[
{
"title":"Testing",
"link":"https://docs.solidgate.com/payments/testing/",
"text":"Simulate payments to test your integration before launching in production.",
"imgSrc":"https://solidgate.com/wp-content/uploads/2022/06/icon-customizable.svg"
}
,
{
"title":"Create your payment form",
"link":"https://docs.solidgate.com/payments/integrate/payment-form/create-your-payment-form/",
"text":"Understand how to integrate the payment form into your product.",
"imgSrc":"https://solidgate.com/wp-content/uploads/2022/06/icon-payments.svg"
}
,
{
"title":"Subscriptions",
"link":"https://docs.solidgate.com/subscriptions/",
"text":"Create and maintain a stable and healthy business subscription model.",
"imgSrc":"https://solidgate.com/wp-content/uploads/2022/06/icon-global.svg"
}
]
Effectively managing PayPal disputes and chargebacks
While using PayPal, it is essential for merchants to understand the process of disputes and chargebacks. Those can occur for various reasons, including customer dissatisfaction or fraudulent activity. PayPal operates two primary dispute systems:
Internal disputes Internal disputes, including inquiries (dispute before escalation to PayPal) and claims (dispute after escalation to PayPal) are managed within the PayPal platform.
External chargebacks External chargebacks are initiated through the customer’s issuing bank.
If an external chargeback exists on the transaction, the existing internal disputes on the same transaction are closed.
Pre-escalation disputes
This stage involves the customer resolving issues directly with the merchant without escalating to PayPal. Dispute without immediate escalation to PayPal can only be raised for the following reasons:
Item Not ReceivedMERCHANDISE_OR_SERVICE_NOT_RECEIVED The buyer reports that they ordered and paid for an item but did not receive it.
Significantly Not As DescribedMERCHANDISE_OR_SERVICE_NOT_AS_DESCRIBED This happens when the buyer reports that the item they received significantly differs from what they expected based on your product description.
The Standard Dispute Fee will be waived for disputes in the PayPal Resolution Center that are not escalated to a claim, those resolved amicably between the buyer and the seller, or those filed to PayPal directly as an unauthorized transaction.
Internal dispute clarification
dispute_channel:
INTERNAL
dispute_life_cycle_stage:
INQUIRY
Parameters should be obtained from the disputes object in the
PayPal dispute
API
report.
Claims
A PayPal claim occurs when a merchant and customer cannot resolve a dispute independently. Escalating a dispute to a claim means PayPal intervenes, acting as an intermediary in the merchant-customer communication. Claims are classified as follows:
Claims from disputes Claims with reasons: Item Not Received, Significantly Not As Described. Including disputes escalated to a PayPal mediation claim if it is not resolved. This type of claim is the only one included in calculation of Dispute ratio.
Claims with reasonUNAUTHORISED An internal case where a customer reports unauthorized account access and transactions. Such disputes are automatically escalated to a claim and not included into calculation of Dispute ratio.
Claims with reason Billing error and Other These internal cases often involve misunderstandings or forgotten purchases, and buyers report issues such as duplicate payments or incorrect debit amounts. Such claims are not included into calculation of Dispute ratio.
Unlike disputes, merchants cannot send messages to the customer at this stage. PayPal reviews the claim within 10 days, and if it is accepted, the merchant has 10 days to respond with compelling evidence.
Parameters should be obtained from the disputes object in the
PayPal dispute
API
report.
Merchants incur a dispute fee ($15) if they are found responsible for claims (excluding unauthorized). A high-volume dispute fee ($30) applies if the dispute ratio exceeds 1.5%.
➤ Dispute ratio = total transaction USD amount of claims from disputes in previous 3 calendar months / total transaction USD amount of sales in previous 3 calendar months
For example, if your dispute ratio exceeds 1.5%, you will be charged a $30 high-volume dispute fee. Imagine a business with $100,000 in total sales and $5,000 in claims from disputes. This results in a dispute ratio of 5%, which is well above the 1.5% threshold, triggering the fee.
External chargeback
An external chargeback is a payment reversal request initiated by the customer through their issuing bank, not via PayPal. Even though a chargeback is initiated through the customer’s card issuer, merchants can resolve it through the PayPal Resolution Center. Sometimes, merchants receive a Pre-Chargeback Alert from PayPal with a 20-hour window to issue refunds and close the case. If no refund is made, merchants have 10 days to contest the chargeback by providing evidence of service delivery for PayPal’s consideration.
Parameters should be obtained from the disputes object in the
PayPal dispute
API
report.
Chargeback rate
➤ Chargeback rate = total count of chargebacks (current month) / total count of sales (current month)
For example, if there are 100,000 transactions and 500 chargebacks per, the chargeback rate would be 0.5%. But the real card scheme chargeback rate would be ~1%, because total count of sales contains PayPal card and PayPal balance transactions.
❗It is important to note the difference between “total card sales count” and “total sales count.” For instance, a purchase made via PayPal after a wallet top-up is not counted as a card transaction. Thus, merchants should generally keep the Chargeback rate at least below 0.4% to avoid card scheme Thus, merchants should keep the Chargeback rate below 0.4% to avoid card scheme
Guide
Prevent risk by keeping chargeback and fraud ratio below monitoring thresholds.
monitoring program’s
.
Prevention recommendations
Beyond card payments, PayPal processes various alternative payment methods such as bank transfers, Buy Now Pay Later (BNPL) options, and more. Based on our empirical data, the denominator includes all sales for external chargebacks, while the numerator only accounts for half of the sales. Plus, PayPal uses multiple MIDs to distribute transactions, and this distribution process is completely obscure. All this can lead to discrepancies, where some MIDs may have higher chargeback rates despite an overall rate being below the
Guide
Prevent risk by keeping chargeback and fraud ratio below monitoring thresholds.
monitoring program’s
. Unfortunately, these MID-specific rates are unpredictable and hard to track.
These recommendations will help sharply lower the risk of fraudulent activities on a PayPal account and improve overall payment security.
Download to reduce the risk of PayPal account fraud and improve overall payment security.
Some Tier 3 countries and regions may have higher fraud levels. By identifying these high-risk areas, you can proactively protect your business from fraudulent activity. This may include implementing more stringent verification processes or blocking transactions from these regions altogether.
If statistics show that certain countries are responsible for a significant number of fraudulent transactions, such as those in Africa, Latin America, or Southeast Asia, you may consider completely blocking traffic from these regions.
Implement clear unsubscribe options
Solidgate retries invoice collection four times after a failed attempt and cancels the subscription if the retry period extends beyond the billing period, sending a webhook to adjust billing and discontinue product use.
Ensure a visible Unsubscribe button in emails and customer profile pages to cancel subscriptions easily. Provide immediate confirmation and clear cancellation policies, and develop a self-service portal for managing subscriptions and processing refunds.
Every email and customer profile page should have a visible Unsubscribe button that allows customers to cancel subscriptions or recurring payments easily.
Quick resolve of dispute alerts
Handling internal disputes directly with the customer within 20 hours after receiving the alert to deflect fraudulent disputes with pre-dispute compelling evidence or, if the request is valid, issue refunds before it becomes a formal claim. Immediately communicating with the customer to resolve internal disputes prevents them from filing an official dispute with PayPal. This not only saves you from chargeback fees but also increases customer trust in the company.
When customer support receives a pre-chargeback alert, immediately communicate with the customer, investigate the transaction, and, if the request is valid, issue a refund within 20 hours.
Prioritize payment methods
Customizing the order of payment methods can reduce fraud by encouraging the use of less risky options such as card payments, GooglePay, and ApplePay, and putting PayPal button lower. This should be done carefully to avoid affecting sales conversions, as some customers prefer PayPal.
Payment Form and Payment Page prioritize card payments, with GooglePay and ApplePay first and PayPal last by default.
In the Payment Form, offer card payments, GooglePay, and ApplePay first, followed by PayPal.
Consider client risk scoring
Using a risk scoring system to determine if a customer can use PayPal for payment. This helps reduce fraud by accurately predicting high-risk transactions and disabling the PayPal option for those customers.
Develop a model that assesses the likelihood of fraud based on customer behavior, geographical location, transaction history, and other factors. If the risk is high, the PayPal button may be disabled for that customer.
Send billing notifications
Notifying customers before re-billing for subscriptions reduces disputes, and refunds. Use subscription webhooks to monitor status changes efficiently. Webhooks provide asynchronous updates for various subscription events such as initiation, renewal, pausing, updating, and cancellation. These notifications help keep both merchants and customers informed about the current status of their subscriptions, ensuring transparency and timely action.
Send a notification before the subscription renewal to inform customers of the upcoming charge and allow for cancellations.
Use business name consistently
Ensuring your Doing Business As (DBA) and statement descriptor names match the Product Name. Seeing different business names pop up across your documents and platforms confuses customers who, not recognizing the purchase, start requesting chargebacks en masse.
Customizing your PayPal account is a must-have strategy to ensure transaction safety and enhance the shopping experience. By providing clear billing information, prompt customer service, and easy account management, you can foster more secure sales.
If your legal entity name is “Tech Solutions LLC,” it should match your DBA name “TechGadgets,” your descriptor “TechGadgets,” and your website.
Billing information
Expand all
The legal name is the official name of the legal entity, whereas the business name (Doing Business As or DBA name) is the trading name of the business. The DBA name is prominently displayed on PayPal invoices and statements.
If a business does not have a registered business name, trademark (or any supporting documentation), its customers will see the legal entity name instead of the DBA name.
To confirm a DBA name for use on PayPal, it can be registered as a trademark or a trade name. For example, a business name can be registered in Cyprus by completing an application Form EE1. In the USA, the best brand strategy can be chosen. For a convenient and cost-effective solution to registering and managing trademarks worldwide (covering up to 100+ countries), a trademark can be registered through WIPO’s Madrid System.
Always ensure compliance with local requirements to avoid delays or complications in the registration process.
The billing descriptor for account transactions appears on the customer’s credit card statement, which PayPal sends to processors. Also known as a statement descriptor or billing statement, it helps clarify the nature of the transaction for the cardholder. Therefore, setting up an easily recognizable credit card statement name is important.
The descriptor information allowed by PayPal has a maximum length of 22 characters PAYPAL*[DESCRIPTOR] and follows this format:
PAYPAL prefix uses 8 characters
descriptor also supports the following ASCII characters: alphanumeric characters, dashes, asterisks, periods, and spaces
Brand information plays a crucial role in enhancing business identification.
For instance, customizing your logo and including comprehensive customer support details (email address and support number) can significantly improve customer experience and promptly address customer inquiries.
Dispute entity
dispute_life_cycle_stage
Description
INQUIRY
Customer and merchant resolved the dispute without escalation to PayPal. This occurs when the customer has not received goods, reports goods not as described, or needs more details.
CHARGEBACK
Inquiry escalated to a claim. PayPal investigated and decided that it was visible only to PayPal agents. Merchant can accept, challenge, or resolve the claim.
PRE_ARBITRATION
Merchant's first appeal stage. Appeal a chargeback if PayPal's decision is unfavorable. Must appeal within the appeal period.
ARBITRATION
Merchant's second appeal stage. Appeal a dispute again if the first appeal was denied. Must appeal within the appeal period.
dispute_channel
Description
INTERNAL
Internal Dispute. Customer contacts PayPal to file a dispute with the merchant.
EXTERNAL
External Chargeback. Customer contacts their card issuer or bank for a refund.
ALERT
Pre-chargeback alert when customer contacts their card issuer.
reason
Description
MERCHANDISE_OR_SERVICE_NOT_RECEIVED
Customer did not receive the merchandise or service.
MERCHANDISE_OR_SERVICE_NOT_AS_DESCRIBED
Merchandise or service not as described by the customer.
UNAUTHORISED
Customer did not authorize the purchase.
CREDIT_NOT_PROCESSED
Refund or credit was not processed for the customer.
DUPLICATE_TRANSACTION
Transaction was a duplicate.
INCORRECT_AMOUNT
Customer was charged an incorrect amount.
PAYMENT_BY_OTHER_MEANS
Customer paid for the transaction through other means.
CANCELED_RECURRING_BILLING
Customer was charged for a canceled subscription.
PROBLEM_WITH_REMITTANCE
A problem occurred with the remittance.
OTHER
Other.
status
Description
OPEN
Dispute is newly initiated and under investigation. Both parties have 10 days to resolve it before it may escalate to a claim.
WAITING_FOR_BUYER_RESPONSE
Waiting for the customer to respond after the merchant has provided a resolution or evidence.
WAITING_FOR_SELLER_RESPONSE
Waiting for the merchant's response, often after the customer escalates the issue.
UNDER_REVIEW
PayPal is reviewing the evidence from both parties to make a decision, typically in cases of internal chargebacks.
RESOLVED
Dispute has been settled, either by mutual agreement, PayPal’s decision, or through the appeals process.
OTHER
Catch-all status for cases that do not fit standard categories.
dispute_outcome
Description
RESOLVED_BUYER_FAVOUR
Dispute was resolved in the customer's favor.
RESOLVED_SELLER_FAVOUR
Dispute was resolved in the merchant's favor.
RESOLVED_WITH_PAYOUT
PayPal provided the merchant or customer with protection, and the case is resolved.
CANCELED_BY_BUYER
Customer canceled the dispute.
NONE
Dispute was created for the same transaction ID, and the previous dispute was closed without any decision.
With this information, the best strategy for a merchant is to:
keep records of transactions and communicate effectively with customers at every stage of the dispute/chargeback process
understand the
Guide
Gain a better understanding of chargebacks nature and manage them effectively.
reason codes
for chargebacks and develop ways to prevent them from occurring
By implementing these strategies, merchants can minimize disputes and chargebacks, maintain positive relationships with their customers, and ensure the longevity of their PayPal accounts.
Dispute management
Effective dispute management is critical to reducing costs.
Description
Response
Action
Pre-escalation dispute (Inquiry)
Customers can file disputes directly with PayPal. Unresolved disputes can escalate to formal claims.
7 days (address issue) 20 days (respond)
Contact the customer via chat in the admin panel. PayPal can view these interactions.
Internal claim
PayPal encourages customers to contact merchants directly. However, resolved disputes may still lead to external chargebacks.
10 days
Engage with the customer through PayPal's chat in the Solidgate HUB.
External chargeback
This is initiated by the customer’s bank and requires a merchant response. For instance, Visa requires merchants to respond within 20 days for each phase of the chargeback process, with a tighter 10-day deadline for arbitration. Mastercard typically allows merchants 45 days to respond, although some specific requests may have shorter deadlines.
In addition, merchants can use pre-chargeback alerts, which serve as an early warning system for potential disputes. This allows merchants to address and potentially resolve issues before they escalate to formal chargebacks.
20 to 45 days
Provide proof of service delivery to contest the chargeback.
Pre-chargeback alert
These alerts indicate potential chargebacks, giving merchants a 20-hour window to issue refunds and respond proactively.
20 hours
Issue refunds or provide evidence to contest the chargeback within the 20-hour window.
Claim
If disputes escalate, merchants have 10 days to provide evidence against the claim. Issuing a refund at this stage can prevent further chargebacks.
10 days
Provide evidence against the claim or issue a refund.
Reasons for refusing refunds
External chargeback An external chargeback prompts the end customer to contact their bank directly. PayPal may temporarily hold the disputed amount pending resolution via the PayPal Resolution Center. Resolving the dispute usually involves issuing a full refund to the customer, thereby closing the case.
Insufficient funds The merchant’s PayPal account lacks the necessary funds for a refund. The account needs to receive more incoming payments from other transactions. This will increase the account balance to a level that can cover the pending refund amount.
Suspicious activity PayPal has flagged the refund request due to unusual activity. In such cases, it is advisable to contact the PayPal support.
Maintain detailed transaction records and ensure effective customer communication. Understand
Guide
Gain a better understanding of chargebacks nature and manage them effectively.
chargeback reason code
and implement prevention strategies to minimize disputes and maintain a healthy chargeback ratio.
Refund handling
Full refunds are:
allowed
for internal disputes in stages
OPEN
and
WAITING_FOR_SELLER_RESPONSE
prohibited
for external chargebacks and internal disputes in the stages
UNDER_REVIEW
,
WAITING_FOR_BUYER_RESPONSE
,
RESOLVED
Provide clear, detailed transaction information.
Keep detailed records of all related communications.
Supply tracking information and product details.
Respond promptly to buyer inquiries and maintain politeness in communications.
Document previous disputes (up to 50 MB per request, individual files under 10 MB, formats JPG, JPEG, GIF, PNG, PDF).
Be objective and factual in representations.
Prepare for additional information provision if escalated.
MERCHANDISE_OR_SERVICE_NOT_RECEIVED
Provide proof of fulfillment.
MERCHANDISE_OR_SERVICE_NOT_AS_DESCRIBED
Offer item URLs, return policies, and other relevant details.
UNAUTHORIZED
Supply proof of fulfillment.
CREDIT_NOT_PROCESSED
Present proof of refund and communications.
DUPLICATE_TRANSACTION
Show evidence for original and duplicate transactions.
INCORRECT_AMOUNT
Provide documentation of the correct amount and refund IDs.
PAYMENT_BY_OTHER_MEANS
Demonstrate proof of payment through alternative means.
CANCELED_RECURRING_BILLING
Show evidence of subscription cancellation.