With 218 million active customer accounts and 17 million active merchant accounts, PayPal has become one of the largest online digital payment platforms. Customers trust PayPal’s two-layer authentication and e-mailed transaction confirmations; merchants of all sizes enjoy being able to accept bank and credit card payments without hefty transaction fees.
The company processed more than $40 billion in mobile payments in the third quarter of 2017. With that volume, it’s inevitable that some transactions won’t go as planned, resulting in unhappy customers who want refunds. When merchants find themselves on the receiving end of a PayPal transaction dispute, they risk lost product, lost revenue and a damaged reputation. But merchants can avoid the damaging effects of PayPal chargebacks by learning how they work and then implementing a few best practices.
Disputes, Claims and Chargebacks: How Customers Initiate PayPal Refunds
If the customer made the purchase through their PayPal account, there are two ways to initiate a refund: They can either file a chargeback with their credit card company or initiate a dispute with PayPal. (Note: A customer can’t have it both ways. If they open a dispute and file a chargeback, PayPal automatically closes the dispute, leaving only the credit card chargeback to proceed.)
After the customer initiates a dispute, the merchant has 20 days to resolve the issue. If it can’t be resolved, the customer can escalate the dispute to a claim (essentially requesting a PayPal chargeback). Merchants submit evidence to defend their position, and PayPal evaluates the documentation and makes a ruling.
While PayPal disputes are similar to credit card chargebacks (they can both result in refunding the transaction amount to the customer), there are three important differences:
- PayPal encourages the two parties to come to a mutually agreeable resolution. There is no such interaction in a credit card chargeback.
- Merchants aren’t assessed fees or financial penalties when a PayPal claim is filed, although they do risk account reserves and limitations if claim rates become too high. In contrast, credit card chargeback fees can exceed $75 per dispute, and merchants with too-high chargeback rates can find their merchant accounts terminated.
- When a customer escalates a claim, PayPal freezes the disputed funds in the seller’s account while PayPal evaluates the claim. With a credit card chargeback, the card issuer immediately refunds the money to the buyer and then conducts an investigation.
6 Simple Ways to Implement PayPal Chargeback Protection
Merchants can often protect themselves against PayPal chargebacks by preventing disputes from escalating into claims — and even stopping disputes from happening at all. Sound challenging? These six strategies show how easy it can be to eliminate damaging disputes and claims simply by managing customer expectations.
1. Provide Contact Information
Customers often resort to filing disputes or chargebacks when they’re unable to get in touch with a merchant. Display contact information, like email addresses and phone numbers, prominently on web pages, order confirmations and email communication. Let customers know when they should expect a response, and make sure it happens.
2. Describe Items Thoroughly
Include a comprehensive description of products — including dimensions, colors and materials — alongside pictures from a variety of angles. Being clear and complete about a product will ensure customers won’t be disappointed when their order arrives.
3. Include Company Names on All Communication
Customers sometimes open disputes when they legitimately believe their PayPal account has been used fraudulently, such as when they see an unfamiliar merchant name on their credit card statement. Retailers who use different billing and website names should ensure customers know what to expect on their statements.
4. Provide Frequent Order Updates
Merchants should not only let customers know when their order is scheduled to arrive, but they should also notify customers if there are any changes to that delivery date. Provide tracking numbers so customers can see the status of a shipped order and merchants can have proof of delivery.
5. Purchase Shipping Insurance
It’s not uncommon for packages to get lost or damaged in transit, so shipping insurance is a smart purchase for expensive or delicate orders. Not only will it protect the value of an order, but it will also provide valuable tracking information.
6. Offer a Fair and Flexible Return Policy
Link to exchange and refund policies on each product page, and spell them out on checkout pages, order confirmations and emails. Consider implementing a flexible holiday return policy for those customers who buy gifts early in the holiday season.
Don’t Let PayPal Chargebacks Affect Your Business
As more e-commerce retailers adopt PayPal as a payment option, it’s important to understand how the platform processes customer complaints and how merchants can implement PayPal chargeback protection strategies.
But when happens if customers decide to bypass PayPal’s dispute resolution process and file a chargeback with credit card issuers? Contact us today to learn how ClearSale’s chargeback protection solution goes beyond dispute resolution and helps you increase revenue and eliminate the financial and reputational costs of chargebacks.