PayPal is a company that helps people send money to others via the internet. PayPal was one of the first web payment companies, and it was acquired by eBay in 2002. Moreover, PayPal was separated from eBay in 2015 and is now an individual publicly-traded company. It is a free service that can be linked to a bank account, debit card, or credit card to send money to others.
With 360 million users and 20 million active merchant accounts, PayPal is currently one of the biggest online digital payment platforms. It is not only regarded as safe by customers due to its two-layer verification but it is also favored by merchants due to the relative ease in use and low transaction costs.
Unsatisfied customers may request that a PayPal transaction be reversed. They can do so through their credit card company or bank, or they can file a PayPal dispute or chargeback. Any of these alternatives can result in significant merchant losses in regards to time, product, revenue, and reputation. It is therefore critical for merchants to understand how PayPal refunds work so that they can plan ahead of time to minimize their risks.
How to Initiate Refunds?
Customers have four options to initiate a refund on PayPal:
If a transaction poses problems for a buyer, they can directly settle it with the seller without involving PayPal. This can be achieved by raising a PayPal dispute in PayPal’s resolution center.
There can be two possible reasons for raising a PayPal dispute-
- The buyer claims that the item/s they ordered and paid for never arrived.
- The buyer claims that the item bought and received is significantly different from the seller’s description.
If a customer raises a dispute and files a chargeback, PayPal automatically closes the dispute, leaving the credit card chargeback to proceed.
The buyer and seller are given 20 days to resolve the dispute. Furthermore, the seller doesn’t endure any fees or penalties while the dispute is ongoing. Nevertheless, the seller might experience temporary unavailability of funds during the dispute. This hold is then released if the dispute resolves in the seller’s favor.
If a dispute is not resolved in 20 days, either the buyer or seller can intensify the matter into a claim for refund or payment reversal. After a claim is raised, the seller has 10 days to produce all evidence and documentation favoring his stance. This evidence can include proof of delivery, proof of refund, and so on.
- If the merchant fails to respond to the claim, PayPal rules in favor of the buyer and issues a full refund.
- If the merchant does respond, PayPal examines the evidence and resolves the issue in the next 30 days.
The customer is also given the alternative of lodging a chargeback directly with the credit card issuer. This is done to completely reverse a completed transaction and issue a refund. Merchants are given 10 days to respond to the chargeback but the whole process can also take more than 75 days. Once the credit card issuer has received the chargeback, they decide whether the customer is accountable for the charges. During this phase, a temporary hold is issued on funds. Finally, if the customer is not found responsible, the issuer refunds the amount by debiting it out of the seller’s account along with a $20 chargeback fee.
PayPal transactions are frequently funded by the buyer’s bank account in place of or along with their credit card. In such instances, the buyer can ask for a bank reversal, also called an ACH return. The customer might use this facility when the items are not received or their bank account is used without their permission. But, this can also lead to buyers committing fraud. Either way, merchants are allowed to respond to bank reversals through the PayPal resolution center, followed by the bank determining the outcome within 4-10 days.
As e-commerce undergoes massive growth, PayPal is staying ahead of the curve and becoming invaluable to today’s buyers. This gives all the more reason for merchants to become acquainted with PayPal’s consumer protections and how they can be used to protect legitimate customers.
Even if a merchant follows all of the rules, he or she may occasionally face a credit card chargeback or PayPal claim. But that doesn’t mean they have to come up short. With friendly fraud and chargeback fraud on the rise, merchants must understand how to avoid these costly payment reversals. Working with a trustworthy expert who knows the latest fraud prevention and chargeback patterns and can offer PayPal chargeback security mechanisms is important for many sellers.