PayPal Chargebacks – Everything You Need To Know

PayPal has become one of the most widely accepted payment methods. As a result, more and more merchants rely on Paypal for their payment processing as it is a quick and efficient way to accept payments, assuming the merchant is low-risk.

PayPal is exceptionally safe and secure, and it is also easy for both consumers and merchants to use. However, while Paypal was used heavily as an alternative to paying with a credit/debit card, the one thing that remains the same is chargebacks.

Paypal chargebacks and disputes will hit merchants at some point, so it’s best to understand how Paypal chargebacks work and should be handled.

Paypal differs from other processors/banks because customers have 180 days to file a chargeback versus the typical 120 days that most banks allow.

Since you are reading this article, we assume that you are dealing with many Paypal chargebacks, or your Paypal merchant account was terminated due to chargebacks. This article will cover everything you need to know about Paypal chargebacks and get on the right path to growing your business again.

paypal chargebacks

Are Merchants Responsible For Paypal Chargebacks?

If you’re reading this article, you are likely dealing with the aftermath of facing Paypal chargebacks. The obvious answer is yes. Paypal chargebacks are similar to normal chargebacks; only there is a bit more to comprehend with Paypal and chargebacks.

Paypal does have a Seller Protection Program which will absorb the costs for chargebacks related to eligible purchases. With this being said, this doesn’t protect you from the actual chargeback itself. 

Sellers will be charged a non-refundable chargeback fee for every chargeback. While there are some instances in which this can be waived, it usually sticks. 

What Is the PayPal Seller Protection Program?

This program is meant to protect sellers from fraud. We strongly encourage you to review the Seller Protection program before selling services/goods. 

Paypals program covers physical goods and digital items only that are sold and shipped with proof of delivery. Therefore, you will need to show compelling evidence to prove that the transaction was made and it was sent to the customer.

Was Your Paypal Merchant Account Terminated Or Frozen?

While this is unfortunate, it’s important to note that this could be related to one or two things: either your chargeback ratio is out of control, or you are selling services/goods that are against Paypal’s terms of service.

Chargebacks are harmful no matter who your processor/bank is. If you are operating and frequently find yourself dealing with chargebacks, you likely have things to address on your website, and you will also want to make sure that what you are selling is legit.

If you only had a couple of chargebacks and your account was frozen, the freeze might not be related to chargebacks, and it could be related to a breach in terms of service. 

Paypal does not service high-risk merchants, and they will freeze or terminate your merchant account upon audit. 

The following industries are examples that could get your merchant account frozen:

  • Adult content
  • CBD/vape
  • SEO
  • Online dating
  • Crypto
  • Fantasy sports
  • Health and beauty
  • MLM
  • Firearms
  • Certain types of e-commerce

If you see your industry here, it’s best to immediately figure out a backup plan. Fortunately, our partner company, Corepay, specializes in high-risk payment processing, and they will be able to get your business up and processing, assuming you are running a legitimate business.

Note: It’s tough to say if Paypal chargebacks were the reason for your account termination as Paypal doesn’t perform underwriting on your business at the time of your application. 

This means that you could get approved and start accepting payments and even have a legitimate service offered and still run the risk of getting shut down if you’re operating in a high-risk industry. 

What Is PayPal’s Chargeback Fee?

If sellers qualify for the Paypal Seller Protection Program, they will not incur chargeback fees from Paypal. However, should the transaction not meet the criteria, the merchant will be charged a flat fee of $8. If they exceed Paypal’s chargeback threshold, they will be charged $16.

Chargeback fees were $20 until 2020 when Paypal switched from charging $20  for chargebacks filed through customer’s banks to charging an $8 dispute fee for all reversals.

When disputes are made through Paypal, the dispute is now a claim in which the merchant will be charged a fee. 

Should merchants exceed 1.5% disputes in three months, the seller will be hit with a high volume dispute fee, which means double the regular fee.

Paypal Chargeback Process

When a buyer files a chargeback against a transaction from Paypal, the following happens:

  1. Buyer has an issue and contacts their issuing bank requesting the chargeback
  2. The bank notifies Paypal’s bank
  3. The merchant bank for Paypal notifies Paypal and withdraws funds from Paypal
  4. Paypal contacts the merchant and lets them know of the dispute and places chargeback funds on hold
  5. The seller has to show evidence that the chargeback is legit
  6. Paypal reviews all of the evidence submitted
  7. The proof is sent to the purchaser issuing bank
  8. The bank reviews evidence
  9. The bank makes a decision on the dispute and sends it to Paypal
  10. Paypal notifies the seller of the decision

PayPal Chargeback Vs. Paypal Claim

A PayPal claim is different from a chargeback in terms of the customer. With a claim, the customer gives their dispute to Paypal. As a result, the customer’s account is frozen, and Paypal calls the customer to negotiate the situation.

How Do You Fight And Win A PayPal Dispute?

It is important to note that the buyer can still file a chargeback with their bank instead of Paypal. This will result in an automatic fee from Paypal.

Chargebacks with PayPal can be different from your conventional chargeback dispute. With this being said, you will need the following to win a Paypal dispute:

  • Quick response and action
  • Compelling evidence to present – can use data from various chargeback tools
  • Dynamic/thorough response letter

Merchants should have a system set in place to fight chargebacks with Paypal as it is unique. The overall steps to take may vary depending on the products/services the merchant is selling. 

For physical products and digital products, you will want to provide the following:

  1. Picture of the item along with a detailed item description
  2. Receipt from the transaction, including shipping information
  3. Track number, including the timestamp
  4. Receipt from delivery
  5. Copy from any messaging from the customer to yourself
  6. Proof of any refunds issued before the chargeback filing date
  7. Proof of replacement products that were shipped
  8. The cover letter that fully details the chargeback dispute


Chargebacks related to services sold via Paypal can be tricky. You will need to prove beyond a shadow of a doubt that your service delivered was exactly as presented.

Here are recommendations when it comes to service chargebacks:

  • Signed copy of service agreement signed by the buyer and seller – this needs to clearly outline and state the deliverables along with a timeline and agreed-upon services
  • Cancellation policy/terms of service
  • Copy of any communication between parties
  • Service delivery agreement signed by the buyer
  • Proof of refund if issued
  • A descriptive cover letter that details the situation from your perspective

When it comes to fighting these types of Paypal chargebacks, you will want to be familiar with chargebacks in general so that you can adequately state your case to Paypal.

Our Advice

At CB-ALERT, we understand the importance of chargeback mitigation and the high-risk payment space. Our advice is that you make sure your website is fully compliant and that you are offering a quality product/service. 

You should also implement chargeback mitigation tools and find a payment processor that fits your needs and risk level. Fortunately, we can help lower your chargebacks and your payment processing needs.  

Should you be in the market for a new processor, we highly recommend our partner company, Corepay, which offers bespoke payment processing specifically for high-risk verticals.

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