Tom-Chris Emewulu
Chief Disputes Analyst

PayPal just announced a new PayPal merchant policies update, which it says is a way of “encouraging merchants to engage with consumers in a direct and proactive manner to resolve disputes, consistent with PayPal’s merchant policies and best practices.”

According to a PayPal newsroom statement, the PayPal merchant policy update is replacing chargeback fees with a dispute fee for transactions processed either through a buyer’s PayPal account or through a PayPal guest checkout. This change means that for merchants who proactively resolve disputes with consumers, the typical fee on eligible incidents will drop from approximately $20 to $15*.

As the holiday shopping season draws even closer, merchants who do not get wind of this critical policy update will face a significant jolt of surprise when dealing with PayPal disputes. To help you understand what the PayPal merchant policies update means for your business and prepare accordingly, below is a review of all the clauses and unspoken rules in the policy update.

First, the PayPal merchant policies update will mean higher out-of-pocket dispute fees for some merchants.

Says PayPal in the newsroom article, “For merchants who have historically relied on PayPal to solve disputes and not engaged directly with their consumers to resolve disputes, there may be an increase in fees. Most merchants, and especially those who already take proactive actions with consumers to resolve disputes, will see a meaningful decline in the fees they are charged."

By this, it seems PayPal is working to spur merchants to work out their PayPal disputes directly with clients. Hence, reducing the number of disputes that PayPal will have to mediate. And looking at the projected increase in the volume of e-commerce transactions and eventual rise in friendly fraud, this is a smart move on PayPal’s side.

A PayPal spokesperson further clarifies on another platform, saying: “The Dispute Fee will replace PayPal's existing Chargeback Fee for branded transactions for disputes that are not resolved by merchants and in proportion to a merchant's dispute rate. This will help merchants mitigate losses and also encourage merchants with high dispute rates to improve buyer experience. These merchants will be charged a higher fee compared to merchants with a standard dispute rate. So merchants with a higher dispute rate will see an increase whereas those with a standard (or lower) rate would actually see a decrease in costs."

Second, the PayPal merchant policies update further cement PayPal’s consumer-centric approach to mediating disputes.

Historically, PayPal’s disputes and chargebacks mediation process mostly favor the customer for several reasons. For one, it’s just pure business thinking: Whoever pays the piper dictates the tunes. 

In the newsroom article, PayPal says the PayPal merchant policies update is part of their fiducial responsibility to maintain trust among their stakeholders. “It is our foundation – allowing consumers to feel more confident that a merchant will honor the transaction, and where merchants can serve a greater cross-section of consumers. This helps both sides of the transaction know that PayPal’s global expertise protects them,” it reads.

Taking this a note further, a PayPal spokesperson explained thus on a different platform: "Essentially if a merchant does not communicate directly with their consumers, and it is escalated to PayPal to mediate, that is when the fees are applied. If the merchant historically acted in this manner, they will see an increase in costs. If the merchant engages consumers directly to resolve disputes, they will not have this fee applied and could see a reduction in the costs."

In closing the newsroom article, PayPal says, “the dispute fee changes take effect November 9th, 2020 in the US (date varies by market), and will benefit merchants by encouraging the adoption of best practices to build consumer trust and ensure an amazing 2020 holiday.”

What can you do with this knowledge?

If history teaches us anything, it’s that every policy update comes with a loophole. The first apparent loophole in this particular PayPal merchant policy update is that merchants who find it challenging to engage with their clients when a dispute happens, either because the client chooses not to talk to the merchant or for other reasons, will be penalized by PayPal. With that understanding, you should get yourself some extra layer of security. It would help if you got proven PayPal Disputes and Chargebacks automation software such as Chargeflow.

With Chargeflow, you can comfortably channel your resources towards capturing a more significant market this peak season. With the level of hysteria and disruption the world has been through recently, the last thing you need is for some internet shoplifter to take advantage of a policy update and relieve you of hard-earned revenue. Join the fastest growing brands in the world who are recovering more money without breaking a sweat. Our proprietary technology is 100% automated. We give you tools to gain data-driven insights and forecast your business cash flow by having projections into how much money you can recover from ongoing disputes. Sign up to Chargeflow here.

Average Dispute Amount
Average Dispute Amount
$
30
# Disputes Per Month
# Disputes Per Month
#
50
Time Spent Per Dispute
Time Spent Per Dispute
M
20
calculation
You could recover
$500,000 and save
1,000 hours every month with Chargeflow!
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