PayPal fees to be kept when US sellers process refunds

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PayPal have announced changes to their User Agreement for US users which will come into effect on the 7th of May 2019. The most concerning change is that if you make a refund, PayPal will no longer refund the PayPal fees charged on the original transaction.

“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.”
– PayPal Policy Updates

Currently, if you’re in the US you pay PayPal fees comprising two parts – a flat $0.30 per transaction plus a percentage of the payment. Until now, PayPal would refund the percentage fee but keep the flat $0.30 if you refunded. Now, from the 7th of May PayPal will charge you fees when you are paid, but if for any reason you have to process a refund they’ll keep all of the percentage fees as well as the $0.30.

This will be an annoyance on low value items, but if you are selling high value items and you have to make a refund, regardless if the item was lost or broken in transit, they buyer changed their mind or for any other reason, PayPal will still be getting their cut. This will hit sellers hardest in categories with traditional high return rates such as apparel. Every return will cost you the PayPal fees.

PayPal are also raising fees in other ways. They are starting to charge US users a new variable fee instead of a flat rate when they send month to friends and family outside of the US. The new variable rate will be 5% based on the amount sent with a minimum of $0.99 and a maximum of $4.99 per transaction. They are also changing the currency conversion spread to 3.25% over a base exchange rate in situations where you are a sender of money in a PayPal transaction.

There is one bright spot on the horizon and that is very soon US PayPal users won’t have to bother with PayPal when selling on eBay. As eBay Payments roll out and once PayPal is included in eBay Payments, the relationship will be between eBay and PayPal, not the seller and PayPal. It will be eBay being stiffed for fees every time an eBay seller makes a refund and the buyer paid with PayPal.

As is the norm with PayPal policy changes, they have told their US users that if they don’t like the fact that PayPal will keep their fees when transactions are refunded, they can close their account.

14 Responses

  1. This will be an interesting one to watch, and I hope it doesn’t manage to get over here (UK).

    When the erratic ebay basket, doesn’t work properly and some customers overpay on shipping, we always try to refund what we can LESS ebay’s cut. If paypal keep their cut of the the refund too, it will be bit less that the customer will get back.

    I would have thought that paypal must have some sort of plan to this, as it will be suicide for them, when ebay sellers will ditch paypal, unless ebay are going to make it even worse with their payments system.
    Now there’s something to look forward to.

  2. I wonder if eBay disbursements will follow the same path when implemented? Something to watch carefully.

  3. What a stupid decision, all it will do is make sellers more reluctant to issue a refund. I have always disliked PayPal but just another reason to be happy to see the back of them.

  4. I always found Paypal to automatically refund fees, where as ebay would try to keep the fees if a buyer opened a case against you for a return and was found in their favour.

    In the US, I believe they companies are allowed to take a percentage out for restocking fee which is not the case in the EU. So the fees can be worked in that way.

    Would not be great if it came into force over here as fees can soon add up for returns of expensive items.

  5. Wow. Did no-one at the meeting put their hand up and ask if this might cost them more in terms of lost business than they’ll make by keeping fees on refunds?

  6. As Rob says, its standard practice to charge a re-stock fee in the US, so paypal probably thought they could get a part of that by not refunding the fees.

  7. PayPal performed a masterful PR job diverting attention from this major policy change by timing release of their Cambridge Blockchain investment and Instagram checkout partnership, so the US news, as well as social media sites were saturated with those stories. For more than 2 days, independent EcommerceBytes was virtually the only reporting party in the US publishing anything on this stateside.

    After 2 decades of operation with PayPal refunding the purchase amount, his abrupt refund policy change runs counter to return-friendly consumer expectations, especially those pushed hard by marketplaces like eBay, Etsy, and others.

    I usually roll my eyes when people rant about “money-grabs” but this may be an exception. PayPal shares just hit their highest ever, and the company enterprise valuation sits at $115 billion USD, nearly triple that of former parent eBay.

    Side note on restocking fees in the US – I would posit that though restocking fees are seen occasionally in ecom (especially for computer parts and electronics, but even then it’s most often for opened boxes), but a far cry from what I would characterize as a ‘standard practice’, especially for retail B&M where they’re seldom seen for any large US retailers.

  8. I agree with Simon sentiments at the top of this thread. Paypal have been very honest in refunding their share of the fees when eBay has forced people to overpay on postage so eBay can grab more fees / money.

    If anything eBay should be taking a leaf from them, but sadly not.

    Maybe eBay can get their basket working properly….some chance….as it will cost them a fortune in “lost profit”. Known issues that are low on the fixes to-do list.

    And as we in the UK wait to say what Adyen brings, I am sure it will not be to the sellers or buyers benefit, but I am sure eBay will do nicely on the deal!

  9. It will be eBay being stiffed for fees every time an eBay seller makes a refund and the buyer paid with PayPal.’
    And this will last for a very short period of time before ebay state that the seller is liable for a surcharge on refunds… watch as a flat rate ebay surcharge comes out… meaning that 99.9% of refunds actually end up with you paying them more that paypal were charging them! We have all seen this before!

  10. Makes me wonder how many ‘transactions’ will happen that you need to refund.
    Wouldn’t take a master software coder to write an app that creates user accounts that randomly go round eBay / wherever buying things then requesting refunds.
    Paranoid – me ?

  11. I’m a bit confused by the wording of the part that says there will now be a fee for transferring money to friends and family. Is it only talking about transfers outside of the US or is it saying there will now be a fee for everyone even on US to US transfers? It is very poorly worded.

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