What Is PayPal Chargeback Protection?

When selling with PayPal, I’ve wondered if I should enable Chargeback Protection. You’re probably wondering the same if you process transactions through the platform.

I wrote this guide to help you decide whether it’s worth getting by explaining what it is, what it covers, and more.

Read on to learn more.

Key Takeaways

• PayPal will waive fees for chargebacks from unauthorized transactions and items not received.
• You must provide enough evidence to waive the chargeback fees.
• Chargeback fees would otherwise cost $20 per chargeback.
• Chargeback Protection costs 0.40% of each transaction.

What Is PayPal Chargeback Protection & What Does it Cover?

• Cost: 0.40% per transaction

This program reimburses merchants chargeback fees that come from the following claims:

• Unauthorized Transactions: When someone who’s not the account holder uses their account to make a purchase.
• Items Not Received: The shopper didn’t receive the item they paid for.

This protection doesn’t cover chargebacks where the item is not as described.

PayPal charges a $20 chargeback fee for chargebacks. However, with this protection, they’ll waive the fee, so long as you provide the required documentation. I’ll dive into this in a bit.

Summary: PayPal's program protects sellers from losing money if a buyer claims they didn't get their stuff or someone else used their account. This costs a small fee for each sale. 

Who’s Eligible?

Here’s what you’ll need to be eligible for PayPal’s Chargeback Protection:

• Use PayPal Advanced Credit and Debit Card Paymentssome text
  • Costs 2.59% + fixed fee per transaction [1]
• Use Risk Data Acquisition Service
• Provide additional data that PayPal requests
• Your business account must be in good standing

To apply for Chargeback Protection, unenroll from their Fraud Protection service. You can’t be in both at the same time.

There’s Also Effortless Chargeback Protection

• Best For: Sellers dealing with a high volume of unauthorized transaction disputes.
• Cost: 0.60% per transaction

Effortless Chargeback Protection is an enhanced version of PayPal's regular Chargeback Protection program.

The key difference lies in the evidence required for certain types of chargebacks:

• Unauthorized Transactions: Seller is NOT required to provide proof. PayPal will cover the chargeback.
• Item Not Received: Seller must still provide proof of shipment or delivery within 2 days.

It streamlines the process for sellers dealing with unauthorized transaction chargebacks. They no longer need to gather and submit evidence, saving time and effort.

The requirement for proof of delivery remains the same for items that have not received chargebacks.

Summary: Chargeback Protection covers unauthorized transactions. However, it requires proof if buyers dispute delivery.

Here’s How PayPal Chargeback Protection Works

Here's how it works:

1. PayPal assesses transaction risk; potential fraud could lead to payment declines.
2. PayPal notifies you of the chargeback filed by buyer.
3. You provide proof like shipment details and buyer communication.
4. The card processor reviews evidence; they decide on chargeback validity.
5. If resolved in your favor, PayPal refunds you without chargeback fees.

How Do I Apply for It?

Follow these steps to apply for PayPal’s Chargeback Protection:

1. Log into your PayPal account
2. Navigate to Account Settings
3. Click Payment Preferences
4. Click Manage Risk and Fraud
5. Select Chargeback Protection

PayPal applies Chargeback Protection and deducts fees automatically per transaction.

To cancel Chargeback Protection, navigate through the series of menus above. Under Manage Risk and Fraud, you’ll select No protections right now.

PayPal will reverse all the chargebacks they covered if you give them the wrong information when creating your account (e.g. business type). For instance, if they recover $100 in chargeback fees, they’ll apply them to your account. 

Ensure you don’t provide false information. Or that you shift the type of products that you sell.

You can switch between PayPal's Chargeback Protection options at any time. The new option applies only to transactions made after you switch.

Here’s an example if you switch from the more expensive "Effortless" plan to the regular "Chargeback Protection" plan on July 1st.

• Chargeback for June 25th: Pay "Effortless" fee, no proof needed for unauthorized charge.
• Chargeback for July 5th: Pay reduced "Chargeback Protection" fee, proof of delivery required.

Also, Look into These Types of Protection

PayPal also offers Seller Protection, which sellers can use alongside Chargeback Protection. However, you must disable Fraud Protection to use Chargeback Protection. Moreover, Buyer Protection is only available to shoppers.

You should know what all of these types of protection are to familiarize yourself with the platform. Let’s check them out..

1. PayPal Seller Protection

PayPal Seller Protection protects sellers from losses due to some claims or chargebacks.

Here are the situations that it covers:

• Unauthorized Transactions: A buyer didn't authorize a payment through PayPal.
• Item Not Received (INR) Claims: Buyer didn’t receive the item they ordered.

To be eligible, you must meet certain requirements, including having a U.S.-based PayPal account, selling tangible goods shipped to the address on the Transaction Details page, and promptly responding to PayPal's requests for documentation.

To qualify, meet this criteria:

• You’re a US-based PayPal account
• Sold physical goods shipped to transaction address
• Responded to PayPal's documentation requests within their time limit
• Have a valid proof of delivery

Excluded are certain items like real estate, vehicles, financial products, and most NFTs. As well as transactions involving gambling, donations, payments to government bodies, and more.

It also doesn't cover items not as described or INR claims filed directly with card issuers.

Summary: PayPal Seller Protection prevents chargeback fees on some transactions.

2. PayPal Buyer Protection

• Cost for Buyer Protection: $0
• Coverage: Up to $20,000

PayPal Buyer Protection provides full refunds, including shipping costs for some issues.

This protection applies in 2 scenarios:

1. Item Not Received
2. Significantly Not as Described (SNAD): Received item differs from the seller's description.

To qualify for Buyer Protection, purchases must meet criteria before disputing with PayPal. Claims must be filed within 180 days of the transaction.

Covered items include tangible goods, some digital goods, and select services. However, it's important to note that items such as real estate, vehicles, and accurately described items are excluded.

When a customer files a claim, PayPal investigates the dispute and makes a decision based on the evidence provided by both parties. If the claim is approved, the customer receives a full refund, but may need to return the item in some cases.

This protection isn't for sellers. But you should know about it.

Summary: PayPal Buyer Protection is a free benefit that comes with a PayPal purchase. If a customer doesn’t get their item or it's very different from what the seller described, PayPal may give them all their money back.

3. Fraud Protection

PayPal provides these tools for businesses to prevent fraudulent transactions:

Basic Fraud Protection (Built-in):

• Every PayPal business account comes with basic fraud protection at no extra cost.
• This provides a set of pre-defined risk rules to assess transactions.

Fraud Protection Advanced (Enhanced):

• For $10/month, upgrade for insights using advanced algorithms and machine learning.
• Analyze buyer behavior, transaction details, and business history for fraud scores.
• Control transaction acceptance/rejection to reduce fraud and avoid blocking customers.

Buyer Authentication (3D Secure):

• Optional $10/month upgrade adds 3D Secure protocols for security.
• Buyers verify identity via one-time passwords or fingerprint scans.
• Increases security, reduces unauthorized purchases, adds customer verification step.

Using Advanced or Buyer Authentication+ may incur small per-transaction fees.

The level of fraud protection you choose depends on your business's needs and risk tolerance.

If you process a high volume of transactions or operate in a high-risk industry, the Advanced package could be worth the investment. If you want to maximize security and reduce chargebacks, adding Buyer Authentication might be a wise choice.

Summary: PayPal gives businesses tools to help stop scams. The basic tool is free, while others cost extra but do a better job of spotting fakes.

Differences Among Claims, Chargebacks, & Disputes With PayPal

Here are the differences:

• PayPal's disputes and claims resolve transaction issues internally.
• Disputes seek mutual resolution, while claims involve formal PayPal decisions.
• Chargebacks are external and reverse transactions via card issuers.

Time limits vary for each process. However, chargebacks potentially taking longer due to involvement of external entities.

Chargebacks cost more than disputes due to fees and can impact seller accounts. And card networks could place you in a monitoring program if you have too many.

Entering a dispute monitoring program may lead to losing the ability to process certain credit cards. Thus, keeping customers within PayPal and handling transaction issues is advisable.

Paying for a dispute fee ($8.00) is cheaper than a chargeback fee ($20).

How Else Can I Protect Myself From a PayPal Chargeback?

Here's how else you can protect yourself against chargebacks, claims, and disputes:

• Accurately describe products: dimensions, materials, flaws.
• Maintain open communication throughout transactions.
• Ship promptly with tracking to manage expectations.
• Securely package products to prevent transit damage.
• Ensure a clear refund and return policy.
• Keep transaction records and communications.
• Verify shipping addresses for validity.
• Consider signature confirmation for high-value items.

By implementing these proactive measures, you can reduce the risk of disputes, chargebacks, and claims.

Summary: Merchants prevent PayPal issues by honesty, clear communication, and prompt, secure shipping.

How Does PayPal Chargeback Protection Compare to Other Chargeback Protection Services?

PayPal also offers pre-chargeback alerts. These notify you of an unusual transaction that could become a chargeback, dispute, or claim. Giving you a chance to refund the customer ahead of time.

This tool, along with other seller protection programs are only useful if you only use PayPal.

If PayPal isn’t your only payment provider, you’ll need more universal software that works with various processors.

We work with major alert providers (e.g., RDR) to deliver alerts for potential disputes that could happen through Shopify, Stripe, and more. Learn how we can help.

FAQs

What Happens if You Lose a Chargeback

Losing a chargeback means the seller must refund the buyer's money. The merchant may also incur additional fees from PayPal or their bank.

Conclusion

Chargeback Protection is a great tool to help merchants who face frequent unauthorized transactions and want to reduce their financial loss. Otherwise, chargeback prevention tools like alerts can help prevent chargebacks from happening.

That’s where we come in. Check out how our chargeback alerts work and how they can help prevent orders on PayPal from escalating to chargebacks.

Source

• [1] PayPal: Merchant fees