PayPal Introduces Major Blow To Marketplace Sellers With New Refund Policy

Paypal Introduces Major Blow To Marketplace Sellers With New Refund Policy

In a major blow and set back to those of us who sell online using PayPal as our payment processor; PayPal has rolled out a new refund policy that will seriously hurt all online marketplaces that utilize PayPal.

PayPal has always charged the 30 Cents portion of its 2.9% plus 30 Cents processing fee, when a seller was forced to honor a return, refund or cancellation via PayPal.  But beginning May 7, 2019 all PayPal users will now be charged the entire 2.9% plus 30 cents processing fee that PayPal charges to process a payment. In other words, PayPal is no longer working with sellers or marketplaces to process a return and will be taking money from you for a sale that has never been completed. That is money you haven't received, you will now owe PayPal.

This has numerous problems; for example, why does a payment processor need to keep $29.30 to reverse an unfulfilled shipment on a $1,000 designer hand bag, when all it has done is receive the payment and not paid out to, nor has the seller even necessarily had an opportunity to withdraw the money?

One major concern is that on most marketplaces like eBay, Bonanza, Storenvy, eBlueJay, Ecrater, Shopify and the thousands of other marketplaces using PayPal, there is no option available for the seller to initiate a final approval step once a shopper initiates a payment.  Nor does PayPal offer a final approval step. Instead, those payments are instantly processed by PayPal regardless of any seller involvement.  The problem in this situation, is that the sale and processing of the payment all occur without the sellers involvement.  That means when a potential customer makes a payment and suddenly initiates a cancellation, the seller will now be penalized by PayPal for the $29.30 processing refund fee.

That processing fee is based on the total amount of the product price, shipping price and sales taxes.  That means, the seller, who never processed the payment on their end, never received the money on their end, never approved the sale to that customer, never created a shipping and never collected any sales taxes required for their state, now has lost money.

Marketplaces like eBay and a few others, allow shoppers to cancel the sale within an hour or another set amount of time after a payment has been processed.  That means, as a seller, that refund reversal will now cost  $29.30 for that $1,000 purse a shopper initiated a cancellation or refund on.   eBay and other marketplaces also offer a 100% return guarantee to the shoppers which the marketplace administrates and that is entirely out of the sellers control. That 100% guarantee automated return and refund policy initiated by the marketplace which only offers PayPal as an option will now cost the seller that $29.30.  

That $29.30 may seem exaggerated if you never sell anything for $1,000.  But what if you sell something for $2,000? That will now cost you $58.30 if a cancellation, refund reversal occurs on PayPal.

Even a $10.00 sale, which is more common for the majority of sales on a marketplace, PayPal will be keeping .59 cents to reverse a payment. All sellers since 2018 have seen a dramatic increase in cancellations and refunds from the new generation of shoppers on marketplaces who value the shoppers more than their sellers.

PayPal is giving current account holders until May 7, 2019 to delete their account if they do not agree to the new financial hostage policy.  This is probably the first time in PayPal's history, that many sellers should consider taking PayPal up on their account deletion deadline, especially if they do a lot of high price sales.

Most marketplaces have at least one other Payment method available, it may be time to get out of bed with PayPal.

Other policies changes occurring at the same time include, PayPal restricting the ability of its current personal PayPal accounts that have not been officially verified from being able to deposit or hold money in their accounts.  PayPal is moving all of its personal accounts that are verified to its Pay Cash Accounts. This is bad news for those who are uncomfortable with providing PayPal with their social security number, phone number, address, bank account and credit card to get verified.

Randy Dreammaker of the eCommerce YouTube channel for online sellers at SellerThink has released a video regarding Paypal's new anti-seller polices and gives some suggestions on steps you as a seller may want to take, and alternative payment methods that are available on some marketplaces.

For more details, please visit PayPal's Full Policy Update Page here.