Understanding PayPal and Credit Card Chargebacks
By Ina Steiner
Many individuals and small businesses are attracted to selling on eBay because of its low barrier of entry and ease of use. For as low as 30 cents on eBay and for free on some other sites, anyone can list an item for sale. And setting up a PayPal account to allow buyers to send payment is just as easy. But selling online is a business, and sellers have the responsibility to deliver the goods as promised.
If you accept credit cards or online payments, make sure you understand fully the risks and liabilities you incur by using these services. In this article, I'll review PayPal and credit card chargebacks.
PayPal has set up a page on its site to explain chargebacks http://www.paypal.com/cgi-bin/webscr?cmd=p/sell/chargeback_risk-outside.
A credit card issuer can initiate a chargeback under several circumstances, including:
- When a buyer claims that the good he purchased was never received.
- When a buyer claims that the item purchased is "not as described" by the seller
- When it is determined that a stolen credit card number was used for the transaction.
PayPal's guide explains that because chargebacks usually happen in response to a claim or discovery that comes to light well after the initial transaction has occurred, it can be weeks or even months before you learn that a chargeback has been initiated and a transaction is going to be reversed.
PayPal's guide is not very encouraging about escaping business life chargeback-free: "According to a study by the Gartner Group, approximately 1.1% of online transactions are estimated to result in fraudulent buyer chargebacks. That's like paying an extra 1.1% fee on every transaction! Of course, chargeback risk varies a good deal depending on the type of goods you sell, but nearly everyone who accepts credit card payments will face some chargeback risk."
PayPal initiated a program for sellers to give them some protection against chargebacks. It's critical you follow the program to a T if you want to be covered by the plan.
PayPal Seller Protection Policy
A guide to PayPal's Seller Protection Policy can be found online at http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/protections-outside.
- Be a Verified Premier or Verified Business Account
- Ship to the buyer's Confirmed Address
- Timely Shipment
- Retain reasonable proof-of-shipment that can be tracked online
- Ship tangible goods
- Only accept single payments from single PayPal accounts
- Ship to domestic (U.S.) buyers at U.S. addresses
- Timely Response
As Izzy Goodman explains in the next article, there is no protection from chargebacks for foreign orders for credit card merchants, and the same is true when you use PayPal to accept credit card transactions. It's up to you to understand and follow these rules to protect yourself from chargebacks.
It's very easy to be persuaded into shipping to a different address (it's a gift, ship to my work address, etc.), but sticking to the confirmed address is the only way to protect yourself. Make sure you understand what a confirmed address is: http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/shipping-address-outside
Both buyers and sellers should spend some time perusing the PayPal Security Center, found at http://www.paypal.com/cgi-bin/webscr?cmd=_security-center-outside or go to the main PayPal page and click on Security Center at the bottom of the page.
Sometimes it seems easier to give in to customer requests for exceptions rather than turn away a sale. But if you deviate from PayPal's protection policy, you are not covered. Months after a sale, you might get bad news about a chargeback!
About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to firstname.lastname@example.org.
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