How to Avoid Chargeback Disputes on PayPal
A PayPal chargeback is a refund request by a customer through their credit card issuer or bank. This process allows the customer to dispute a transaction and request a refund instead of contacting the merchant directly.
If a customer initiates a chargeback, PayPal will review the dispute and, if it finds any issue, will debit the funds from the merchant's account and return them to the customer.
Problems for sellers due to PayPal chargeback
- Friendly fraud will occur when a customer initiates a chargeback for a legitimate transaction, falsely claiming that the purchase was unauthorized or that the item was never received.
- Chargeback fraud occurs when a customer uses a stolen credit card or other fraudulent means to purchase and initiates a chargeback to get a refund.
- Lack of evidence: A merchant must have sufficient evidence to prove that a transaction was valid to defend against a chargeback successfully. So more than delivering the product or service, the seller has to focus on creating documentary evidence.
- Time constraints: PayPal gives merchants a limited amount of time to respond to a chargeback, and if they fail to respond within that time frame, it grants the chargeback automatically. Once there is a notification from PayPal about the chargeback, it has to take utmost priority.
- Limited recourse for merchants: Even if a merchant can prove a transaction was valid, they may still be liable for the chargeback and associated fees. In the case of digital transactions, the seller loses for no reason most of the time.
- Limited protection for digital goods: PayPal's chargeback protection policies may not cover certain digital goods or services, such as online subscriptions or virtual currency.
- Chargeback fees: Merchants may be subject to chargeback fees, which can be costly and eat into their profits. Irrespective of whether you lose or win, you may have to pay the price.
- The Chargeback process may need to be clarified or easier to navigate: Merchants may find it confusing or difficult to navigate, especially if they are unfamiliar with PayPal's policies and procedures.
It's important to note that PayPal is an ever-evolving platform. They continuously try to improve their chargeback process and protection for merchants, so these issues may change over time.
How to avoid a chargeback on PayPal?
There are several steps you can take to avoid chargebacks on PayPal:
- Describe the product or service in detail. Before the customer makes the payment, make it crystal clear what you are selling. Features, images, demos, trial use, samples, whatever possible, should be provided.
- Display your refund policy: Make sure your policy is prominently displayed on your website and in all your communications with customers. The intention is not to hide it from the customer, so use large, legible fonts, unlike the standard disclaimers.
- Communicate effectively with your customers: Respond promptly and professionally to customer inquiries or concerns. Keep detailed records of all customer interactions. These records will come in handy in case of chargeback disputes.
- Use tracking information: Provide tracking information for all shipments and make it easy for customers to track their orders. For digital transactions, use a system that can deliver the product instantly after the payment. Use email and any additional mode of communication possible.
- Verify the customer's identity: Use tools such as Address Verification Service (AVS) and Card Verification Value (CVV) to verify the customer's identity and reduce the risk of fraud.
- Use PayPal's fraud protection tools: PayPal offers a variety of tools and services to help you detect and prevent fraud, such as PayPal's Seller Protection and the PayPal Risk Model.
- Be familiar with PayPal's policies: Understand PayPal's policies and procedures for handling chargebacks, and take steps to comply with them. For example, PayPal asks you to display the terms and conditions prominently.
- Handle customer complaints efficiently and effectively: Try to resolve them before they escalate to chargebacks and file a case with PayPal. It would be best if you got into a one-on-one telephonic conversation. Show that you care.
- Accurate records: Keep detailed records of all transactions, including customer information, order details, invoices, and any correspondence with the customer. It helps in case of disputes.
- Talk to the customer regularly and look for feedback. Incorporate a feedback cycle into your product development process.
If you are a freelancer, add a clause describing how to resolve chargebacks and disputes in the freelance contract.
By following these steps, you can reduce the risk of chargebacks and increase the chances of successfully defending against them if they do occur.
Make your service customer-support centric.
Probability of successful defense of chargeback claims
The likelihood of a seller's success in a PayPal chargeback investigation will depend on various factors, including the specific details of the dispute, the evidence provided by the seller and buyer, and PayPal's policies and procedures.
According to PayPal, they have a system to review the evidence provided by both parties and decide based on their policies and procedures. They also mention that the seller can provide evidence such as proof of delivery, proof of refund policy, proof of the customer's acceptance of terms, and any communication with the customer.
If the seller can provide clear and compelling evidence that the transaction was valid, their chances of winning the dispute may be higher.
However, giving an exact probability ratio for sellers to win a PayPal chargeback investigation is challenging as it depends on a case-by-case basis.
What is the period allowed to raise the chargeback on PayPal?
The period for initiating a chargeback on PayPal can vary depending on the type of card used for the transaction and the reason for the dispute.
For transactions made with Visa, Mastercard, and Discover, a customer can initiate a chargeback within 120 calendar days from the transaction date.
For transactions made with American Express, the period for a customer to initiate a chargeback is typically 90 calendar days from the transaction date.
For PayPal transactions, the period for a customer to open a dispute is 180 days from the transaction date.
This time frame gives the customer enough time to raise any issues they might have with the transaction.
It's important to note that these are general guidelines, and the period for initiating a chargeback may vary depending on the specific circumstances of the dispute and the policies of the card issuer or bank.
It's also worth noting that as a merchant, you should keep records of the transactions for at least 180 days after the transaction date in case of any disputes or chargebacks.
Details required by PayPal from the seller on chargeback
During a chargeback investigation, PayPal must provide specific information and documentation from the seller to the card provider to support their case. These may include:
- Proof of shipment could include tracking information, delivery confirmation, or a shipping receipt. PayPal required it to prove that the item was shipped to the customer and confirm the delivery address.
- Proof of delivery: This could include a signature confirmation or a photograph of the item the customer received. It is to confirm that the item delivery to the customer was successful.
- Proof of refund policy: This could include a copy of the refund policy displayed on the seller's website or in their communications with the customer.
- Proof of customer's acceptance of terms: This could include a copy of the customer's order or a record of the customer accepting the terms of the transaction.
- Communication records could include copies of emails, chat logs, or other communication between the seller and the customer. It is to prove that the customer was aware of the refund policy or any further transaction details.
- Any other relevant documents: PayPal may request records or information they deem necessary to decide the dispute.
It's important to note that the evidence provided by the seller should be clear and comprehensive. It should be relevant to the dispute and support the seller's position.
Also, timeliness is vital while submitting the document. Keep all information forthcoming. When working on a chargeback defense, try to be comprehensive and provide as much information as possible.
It's also worth noting that PayPal has the right to request additional information or evidence if needed, and the seller should comply with their requests to avoid losing the case.