What is Paypal Seller Protection?
EBay and Paypal both tout Paypal Seller Protection as an all encompassing safety net for sellers against fraudulent activity. In reality, Paypal Seller Protection only applies in an extraordinarily limited amount of circumstances. Seller Protection has improved dramatically over the past three years or so. Paypal Seller Protection used to only cover the first $5,000 of contested sales. Now, there is no limit to the total value or number of transactions Paypal will cover (Although they’ll cut you loose if they have reason to believe your account is also perpetrating fraud). Seller Protection used to apply only when the buyer was in the U.S., Canada, or the United Kingdom. Now, Seller Protection is available on all transactions regardless of where the buyer is located. In the past, if a seller shipped to a buyer with an “unconfirmed address,” Paypal Seller Protection was not available. At the beginning of 2008, Paypal began covering eBay Powersellers who shipped to buyers with unconfirmed addresses as part of “Expanded Seller Protection.” Now, Paypal “covers” almost every transaction, regardless of whether or not the buyer’s address is confirmed. Expanded Seller Protection is also now available for all Paypal users, not just Powersellers. Paypal used to not tell sellers whether or not a transaction was covered by Seller Protection. Now, the information is readily available for all transactions immediately after they are received. To find out if a transaction is eligible for Paypal Seller Protection, check the transaction details in “My Account.”
Then look at the top right:
Despite all of the improvements Paypal has made in regards to Seller Protection eligibility, it is still rare for it to apply in practice. Out of more than 50,000 completed transactions on eBay, I have only received a refund from Paypal Seller Protection twice. I would agree that two times is better than zero times, but many sellers make the mistake of seeing “Eligible for Seller Protection” and assume that they’re off the hook for anything that might go wrong during the transaction. This is far from the truth, which is why sellers need to be aware of all the precautions necessary to ensure a smooth transaction. When dealing with eBay and Paypal, a “smooth transaction” can be defined as any transaction where the buyer joyously keeps the item and the seller keep the buyer’s payment. Sounds like that should be the ideal scenario right? Well, it doesn’t always turn out that way.
Paypal Seller Protection for Item Not Received Disputes, Claims, and Chargebacks
Paypal Seller Protection comes into play in only two very specific scenarios. The first is for buyers who complain that they did not receive the item. The buyer can file a claim with Paypal online through the Resolution Center, or if they paid with a credit card, they can file a credit card chargeback with their credit card company. The first requirement to be eligible for Seller Protection is for Paypal to tell you that the transaction is eligible as shown in the pictures above. The second requirement is to have proof that the item was actually delivered. If you ship an item and the tracking or Confirmation number does not show the item was delivered correctly, you are not covered by Paypal Seller Protection. If the total cost of the transaction was $250 or more, Signature Confirmation is Necessary. The item must have been shipped within 7 days of receipt of payment. Also, you must have shipped the item to the address the buyer provided in their Paypal payment. Never ship the item to an address that is not the address listed in the Paypal payment. A buyer paying with one shipping address and trying to convince the seller to ship to an alternate address is one of the most common scams on eBay. It doesn’t matter if you provide Paypal with 100 emails showing that the buyer instructed you to ship to a different address. If the buyer insists, tell them you’ll refund their payment and they can either add the shipping address to their account or add a gift address. The item must be tangible and shipped through the mail. Never accept Paypal for items that are picked up in person. Finally, Seller Protection as explained here. is only available to those accounts with primary addresses in the United States or Powersellers in Canada. If any of these conditions are not met you, the transaction will not be eligible for Seller Protection. This all seems fairly reasonable, so what exactly is the problem?
First of all, the seller will win any Item Not Received Paypal dispute/complaint for a transaction under $250 when the tracking/Confirmation number shows the item was delivered to the correct Zip Code. If the transaction was $250 or more, the seller will win any Paypal dispute or complaint when there is a signature showing the item was delivered to the buyer properly. If the seller shipped the item correctly and has proper delivery documentation, Paypal Seller Protection will never come into play for a Paypal dispute because Paypal will side with the seller in the first place and the seller will not have to refund the buyer. If the seller botched the shipment, and either does not have Signature Confirmation for a $250+ transaction, doesn’t have tracking showing delivery, or the item doesn’t show as being delivered, Paypal will grant the claim for the buyer and Paypal Seller Protection will not apply because Paypal already decided that the item was not delivered, and therefore is not eligible for Seller Protection.
If a buyer files a credit card chargeback, Paypal Seller Protection does come into play. If the item was properly shipped and delivered to Paypal’s satisfaction, Paypal should release the held funds within a few days of the seller receiving notification that the credit card chargeback has occurred. Why does Paypal grace us with this protection? Paypal knows that they can give the delivery information to the buyer’s credit card company and the credit card company will find in Paypal’s (the seller’s) favor. By releasing the held funds, Paypal is simply giving the seller access to money that they would have likely gotten back anyway (Don’t worry, Paypal brings in about 2.5 billion dollars in yearly revenue so they’re good for it). If a buyer paid with a credit card through a merchant account or other credit card processor, the seller would likely win an Item Not Received chargeback if they had proof that the item was received anyway.
Paypal Seller Protection for Item Not Received disputes isn’t particularly special. You will win a Paypal claim or dispute if you shipped the item properly and the item was delivered correctly. If you didn’t do these things, Paypal Seller Protection wouldn’t cover the transaction anyway. In the case of a credit card chargeback, Paypal may release the funds earlier than you would have gained access to them had you dealt with the buyer’s credit card company yourself. Still, the chance that you will receive a credit card chargeback for an item that shows it was delivered is extremely unlikely. I’ve never received one. But you never know what Paypal and eBay scammers will come up with next. Your best course of action against Item Not Received disputes is to ship according to Paypal’s guidelines in the first place. If you are unfamiliar, check my shipping superguide: Guide Roundup – How to Ship on eBay and Paypal
Paypal Seller Protection for Unauthorized Payment
A chargeback or Paypal reversal for unauthorized payment is one of the most frustrating things that can happen with Paypal because there’s usually nothing a seller could have done to avoid it. Unauthorized chargebacks and reversals occur in a variety of situations. The most common is someone accidentally (or fraudulently) giving out their Paypal account information and a third party charging payments to the account. When the account holder realizes what happened, they contact Paypal and Paypal reverses all of the illegitimate charges. A stolen credit card can be attached to a Paypal account and when the real owner disputes the charges, any purchases made via Paypal will be part of that. There are endless scenarios. Luckily, it’s in Paypal’s best interest to be good at combating credit card and unauthorized payment fraud and, all things considered, they excel at minimizing it. As technology has improved over the past few years, Paypal’s anti-fraud equipment rivals and probably exceeds everyone from Visa to the Pentagon. Out of my last 5,000 transactions I haven’t received a single unauthorized payment notice from Paypal. Since I’m a bit cynical, I assume that there have been some unauthorized payments that Paypal hasn’t let me know about in an attempt to mask the loopholes that still exist, but there’s no proof of that of course. And even if that is true, I’m happier living in ignorance.
If you do receive a notice that you have received an unauthorized payment, there will be an email that comes along with it asking various questions like what the item was, what address the buyer provided, whether or not they contacted you, how you shipped the item etc. You need to answer these questions to the best of your ability and reply to the email as soon as possible. If you delay, Paypal might decide that you didn’t answer in a “timely manner” and deny you Protection. You’ll also need to provide proof that the item was shipped to the buyer, but delivery isn’t necessary. If you did not already ship the item, Paypal will not refund you since you still have the item and aren’t out anything. Since I don’t advocate fraud in any way I won’t tell you to print a shipping label and send a brick to the buyer to qualify for Seller Protection. Paypal Seller Protection for Unauthorized Payments is one of Paypal’s few remaining positive attributes. Dealing with an unauthorized payment is still a hassle, but it’s nice to know that it’s in Paypal’s financial interest to limit credit card/unauthorized payment fraud as much as possible.
As far as combating unauthorized payments is concerned, there’s never been a better time to be selling on eBay with Paypal. Unauthorized payments are now rarer than they’ve ever been and Paypal’s anti-fraud computer systems are some of the most advanced in the world. With that said, many sellers still overestimate exactly what Paypal Seller Protection is and what it covers. Seller Protection does not cover 99.9% of problems sellers will run into selling on eBay. There is no protection on credit card chargebacks or disputes for Items Not As Described. There’s no protection against buyers who return a brick in place of a laptop. Basically, there’s no protection against anything that isn’t a fraudulent payment that Paypal didn’t notice until it was too late. The most important thing sellers can do to protect themselves is be aware of the scams that exist and use preventive measures to counter them. Always ship according to Paypal policy. Finally, make sure you read the Paypal Seller Protection Policy in its entirety (since it doesn’t cover much it isn’t very long).