The Clearsale Blog

Apr 18, 2018 PayPal, Payments

Understand the 4 Ways Customers Can Reverse PayPal Transactions

Understand the 4 Ways Customers Can Reverse PayPal Transactions

PayPal is currently one of the largest online digital payment platforms, with 218 million active customer accounts and 17 million active merchant accounts. It’s not only considered safe by customers, thanks to its two-layer authentication, it’s also loved by merchants because of its ease of use and reasonable transaction costs.

But that doesn’t mean every transaction is a successful one.

Sometimes, unhappy customers want to reverse a PayPal transaction. They can do so through credit card issuer or their bank, or they can file a PayPal dispute or a PayPal chargeback. Any of these options can mean substantial merchant losses in terms of time, product, revenue and reputation. It’s important, therefore, for merchants to understand how PayPal refunds work, so they can plan ahead to minimize their risks.

How Customers Can Initiate PayPal Refunds

Customers generally have four options to initiate a PayPal refund. Each option is a little different, including the time frames and who’s responsible for settling the dispute. The specific approach used will depend on how the initial purchase was funded.

Option 1: PayPal Dispute

If a buyer has a problem with a transaction, they can first try to work it out directly with the seller, without PayPal’s involvement, by opening a dispute in PayPal’s Resolution Center.

Note: If a customer opens a dispute and files a chargeback, PayPal automatically closes the dispute, leaving only the credit card chargeback to proceed.

There are two reasons a buyer might file a PayPal dispute:

  • Item Not Received. The buyer claims the item they ordered and paid for never arrived.
  • Significantly Not as Described. The buyer claims the item received differs significantly from the item the seller described (e.g., a dress was described as like-new condition but arrived with holes and stains).

After a customer initiates a dispute, the customer and the seller have 20 days to resolve the issue.

The seller doesn’t incur any fees or penalties during the dispute; however, the seller’s funds might be temporarily unavailable while a dispute is in process. This hold will be released if the PayPal dispute is settled in the seller’s favor.

Option 2: PayPal Claim

If the buyer and seller can’t agree to a solution within the 20-day dispute period, either party can escalate the dispute to a claim, asking for a refund or payment reversal. Buyers can also immediately file a claim (without first filing a dispute) if their account has been fraudulently used for a transaction.

After a claim is opened, the merchant has 10 days to submit all evidence that supports their position. If the merchant doesn’t respond, the claim closes automatically in the customer’s favor, and PayPal issues a full refund. If the merchant does respond, PayPal reviews all submitted documentation and decides on the complaint. Although the review process generally takes 30 days, complex claims may take longer.

While no fee is associated with PayPal claims, PayPal may place a temporary hold on funds while the claim is open. if PayPal rules in favor of and returns the funds to the customer, the merchant is responsible for the full amount and may also be out the merchandise.

Option 3: Credit Card Chargeback

Some customers may opt to not file a dispute with PayPal about a questionable credit card transaction and instead file a chargeback directly with their credit card issuer. In this case, the customer asks the card issuer to reverse a completed transaction and issue a refund.

Customers may file chargebacks because the item wasn’t received, the item was significantly not as described, or the transaction was unauthorized.

Merchants have 10 days to respond to the chargeback, but the entire process can take 75 days or more. Once the card issuer has received all the documentation, the issuer (not PayPal) determines whether the customer is responsible for the charges. During this time, there may be a temporary hold on the transaction funds, which stays in place until the chargeback is resolved.

If the customer is found not responsible, the issuer will reverse the transferred funds, debiting the merchant’s account for the amount of the sale plus up to a $20 chargeback fee. Issuers do not refund seller fees.

Option 4: Bank Reversal

A bank reversal (also known as an ACH return) happens when a buyer asks their bank to return transaction funds that were debited from a bank account, often because of suspected unauthorized use. The bank determines the outcome of the reversal, usually within seven to 10 days.

What Merchants Can Do

Chargebacks, bank reversals, and PayPal claims and disputes tend to favor the buyer, even when the merchant offers strong evidence to support their position. Worse, when these chargebacks are fraudulent, the buyer often gets away with the product and the money, while the merchant is hit with fees, penalties, and damage to their merchant account and reputation.

Therefore, it’s up to merchants to protect themselves against chargebacks, using strategies like these to prevent disputes from escalating and may stop disputes from happening at all:

  • Follow the requirements for PayPal’s Seller Protection Program, which is designed to protect online sales; minimize claims, chargebacks and reversals; and help prevent fraud. 
  • Avoid risky transactions that PayPal doesn’t cover, like selling gift cards or digital goods and services or investing in crowdfunding platforms.
  • Clearly communicate the business name that customers can expect to see on PayPal invoices to avoid claims stemming from confusion over a DBA or parent company name that appears on credit card statements.
  • Meet proof of delivery requirements, like providing documentation from a shipping company that shows the date of delivery.
  • Include thorough product descriptions, including pictures from multiple angles, measurements, defects and damage.
  • Display contact information, like email addresses and phone numbers, prominently on web pages, order confirmations and email communication.
  • Link to exchange and refund policies on each product page, and spell them out on checkout pages, order confirmations and emails.

Partner With a Chargeback Prevention Specialist

Even merchants who do everything right may occasionally find themselves on the receiving end of a credit card chargeback or PayPal claim. But that doesn’t mean they also have to be on the losing end.

With friendly fraud and chargeback fraud on the rise, it’s important for merchants to understand how they can prevent these expensive payment reversals. For many sellers, that means working with a trusted professional who understands the latest fraud prevention and chargeback trends and can offer PayPal chargeback protection strategies.

Contact ClearSale today to learn how our chargeback protection solution can bring security to your sales, increase revenue, and eliminate the financial and reputational costs of chargebacks.

ClearSale Fraud Protection Buyers Guide

You may also like

Top 7 Ecommerce Trends for 2021 to Watch

Top 7 Ecommerce Trends for 2021 to Watch

While we’re not quite sure what 2021 will bring (it could be normalcy ... or it could be utter chaos), ecommerce is expected to continue its meteoric rise. Shoppers will eventually return to..

What Merchants Need to Know About PayPal Transactions in 2021

What Merchants Need to Know About PayPal Transactions in 2021

What Merchants Need to Know About BNPL Options

What Merchants Need to Know About BNPL Options

Buy Now Pay Later (BNPL) is continuing to grow throughout Australia among retailers and beyond.

Alternative Payment Methods for Ecommerce Stores

Alternative Payment Methods for Ecommerce Stores

As consumers make more purchases online, they expect their transactions to be quick, convenient, and contactless, especially when it comes to payment. The last thing you want is potential..

5 Ways to Protect Your Business from PayPal Chargeback Fraud

5 Ways to Protect Your Business from PayPal Chargeback Fraud

With the increase in chargeback and friendly fraud, merchants are finding themselves at risk when they accept legitimate online payments. Often, PayPal is the payment method of choice because of..

International Expansion: How to Increase Your Profits

International Expansion: How to Increase Your Profits

Dang, business is good! So good that the next logical business decision is to expand operations into international markets.

Free Fraud Prevention Tools in Ecommerce Platforms May Be Costing You

Free Fraud Prevention Tools in Ecommerce Platforms May Be Costing You

Fraud prevention may not be your first thought when evaluating an ecommerce platform, but many merchants find that the fraud prevention offered by their platform can make—or break—their success...

Why Focusing Solely on Mobile Ecommerce Could Lose You Sales

Why Focusing Solely on Mobile Ecommerce Could Lose You Sales

Consumers are increasingly using mobile devices to shop online, with 65% of ecommerce traffic happening on mobile devices compared to 35% on desktop. This rise in mobile ecommerce traffic is part..

How a Pandemic Increased Digital Gift Cards to Ecommerce Stores

How a Pandemic Increased Digital Gift Cards to Ecommerce Stores

Both consumers and ecommerce sites have embraced the digital gift card for its versatility and convenience during the pandemic. But as the possible applications for this virtual currency grow, so..

Want to write
for our blog?

Please review our writers' guidelines
https://www2.clear.sale/press/clearsale-guest-blog-guidelines
and then email guestwriter@clear.sale with your pitch!

Subscribe to our blog