What Are PayPal Chargeback Scams and How Do You Avoid Them?

What Are PayPal Chargeback Scams and How Do You Avoid Them? Can you get scammed on PayPal? The service is safe to use, but nothing is infallible. Here’s what you need to know about chargeback scams. (Similar post – Common Cryptocurrency Scams To Know Before Investing)

PayPal is one of the most preferred payment methods due to its longstanding reputation as a secure way to purchase and sell products and services online. But it’s not without its drawbacks. (Similar post – PayPal Lets Users Send Bitcoin And Ethereum To External Wallets)

PayPal exposes individuals and businesses to disputes and chargebacks because of criminal and friendly fraud. So what are the most common PayPal chargeback scams? And what can you do to avoid them?

What are the common Chargeback PayPal Scams in 2022?

To avoid falling victim to fraud chargebacks, you should learn to recognize the scams. Here are the seven most common PayPal chargeback scams.

1. Hacked PayPal Scams

When a scammer has successfully hacked into somebody else’s PayPal account (often by using a phishing scam), they can make purchases and send payments with the money from the account they’ve taken over. (Similar post – How To Use PayPal In Nigeria With Flutterwave)

A seller might receive notice of a purchase and ship an item, only to later be told by PayPal that the transaction was fraudulent and that the transaction must be reversed. PayPal’s Seller Protection Program can reimburse merchants in these situations if the transaction is eligible. Merchants using PayPal should ensure that they are meeting all the requirements of the Seller Protection Program in order to protect themselves from purchases made with hacked accounts.

2. Fake PayPal Accounts

Scammers can set up fake PayPal accounts and pretend that it belongs to someone else. These new accounts often resemble real accounts, with a detailed profile of a person or business.

The common PayPal account scams are fake online shops and charities. In both cases, fraudsters usually attract your attention using flashy advertisements to lure you into supposedly making a purchase or donation via PayPal. But your money will end up in the impostor’s pockets.

3. Overpayment Scams

In this scam, a fraudster makes a payment that exceeds the cost of an item. The scammer then asks the merchant to refund the extra amount.

Once the merchant reimburses the amount, the fraudster contacts PayPal and makes a “friendly fraud” chargeback claim. The scammer, for example, may say their account was hacked and that they didn’t make the purchase.

PayPal will then refund the full original payment to the scammer, meaning you’ll lose both the product and the refunded amount.

4. Shipping Address Scams

This happens when a payment has been placed in the seller’s PayPal account, but the fraudster asks the seller to ship the package to an invalid address. After multiple failed attempts to deliver the item, the shipping company flags it as “undeliverable”. The fraudster then calls the shipping company and provides them with a new, legitimate address.

Once the fraudster receives the shipment, they file a complaint with PayPal, claiming they never received the product. The scammer gets their money back and keeps the product as the seller has no record of shipping to the correct address in their database, leaving the merchant high and dry.

Another way a scammer might attempt to defraud a seller is through the “preferred shipping” technique. In this scenario, the fraudster can ask a seller to send an item to their own shipping address because of a “discount” they might receive.

What Can You Do to Avoid PayPal Scams?

Sellers can avoid PayPal scams by watching for suspicious orders, taking advantage of the Seller Protection Program, and practicing good cybersecurity.

Here are a few more specific tips to help you avoid falling victim to PayPal scams:

  • Before accepting a payment, look out for red flags. Requests to rush shipments, accept partial payments, or accept payments split up between multiple PayPal accounts are all strong indicators of fraudulent activity.
  • Items that have a high resale value or are in high demand are especially attractive to fraudsters. Before shipping out especially valuable items, double-check shipping and billing addresses to make sure they match.
  • Even customers with valid credentials may commit friendly fraud out of ignorance or impatience. When shipping high-value items, insist on signature confirmation on delivery.
  • Sign up for PayPal’s Seller Protection Program and PayPal will reimburse you for certain types of fraud.
  • Block customers who file disputes or make fraud claims. Fraudsters will often target the same seller several times if no action is taken against them. 
  • When receiving any email from PayPal, check the actual email address, not the sender’s name, to make sure it’s legitimate. If in doubt, log in to your account in a new tab to confirm the information.
  • Only ship purchases to the address provided in the transaction details.

What to Do About PayPal Chargeback Fraud

To protect your business from PayPal chargeback fraud, follow these five suggestions:

1. Meet Seller Protection Requirements

Follow the requirements that PayPal has set for its Seller Protection Program. This program is designed to increase sellers’ confidence by protecting online sales, helping prevent fraud, and minimizing claims, chargebacks, and reversals. In certain situations, the program also lets merchants retain the full purchase amount and waives any related chargeback fees paid (for debit and credit card transactions).

2. Avoid Risky Transactions

Merchants should be wary of conducting high-risk transactions (such as selling high-tech equipment or investing in crowdfunding platforms) through PayPal, as not every transaction is protected. For example, PayPal has eliminated its purchase protection for gift cards, which means that fraudsters could purchase a merchant’s gift cards using PayPal and file a claim against the transaction. And because gift card transactions are no longer covered, merchants have no recourse.

3. Minimize “Unauthorized Transaction” Claims

“Unauthorized transaction” disputes often arise when customers believe their PayPal accounts have been used without their permission. Customers have 60 days from the date a suspect transaction appeared on a statement to report the transaction to PayPal.

PayPal suggests merchants avoid this pitfall by:

  • Implementing extra security measures when shipping orders to high-risk countries and locations. 
  • Clearly communicating the business name that customers can expect to see on PayPal invoices. This helps prevent claims stemming from confusion over a DBA or parent company name that may appear on a credit card statement. Using the website name can be a good way for customers to recognize the transaction.
  • Contacting customers and confirming order information before you ship items.
  • Meeting or exceeding proof of delivery requirements, including providing documentation from a shipping company that shows the date of delivery, “delivered” status, and a delivery address that matches the address on the transaction details.
  • Questioning an order that has multiple requests for the same item.
  • Investigating customers using suspicious email addresses, like rtos89qu$$pq@hotmail.com.

4. Reduce “Item Not Received” Claims

Fraudsters may claim that an order wasn’t received and subsequently initiate a dispute with their credit card issuer or through PayPal.

Ways to avoid these types of claims include:

  • Providing clear delivery dates so customers know when to expect their items.
  • Updating customers when an order has shipped and has been delivered.
  • Not using a buyer’s shipping service or prepaid shipping label.
  • Purchasing shipping insurance to cover fragile or expensive items.
  • Requiring a signature upon delivery.
  • Meeting or exceeding the proof of delivery requirements.

5. Avoid “Significantly Not as Described” Claims

When fraudsters claim the item received wasn’t the item ordered (whether or not that’s actually true), they may file “significantly not as described” claims. Because this type of sale is ineligible for PayPal’s Seller Protection Program, it’s important for merchants to minimize these claims by:

  • Including thorough product descriptions, including measurements, defects, and damage.
  • Including product photos from multiple angles.
  • Shipping items promptly and providing tracking information.
  • Answered customer questions promptly and completely.
  • Meeting the proof of delivery requirements.
  • Posting customer service contact methods, working hours, and response times.

How to Defend Yourself Against a Chargeback or PayPal Claim

When merchants dispute chargebacks and PayPal claims, the key is to do it the correct way. Remember, you only have 10 days to respond, so make sure to include everything you can to prove the validity of the transaction, including:

  • Proof that the customer was on your website, whether it’s using the customer’s IP address, a CVV match, or their billing address. 
  • If you have the customer’s IP address, you can track where on your site they visited to prove their intent was to make a purchase.
  • Proof that the product or service was delivered or accessed. For physical delivery, a signature is one of the most compelling pieces of evidence. For digital goods and services, proof of customer login or download is equally convincing.
  • Evidence of a repeat offender, such as a data log showing a history of chargebacks and chargeback attempts by the same person or to the same address.
  • A summary of all evidence in a clear, concise rebuttal letter. 

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