What are chargebacks and how to resolve them

May 06 2022 | PayPal Editorial Staff

Managing chargebacks can be challenging, but there are ways to reduce them. Keep reading to learn what chargebacks are, why they occur, and how to respond to them.

Chargebacks act as a consumer-protection tool that safeguards online shoppers from errors in billing, unauthorised transactions and fraud. So instead of passing on the transaction amount to the seller, a chargeback is the cancellation of a purchase where the card issuer credits the amount back to the customer.

However, simple miscommunications can also result in chargebacks, causing merchants to be subjected to penalties. Hence, to reduce your chances of running into chargeback issues, it’s important to understand what chargebacks are, why they are being filed against you, and the best way to respond to them. This can help you avoid and resolve potential chargebacks on your PayPal account quickly and easily, without losing a sale.

What is a chargeback?

Unlike claims which a buyer files with PayPal, a chargeback is when a customer contacts their credit or debit card issuer directly and requests to reverse or cancel a completed transaction. However, since it is neither initiated with nor reviewed by PayPal, the process is bound by the card issuer’s regulations and time frame.

Why is a chargeback being filed against me?

Here are some common reasons why chargebacks occur:

  • Item Not Received
    A customer has paid for an item, but claims to have never received the goods as promised.

  • Significantly Not as Described
    A customer has received the item, but it does not match the seller’s description as it looks considerably different, or it was damaged when it was shipped to them.

  • Cancellation of Transaction
    A customer claims to have cancelled a transaction or a recurring transaction such as a monthly subscription or payment service, but was still charged.

  • Credit Not Processed
    A customer claims to have returned the merchandise or cancelled the transaction but has not received a promised credit.

  • Unauthorised Transaction
    A customer claims they did not make the purchase and that the transaction was made without their consent, or they were victims of identity or credit card fraud.

  • Paid By Other Means
    A customer claims that the transaction was paid for by another funding source (e.g. cash, cheque, other cards, etc).

  • Incorrect Transaction Amount
    A customer claims that their transaction was billed for an incorrect amount.

  • Duplicate Processing
    A customer claims that they have been charged twice or multiple times for the same purchase on the same day for their transaction.

How do I respond to a chargeback?

To resolve a chargeback, log in to your PayPal account and respond to the chargeback filed in the Resolution Centre within 10 days.** Then, our team of chargeback specialists will build a case to take to the card issuer, assuming you have reason to dispute the chargeback. Here’s a step-by-step guide:

  • Step 1: Get notification and login
    We’ll send you a notification, request for relevant information, and temporarily hold the transaction funds. Next, you can log in to your PayPal account and click on Open Cases in the Resolution Centre.

  • Step 2: Find your case
    Click on the Response Required tab to review.

  • Step 3: Respond
    Respond quickly and provide us with information including transaction records like proof of shipment. You can learn how to provide the right documents for your case in our Help Centre.

  • Tip: It’s always a good practice to get an online tracking number for all your shipments. For high value items, we also recommend requesting a signed delivery confirmation. You can proactively add the tracking information to your transactions in your PayPal account. Try to always provide all the information you have related to the transaction to build a strong case.

Note: Ultimately, it’s the card issuer, not PayPal, who decides on the outcome of the dispute over a chargeback.

How long does it take to dispute a chargeback?

Although it typically takes 30 days for us to dispute a chargeback, it may take your customer’s card issuer up to 75 days to make a final decision.**

Decision 1: The card issuer decides in your favour
The customer will be charged for the transaction, and you will get your eligible funds back.

Decision 2: The card issuer decides in favour of the customer
The customer will receive a full refund. That said, we can cover your loss on eligible transactions if you provide sufficient evidence and qualify for PayPal Seller Protection if applicable.

What are the extra steps I can take?

Discover a set of preventive measures that can help you mitigate chargebacks and keep your bottom-line healthy:

More tips to reduce chargebacks
  • Invest in cybersecurity
    A robust anti-fraud system can help verify information provided by buyers before the orders are approved. Encrypting data with SSL and PCI type security certificates are also highly recommended.

  • Integrate online payment solution
    On top of ensuring safety and checkout speed, a reliable online payment solution can also help provide buyer risk analysis as well as efficient order and cash flow management.

  • Ask for delivery receipts
    Delivery receipts prove the date of delivery of the goods at your customers’ address and can be requested from your courier service. With it, you can protect yourself against claims for items not received.

  • Monitor chargebacks and customer behaviour
    Keep track of customers who have requested for a refund and be aware if there are any returning purchases from them. Also keep a lookout for suspicious behaviour such as unusually large orders of high-value products.

  • Be transparent with charges
    Provide clear information on payment plans and what is expected for customers to fulfil — especially if subscriptions are involved. This prevents customers from facing unexpected charges that could result in chargeback filing.

Recover eligible transactions with PayPal Seller Protection

Chargebacks can happen to any seller. Protect your online payment against unwarranted chargebacks on your account with PayPal Seller Protection*. To ensure you meet all requirements, check your eligibility here.

At PayPal, it is our mission to help you resolve chargebacks and we appreciate your patience as we work to resolve them on your behalf. Curious about existing chargebacks? See open cases.

Note: PayPal will charge a non-refundable fee to cover the cost of facilitating and processing the chargeback. However, PayPal will cover the amount of the chargeback and waive the fee* if your transactions are protected under PayPal Seller Protection and if the associated requirements are met.

*Only available for eligible purchases. Terms and conditions apply.
**Timeline may vary by financial institution.

The contents of this site are provided for informational purposes only. The information in this article does not constitute legal, financial, IT, business or investment advice of any kind and is not a substitute for any professional advice. You should always obtain independent, professional accounting, financial, IT and legal advice before making any business decision.

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