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PayPal's Seller Punishment Policy

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Does PayPal really fight chargebacks? We say no.

PayPal Chargebacks

Does PayPal really fight chargebacks? We'll show you what they say and you decide.

To understand the PayPal chargeback issue, you should first thoroughly understand the PayPal "Seller Protection Policy," Which we call the "Seller Punishment Policy". If you thoroughly understand that issue, then you can continue here. (If not, be sure to read the "Seller Protection Policy" page.) The PayPal Terms of Service (Tos) states:

    PayPal reserves the right not to dispute a chargeback even if the seller has provided some evidence, particularly if PayPal believes the dispute is not likely to be successful.

From PayPal Terms of Service.

Things that make you go hummmmmmm. So PayPal sets up a Seller Protection Policy, which PayPal's own internal comments show their users have a "limited ability" to comply with, and then PayPal says they might not pursue the chargeback, even if the seller complies with all their requests. But there is yet one more piece of the puzzle.

PayPal is a credit card processor. They are in between you and the credit card processing bank. As such, PayPal makes a profit on the difference between what they charge you, and what the processing bank charges them, known as the discount rate. What you may not know is the rate PayPal pays is influenced by the outcome of chargebacks. The more chargebacks, and the more chargeback disputes, the higher the rate PayPal has to pay. Which means they make less money. PayPal processes $50 million per day. So even a .1% change in their rate is $50K per day difference. That's $18,250,000 per year of pure profit. So, you can see PayPal has a financial interest in not fighting chargebacks to keep their discount rate as low as possible. Now you know why PayPal reserves the right to not fight chargebacks. Now you know why they make the SPP almost impossible to comply with. They punish the seller, and pocket the proceeds.

You should also understand PayPal does not cover virtual items at all. Things like hosting, domain names, subscriptions, online or offline services, etc... If it's not tangible, you have zero protection. And even if it is tangible, you are at risk.

Furthermore, you will see PayPal rule one way in one instance, and then in an exact same situation, PayPal making a ruling completely different. One person may complain about an item not being legit and PayPal doing nothing, and then you'll hear about another person with the same issue and PayPal refunding their money. One person gets the "we don't get into quality of goods issues" while another gets a full refund on a quality of goods issue. There are so many stories of PayPal playing both sides against each other it's impossible to know how your case will be resolved.