PayPal is one of the most popular services for sending and receiving money online. As remote working, freelancing, and eCommerce gain traction, a PayPal account has become inevitable for most buyers and sellers.
Merchants can use PayPal to accept online payments and even perform international transactions securely while accessing helpful business tools and features.
However, sellers who accept payments online deal with refunds as a part of their everyday business.
This guide covers everything you should know about handling refunds with PayPal and the latest changes introduced to the PayPal refund policy.
What is PayPal Refund Policy?
Buyers can request a refund for up to 180 days of making payment for a purchase through PayPal. The simplest way to get a refund is by canceling the payment if the seller has not yet claimed it. However, payment is often accepted automatically through PayPal.
When payment has been processed, a buyer can request a refund by either getting in touch with the seller through email or issuing a PayPal dispute in case the seller denies to refund.
PayPal refunds take varying times to process depending on the payment method for the original transaction.
PayPal balances are processed in 3-5 business days, bank account refunds are completed in 7-10 days, and credit/debit cards can take up to 30 days to process. The refund amount is reflected in the buyer’s payment method while making the purchase.
Refunds are issued out of your PayPal balance by default. However, if the account doesn’t have sufficient balance to cover the refund, the amount is issued as an e-check from the linked bank account.
Banks can take up to 6 working days to clear the check, so it can slow down the refund process significantly.
Transactions with a status of ‘Cleared’, ‘Pending’, or ‘Completed’ are eligible for refunds for 180 days from the date of transaction. After this time limit, you can transfer funds to the buyer’s account under a new transaction using the standard ‘Send Money’ option.
This transaction incurs you a fee of 2.89%+$0.49. You can issue a full or partial refund for most transactions. However, when the buyer has used a gift certificate or coupon for the purchase, PayPal will let you issue a full refund only.
What is PayPal Refund Fee?
Though PayPal doesn’t charge new fees on issuing refunds, it doesn’t give back the original transaction fee you paid. In the past, PayPal used to refund a portion of the processing fee for canceled transactions but the latest policy change makes these charges non-refundable.
For example, if you sell an item for $10,000 in your store and the customer cancels the order or returns the product, you would have paid $290 as fees to PayPal which you don’t receive back.
While PayPal claims the refund policy to be a standard across the industry, it is not a good one for merchants and makes it more expensive and harder to do business with the payment platform. It compels sellers to find ways to minimize the fees and ultimately gets the costs passed on to customers.
How PayPal Handles Chargebacks?
A customer can request a chargeback against a transaction to the concerned bank which works with the merchant bank and PayPal to take necessary action against the seller. As a response, the seller must submit evidence to withdraw the chargeback.
The resolution centre reviews the evidence and forwards it to the bank that makes the ultimate decision regarding the case. The bank also notifies the buyer and PayPal of the decision after which PayPal updates the case in the resolution centre and notifies the seller.
The chargeback process can differ based on the transaction but a seller should defend himself with a timely response, a strong cover letter, and compelling evidence.
An effective way to stay protected against chargebacks and their fees is to register for the PayPal Seller Protection Program. Under this program, you can become eligible for retaining the full transaction amount in case a buyer disputes a transaction for a sale.
The seller must meet some requirements like producing a proof of delivery for the sale to be eligible. When the requirements are fulfilled, PayPal protects the seller from costs associated with claims like ‘item not received’ or ‘unauthorized payment’.
What is PayPal’s Chargeback Fee?
PayPal does not charge a fee on transactions falling under the Seller Protection Program. However, other transactions cost a fee of $8 or $16 when they exceed the dispute threshold.
According to the new PayPal policy, it has switched from a $20 chargeback fee charged only when a buyer files a dispute with the bank to an $8 dispute fee for all the reversals of transactions.
When a dispute made through the PayPal Dispute Resolution Centre is escalated to a claim, the seller is charged the fee.
PayPal has also set a dispute threshold for sellers under the new policy. If the seller has made over 100 sales in the last three months and more than 1.5% of them fall under dispute, it charges a High-Volume Dispute Fee that is double the regular fee.
PayPal has a competitive refund policy that makes it easy for buyers and sellers to reverse the transactions and execute returns.
Though the latest changes in the policy increase the refund and chargeback fees for sellers, PayPal offers a seller protection program and other features to help them avoid unnecessary charges.