PayPal Updated Its Refund Policy. Here’s What Sellers Need to Know (and Do) About It

Have you heard about PayPal’s policy updates?

Beginning May 7, 2019, PayPal will no longer be returning seller fees whenever a buyer asks for a full or partial refund. According to the company’s announcement:

We’re changing how we treat refunds. If you refund (partially or fully) a transaction to a buyer or a donation to a donor, there are no fees to make the refund, but the fees you originally paid as the seller will not be returned to you.

For obvious reasons, many merchants aren’t happy about the news.

“I have seen sellers, including myself, lose a significant amount of money due to PayPal’s refund policies over the years … but this new policy update really adds insult to injury,” says rabbi and businessman Shlomo Z. Bregman, Esq.

“This policy of no longer refunding the seller’s fee ‘takes the cake’ in many people’s eyes, including my own. As a result, many people are looking for other payment processors that will not charge a fee, or a smaller one, and/or one that has a different refund/sellers fee policy.”

Kelly Hayes-Raitt, the author of the book How to Become a Housesitter: Insider Tips from the HouseSit Diva has similar concerns. “I use PayPal to sell my book… Sometimes, my customers enter their data twice and I need to refund them for their erroneous second charge. I’m not going to be happy if I am penalized for a customer’s error. I [also] issue rebates to certain customers. Now, I’ll be charged for those rebates. I’ll have to find a new method.”

She continues, “With this new policy, PayPal is undermining my customer service ability, cutting into my profits, and decreasing my choices for how I conduct my business. Not happy!”

Meanwhile, other merchants see it as part of the territory of accepting credit cards and digital payments. “Sadly this is the entire payments marketplace,” writes Reddit user rydan.

“I don’t understand why it is like that but I found out myself last year that this is just how business is done outside of PayPal. PayPal is finally following standard practice. Likely because they don’t get their own fees refunded to them when you do a refund. This will make PayPal more expensive to deal with but at the same time give them less reason to kill your account due to too many refunds.”

Sean Dawes, co-founder of aftermarket automotive retailer ModdedEuros.com views the change as a move that will raise industry standards.

“Various players in ecommerce are making moves towards ensuring retailers are stepping up their game in customer service. By not refunding seller fees, this puts the pressure on the retailer to do a few things: ship faster, provide top quality products and if a problem arises, resolve it outside a needed return.”

“Will this make us move away from PayPal? No. It just is another reason why we continuously focus on the customer experience to prevent a transaction from getting to a refund status.”

Regardless of how you feel about PayPal’s policy amendments, one thing is clear: the cost of doing business through the site is about to get higher.

So what’s a seller to do? While it might be tempting, resist the urge to quit PayPal altogether. According to MarTech Zone, PayPal is the third most preferred payment option among consumers, after Visa and Mastercard. Additionally, 75% of US consumers have a PayPal account and 26% view it as one of the safest ways to pay. With PayPal’s popularity, you’ll risk alienating a good chunk of users when you boycott the site.

How to deal with PayPal’s new refund policy

Rather than jumping ship from PayPal, it’s better to find ways to lower your costs and refund rates. Here are some suggestions:

Minimize refunds

Like what Sean Dawes of ModdedEuros.com said, PayPal’s new refund policy should motivate you to keep transactions from reaching refund status. Doing that starts with digging into the top reasons for your product returns and refunds.

Ask yourself? Why do customers ask for their money back?

Is it because the product they received wasn’t as described? Is it due to slow order fulfillment? Is there deliberate fraud taking place?

Know the top reasons and take action.

For example, if many shoppers are returning a product because the item didn’t meet their expectations, then you’ll want to look into how you advertise and market your merchandise. Examine your product descriptions and specifications and make sure you’re describing your items as accurately as possible.

Set up an FAQ section, if necessary. Add lots of product photos and videos to showcase your items from multiple angles. Do what you can to help your customers make informed purchase decisions.

On the other hand, if you’re dealing with retail fraud, then you’ll need to tighten up your security measures.

Whatever the case, zero in on the top refund reasons in your business and proactively take action to minimize them.

Stay on top of customer support

When you do run into legitimate customer issues, resolve them as efficiently as possible. Doing that can mean different things, depending on your business.

If you’re in the business of gadgets and tech devices, then your customers are bound to run into technical issues. To that end, you should ensure that your support reps are knowledgeable and patient enough to walk users through their support needs.

Or, if you’re selling products that need to be set-up, it may be worthwhile to create detailed resources (i.e., guides, FAQs, videos) that your customers can turn to if they need help.

Ultimately, your goal is to keep shoppers happy with their purchase, so they don’t end up returning it. Invest in the right people and systems to ensure that your customers get the support they need.

Find other ways to lower your payment processing costs

Aside from minimizing your rates of returns and refunds, find ways to lower other expenses so you can balance out the higher costs of PayPal. Again, there are various ways to do this, and the right cost reduction method depends on your business.

For some merchants, reducing costs means lowering your operating, staffing, or insurance expenses. For others, it could mean re-negotiating vendor contracts. Find excess or unnecessary spending in your company and come up with ways to lower costs.

One popular area? Payment processing. Take a closer look at your merchant statement — you may discover that you’re paying more than you have to. Between hidden charges and misleading pricing structures, many merchants find that they’re paying unnecessarily higher fees for payment processing.

If you find yourself in the same boat, then consider shopping around for a better payment processor that can offer cheaper rates.

Bottom line

PayPal’s new refund policy can be tough to swallow, but it’s a necessary cost of doing business, particularly in today’s modern seller landscape. Rather than bemoaning your fate, be proactive with finding ways to deal.

Whether it’s through better customer service or savvier business spending, there are plenty of things you can do to stay competitive despite the curveballs that PayPal — or any other provider — throws at you.