices: .
1. Meet seller protection requirements
Seller protection requirements must be met by PayPal merchants that want to successfully handle chargebacks. Chargebacks related to some eligible purchases are covered by PayPal seller protection.
Every time a cardholder files a chargeback, PayPal charges a fee. However, the Seller Protection Program allows you to avoid paying this fee.
You must fulfill certain conditions to be eligible for PayPal Seller Protection, such as proof of delivery for the transaction. PayPal will safeguard you from fees levied for "unauthorized payment" or "item not received claim" after you qualify for the Seller Protection Program. It does not shield you from other types of claims.
The PayPal Seller Protection Program is an excellent place to start despite its limitations.
2. Avoid risky transactions
Because not all PayPal transactions are safeguarded, you should avoid high-risk transactions as a PayPal merchant. The PayPal Buyer Protection service does not cover purchases of products with a financial value, such as gift cards and prepaid cards.
3. Minimize “unauthorized transaction claim”
When a PayPal account holder claims that their account has been used without authorization to make a payment, this is known as an unauthorized transaction. Customers have 60 days to notify PayPal about unauthorized transactions. Your PayPal merchant account gets negatively impacted by these complaints.
Here are a few things you can do to reduce the number of claims:
- Taking extra precautions while processing transactions and sending orders to high-risk countries and regions.
- You should contact customers to confirm their orders before they are shipped.
- You should avoid customer inquiries from suspicious emails.
- When you receive several requests for the same thing, you should inquire.
- Clearly stating your company name on PayPal invoices. Your DBA or parent business name should appear on the credit card statement to avoid any confusion. Customers will be able to recognize the transaction if you use a website name.
- As specified in the User Agreement, you must submit Proof of Delivery or Proof of Shipment. The proof of delivery should include paperwork from a shipping company that shows the delivery date, delivered status, and a delivery address that matches the transaction data.
4. Reduce “items not received claims”
Sometimes buyers claim that they have made the payment for an item but haven’t received it. Hence, they raise a dispute with PayPal or payment bank.
The following are some suggestions for lowering this claim:
- You must inform customers about the delivery date to know when to anticipate their order.
- Customers should be notified when their order has been dispatched and given shipping details so they can track it.
- Invest in shipping insurance to protect your valuable and fragile items.
- On delivery, request a signature from the consumer.
- Provide a proof of delivery that includes all relevant data.
- Accept no shipping labels and ship solely to the address listed on the Transaction Details page. This also ensures that PayPal's Seller Protection program covers you for qualified transactions.
5. Avoid “items not as described” claim
Sometimes customers also claim that the item received was not what they ordered. Hence this falls under the “item not as described” claim. Because the Seller Protection Program does not cover this claim or dispute, merchants must avoid it.
- Adding product detail and description clearly, including measurements, defects, and changes.
- Adding product photos from varied angles.
- Shipping items quickly and providing tracking details.
- Reducing customer turnaround time and providing prompt service.
- Mentioning the availability of customer support, including working hours, contact options, and response time.
6. Sync orders in real time
After a consumer places an order, it's important to update order details on PayPal right away. Because if the customer cannot locate the order details, they are likely to file a chargeback. You have to manually update order information on PayPal, which we understand is a difficult task. However, if you do not add the data after placing the order, PayPal will place a hold on your cash. As a result, Trackipal is the best method for avoiding this problem. TrackiPal is a Shopify app that can be easily integrated with your PayPal account and automatically syncs order information to PayPal. Download the app and try it for free for 3 days to learn more.
Apps that will help you prevent PayPal disputes, chargebacks and fraud
Looking for apps to prevent chargebacks and frauds? We’ve compiled a list of paid and free Shopify apps to grow your store by preventing chargebacks and frauds.
Shopify rating : 5/5
At the top of our list is the TrackiPal app. TrackiPal is a Shopify app used by 5000+ Shopify stores. The app helps you prevent chargebacks and frauds by syncing order information to your PayPal account in real time. With the TrackiPal dashboard you can view order details easily, drill down to individual orders, or even edit the order information. Here are some benefits of using this app for your Shopify store:
- Lower your rolling reserve in PayPal, get paid much faster
- Save time and energy with automatic sync in real time
- Monitor live status with a clear dashboard
- Avoid chargebacks and disputes
2. Signifyd ‑ Fraud Protection
Shopify rating : 4.2/5
Signifyd offers an end-to-end Commerce Protection Platform that uses its Commerce Network to increase conversion and automate the customer experience for businesses by preventing fraud. The app uses big data, machine learning, and expert manual inspection to give a 100% financial guarantee against fraud on authorized orders that turn out to be false, protecting online sellers against chargebacks and frauds. Here are some benefits of using the app for your Shopify store:
- Maximize conversion while eliminating fraud & abuse.
- Manage abuse beyond payment fraud.
- Provide the smoothest path to purchase.
- Shift liability & convert more good orders.
3. Shop Workflow Automation
Shopify rating : 4.6/5
Shop Workflow Automation helps you auto-detect potential fraudulent orders - flag them and receive a notification by email. You can then verify the order before fulfilling to reduce chargebacks. Whenever a product is out of stock the app automatically removes it from your online store. It then sends you an email with the details of the product so you can restock it. Here are some benefits of using the app for your Shopify store:
- Automate Daily Workflows
- Schedule Based Tasks
- Publish restocked product
- Fraud Detection
4. NoFraud Fraud Protection
Shopify rating: 4.8/5
NoFraud app provides real-time virtual identity verification to avoid eCommerce fraud. You can either manually cancel the orders we reported as fraudulent or have them automatically canceled.NoFraud Protection works with your eCommerce platform to provide an exact pass/fail decision for each order. The app is so sure of its accuracy that it offers a complete money-back guarantee. If you receive a chargeback for fraud, the app will reimburse you.
Here are some benefits of using the app for your Shopify store:
- Chargeback Protection
- Increase Efficiency.
- Eliminates the overhead costs of an in-house fraud prevention solution.
- No Chargeback Protection fees on canceled orders
5. SEON Fraud Prevention
Shopify rating: 5/5
To truly identify actual users in today's environment, SEON checks 35+ social network signals in real time, as well as email, phone number, IP lookup, and device fingerprinting. A fraudster cannot match this social and digital footprint's size, depth, or breadth. A powerful scoring engine detects hidden fraud trends, learns and recommends new rules, and assists you in efficiently fighting and preventing fraud. Here are some benefits of using SEON for your Shopify store:
- Reduce Fraud & Chargebacks
- Social & Digital Profile Scan
- High Flexibility & Low Costs
Conclusion: It’s best to avoid PayPal disputes!
Disputes and Chargebacks are a merchant's worst nightmare. As an online seller, you must take all possible measures to avoid PayPal disputes and chargebacks on your account.
We hope the information in this blog will provide you with new insights.
However, before you leave this blog, we'd want you to take a tiny step toward reducing chargebacks if you accept PayPal payments for orders.
The step is to integrate your order information with PayPal so that your customers can quickly monitor their orders and keep up to date.
All you have to do now is click here to download the TrackiPal app. After you download the app, you can effortlessly link it with PayPal, and it will sync order information without the need for human interaction.
You can sign up for a free 3-day trial to better understand and learn about the app.