Sarah Elizabeth
As ecommerce has grown, PayPal has grown with it. It’s currently one of the largest online digital payment platforms, with over 430 million active consumer and merchant accounts and 35 million active business accounts. Despite its popularity, PayPal isn’t immune from the risk of disputes and chargebacks.
Integrating PayPal into the checkout process is a smart move for any online business. Thanks to its two-layer authentication, PayPal is considered safe to use by consumers, and businesses appreciate its ease of use and reasonable transaction costs. But businesses using PayPal can still experience chargeback fraud that can significantly damage their bottom line.
What Are PayPal Chargebacks?
Sometimes, PayPal transactions don’t go smoothly, usually for one of three reasons:
- The customer pays for the item but never receives it.
- The customer claims the item they received was significantly different than the item advertised.
- The customer’s credit card was used for the purchase without the cardholder’s permission.
In these cases, a buyer has two options to recoup their money: file a PayPal claim or a PayPal (or credit card) chargeback. Both approaches can lead to a refund for the customer. The key difference is who resolves the dispute.
1. PayPal Claim
Some customers first try to resolve their issues directly with the seller by opening a dispute through PayPal’s Resolution Center. If that fails, the customer can escalate the dispute to a claim that PayPal will investigate and attempt to resolve. If PayPal reverses the transaction and returns the funds in question back to the customer, the business is responsible for the full transaction amount and may also be out the merchandise.
2. PayPal Chargeback
When cardholders dispute questionable credit card transactions with their card issuer, the issuer determines who’s responsible for the charges. If the business is found responsible, the credit card issuer processes a chargeback. PayPal then reverses the transferred funds, debits the business’s account for the amount of the sale plus a $20 chargeback fee, and doesn’t refund seller fees.
Merchants should facilitate these options, as they demonstrate a commitment to customer satisfaction. Better to lose one sale than a future customer. Nonetheless, considering the time, effort and potential cost of chargeback fees or lost profit, online businesses should take all possible steps to avoid chargebacks in the first place.
Here are some proven methods.
How Businesses Can Avoid PayPal Chargebacks
Businesses can reduce their risk of PayPal chargebacks (while also increasing their chances of winning a dispute) by following these suggestions:
Describe Products Thoroughly
If customers receive an ordered item that looks nothing like what they saw online, they’ll be unhappy. If they file a PayPal chargeback as a result, chances are good the business will be on the hook.
PayPal’s Seller Protection Program doesn’t cover “Significantly Not As Described” claims, so businesses must make sure their product descriptions are thorough and accurate by:
- Including thorough product descriptions, including measurements, defects and damage
- Including product photos from multiple angles
- Shipping items promptly and providing tracking information
Respond Promptly to Customer Questions
Frustrated customers who can’t get in touch with a business may turn to chargebacks to resolve their concerns. Businesses should strive to be available 24/7 to customers — whether that’s through email, a customer service phone line, online chat or PayPal’s Customer Service Messaging. Responding promptly to customers can help defuse situations that might otherwise result in a chargeback.
Provide Delivery Updates
Businesses should send emails to customers when an order has been processed, shipped and delivered and if an item is out of stock (and when it’s expected to be back in stock). Businesses should also give customers a tracking number for each shipment.
Fraudsters may claim that an order wasn’t received and subsequently initiate a dispute with their credit card issuer or through PayPal. Use these strategies to reduce the risk of “Item Not Received” claims:
- Provide clear delivery dates so customers know when to expect their items.
- Update customers when an order has shipped and has been delivered.
- Don’t use a buyer’s shipping service or prepaid shipping label.
- Require a signature upon delivery.
- Meet or exceed the proof of delivery requirements.
Getting a signature upon delivery and/or proof of delivery is useful evidence in the event of a dispute.
Purchase Shipping Insurance
Things can go wrong when shipping a package — it’s not unusual for a package to get lost or damaged — and businesses will be blamed for anything that goes awry. Purchasing insurance may be a smart idea, particularly to cover expensive or fragile items. Not only does insurance offer peace of mind in the event of damage or loss, but it also includes tracking and delivery information, making it a win-win solution for businesses.
Protect Big-Ticket Items
For transactions greater than $750 USD, PayPal requires businesses to get signature confirmation. This lets businesses know (and prove) the intended customer received the merchandise.
Avoid Risky Transactions
Businesses should be wary of conducting high-risk transactions (such as selling high-tech equipment or investing in crowdfunding platforms) through PayPal, as not every transaction is protected.
For example, PayPal has eliminated its purchase protection for gift cards, which means that fraudsters could purchase a business’s gift cards using PayPal and file a claim against the transaction. And because gift card transactions are no longer covered, businesses have no recourse.
Meet Seller Protection Requirements
Adhering to PayPal’s Seller Protection Program guidelines can reduce fraud, protect online sales and minimize claims, chargebacks and reversals. The program also lets businesses retain the full purchase amount and waives related fees for certain transactions, even if they were reversed through a chargeback.
Protecting Businesses Against Expensive PayPal Chargebacks
Sometimes, businesses can do everything right but still find themselves on the receiving end of a PayPal chargeback or claim. When PayPal rules against a business, that loss affects more than just finances and inventory; it also affects a company’s reputation and ability to use PayPal for future transactions.
Hybrid Approach to Fraud Protection
At ClearSale, we use a hybrid approach that leverages the benefits of approving almost all valid transactions and declining clearly fraudulent transactions with precise accuracy. In fact, our AI-enabled technology uses an auto-approval algorithm that clears 97% of orders. Only about 3% of orders (at a maximum) are flagged for secondary review by our team of fraud analysts, who compile what they learn from those reviews and feed that intelligence into our approval algorithm to teach it to be even more accurate over time.
This allows us to deliver immediate decisions to our clients. In other words, we leverage secondary reviews for better accuracy and faster decisions – which actually improves the customer experience. And our clients see lower chargebacks, lower false declines and higher approval rates.
Secondary reviews help protect the rest of your customers who rely on you for safety and security when they’re shopping on your site. By following these tips, you can conduct secondary reviews in a relatively frictionless way that actually benefits your customers and your company.
ClearSale Chargeback Prevention and Management
Even with a highly effective fraud prevention solution, your business may experience some chargebacks. For those instances, you should consider a comprehensive chargeback protection and management solution.
By choosing a customized chargeback management approach, ecommerce businesses can also breathe a little easier knowing they’re protected against the increase in fraud attempts and poised for long-term financial success.
Businesses need to be able to protect their revenue against costly chargebacks while preventing costly false declines — and they don’t have a moment to lose. And we have the proven experience to let you confidently accept more transactions without the risk of business-damaging chargebacks. Contact us today to learn how easy it is to get started.
