PayPal to keep fees from refunds

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Yesterday’s news that PayPal will start to keep all fees from refunds in the UK from the 5th of March came as a bit of a shock to us all. At one time, PayPal refunded all of their fees and then in 2011 they decided to keep the 20p fixed charge if a refund took place. Now, PayPal have decided that if you have to refund a buyer in a ‘Commercial transaction’, they will keep all of the fees you originally paid.

In some ways this is fair from PayPal’s perspective – there are costs in processing payments and why should they be out of pocket when they’ve done the job asked of them. But for merchants it’s punitive and smacks of greed and unfairness, reversing a transaction should put everyone back to the position they were in before it took place and that’s fine for consumers but businesses don’t get treated the same.

There are other issues to consider – businesses will very high value transactions will incur high PayPal fees and this means retaining the fees from refunds will be high. Businesses, such as clothing, where return rates are high will also be significantly impacted on fees from refunds. The only way to claw back the PayPal fees will be to raise prices for everyone.

[Edited 7.49pm 7/1/2020] There is another instance which is concerning and that is fees for fraudulent transactions. We can but trust PayPal to spot fraud and block transactions, put them on hold and cancel them. It’s nigh on impossible for a merchant using PayPal to spot a fraudulent transaction before it happens as PayPal take on the task of fraud prevention. The change to PayPal keeping fees from refunds means that every time a fraudulent transaction is reversed (or refunded by the seller), PayPal will keep the fees. The alternative will be to wait for a chargeback in which case you’ll be paying PayPal chargeback fees which are likely higher.

PayPal have been in touch to say “To clarify, PayPal retains no fees on fraud reversals.”. This coming straight from the top is different to the advice customer service gave on the phone, so so long as PayPal spot and stop the fraud you shouldn’t incur fees.

PayPal aren’t the only provider to keep fees in the case of a refund and they’ve been doing so in the US since May 2019.

With eBay Payments due to come to the UK sometime in the next year to 18 months, eBay sellers who also use PayPal on their website now have one more reason to stop using them.

All the time your eBay payment volumes qualify you for a PayPal Tiered discount rate it makes sense to put your website payments through PayPal to benefit from the same lower rate. Once you lose your eBay payment volumes to eBay Payments it’s likely that you will be on a lower PayPal Tiered discount or lost it entirely. With PayPal also grabbing fees from refunds, it’s worth totally reviewing your payment providers and considering if one of the many alternatives (Amazon Pay, Stripe, Square, WorldPay etc) would serve your needs better.

You might end up deciding that PayPal is still the best provider for your business. Or you might be surprised and discover an alternative suits your needs and wonder why you stuck with PayPal for so long.

39 Responses

  1. PayPal used to be one of my favorite companies to deal with. This is changing rapidly and they are now rarely helpful and sometimes just difficult or contradictory. Roll on competition.

  2. Sounds like its time to turn off PayPal on our Shopify store come March then. The PayPal fees are already 1% +10p higher than the Shopify payments.

  3. As the article says, Paypal have been doing this in the US since last year, the difference being that you can charge Re-stock fees in the US.

    This is just a pure money grab to improve figures.

    Gone are the days of improving revenue by offering a better service & getting more customers to use you product.

    Just charge the customers you have more!!!

  4. As the article says, Paypal have been doing this in the US since last year, the difference being that you can charge Re-stock fees in the US.

    This is just a pure money grab to improve figures.

    Gone are the days of improving revenue by offering a better service & getting more customers to use you product.

    Just charge the customers you have more!!!

    The problem is that the 20p transaction seemed OK, but now the fees kept are going to be disproportionate to the actual cost of of processing the refund.

    Amazon have always kept a larger % of the fees (with a cap) for refunded orders, but never the whole lot.

    Also if the order was cancelled before the order was dispatched you are not charged fees.

  5. Wow, that is a lot lost fee’s especially on eBay returns, where under EU law we have to provide a 100% Refund.
    Maybe this is the reasoning for the change in return refunds.

    I guess Nochex will be getting a call, to re-activate the account, as they’re the only UK Provider that eBay UK allow.

  6. I am ebay seller and these day PayPal hold my money more 1000 pound and put limitation on my account without any reason,I am shock and very disappointed. I hope ebay must keep their own payment method in this year ASAP

  7. Paypal are (sadly) following the market. Don’t forget eBay have been ripping people off for ages re combined postage. They rush buyers to “pay now”, many do not wait for a combined invoice. Ebay charge their fees on the over-paid postage…..and then when the poor lowly seller refunds the over-paid postage, eBay do not refund anything to the seller, so you refund £10 say and ebay hang on to all the fees the seller was charged. Ebay badge it as “getting you your money quickly”, but I would love to know how much globally they make from retained / non-refunded fees? We could ask Tamebay, but they are in ebay’s pocket nowadays and not a voice for the users. Save for this “have your say” section and it goes nowhere……big round filing cabinet on the floor maybe.

    And much is made of eBay payments etc (I assume this is Adyen). I guarantee they will not refund a penny and continue much in the same vein as eBay above and as Paypal are now about to do. So it will be down to percentages, who will have the lowest fees Paypal or Adyen ? It may even make Paypal drop this new policy, but chances are eBay payments will undercut them… the short term……..then when the competition has gone they will pile the charges back in.

  8. Isn’t it strange EU law says we have to refund in full for online transactions but maybe after we leave the EU we in the UK will not.
    Also online sales law says nothing is allowed to be kept and no restocking fees charged. Yet online money transactions can keep whatever they want and there is no-one stopping them.

    The issues all arise though from prices not rising to cover these things as everyone is too scared to be the first. They compare their prices against the Chinese listings which are just crazy due to avoiding all sorts of taxes, VAT and shipping charges so when something in our “supply to buyer” chain is increased whether it be wholesale price or shipping costs or fees, we all moan but we do not increase prices to cover it we all jump on the path to the bottom and hope we are still hanging in there at retirement age.

    What we should all do is put the price at what we really need, and all, and i mean all put a description starting with the paragraph

    This item is supplied and shipped from a registered UK business seller paying all our correct taxes not an overseas company getting round the rules”

    As only we see this issue not the buyers they just moan and move away from eBay.

  9. If I sell an item for £1000 the paypal fees are approx £20. If I sell an item for £3 the paypal fees are approx 35p. Surely the cost to paypal to administrate the refunds is the same for each transaction and the 30p transaction fee easily covers this??? (and still leaves a healthy profit for paypal). I believe this is a very poor decision by paypal.

  10. Presumably they will refund regardless of the reason?
    We have a considerable number of buyers who simply don’t read EBay listings properly and buy incorrectly only to cancel the order or return the item with “it didn’t fit”, basically because it never could and they would have know this had they READ the listing!
    Not only has it cost us the outgoing courier postage , which we have to refund as it is part of the selling price ( who can afford to NOT have “free” postage on their listings?), but will now cost even more in paypal fees not being refunded for their “error”
    And do we have a choice on EBay to NOT use Paypal?
    As a tiny, struggling, local, tax paying SME this will have a big impact.
    As an enormous, greedy, global Inc do they really need these additional fees.
    Check out their financials – figures in millions, no less

  11. Am i getting the right? if i sell an item for £1000 and the buyer cancels after 5 minutes i will be out of pocket by 50 odd quid for do absolutely nothing apart from existing?

    You could put a seller out of business by purposely buying a load of expensive things and cancelling.

    Surely i’m wrong….right?

  12. Unfortunately you are correct and I am concerned that competitors of mine will deliberately try to cost my business money by doing exactly what you suggest.

  13. Now that PayPal’s contract is up with eBay and eBay have created their own payments gateway what do PayPal have to lose in doing this? PayPal are merely kicking eBay in the nuts (via its sellers) as PayPal are on their way out of eBay they have nothing to lose.

    PayPal are probably doing everyone a favour.

  14. What fucking bullshit, fuck PayPal. They don’t give a fuck about the consumer all they care is about themselves.

  15. and if a buyer makes a mistake and wishes to cancel a purchase they have made before it is posted out? do paypal still keep all the fees?

  16. I am actively working on cancelling my PayPal account because of this. They’ve always been some level of jerky but this just takes the cake. So all my subscriptions from last year that didn’t have the no refund policy in place and suddenly under this but I have no way of moving a subscription to another service. It’s insidious. So a customer forgets to cancel. I tell them sorry, you need to cancel before the renewal. They complain to PayPal who not only refunds them and keeps the fees they charge me $20 fee on TOP!! This should absolutely be illegal. Already moved my new subscriptions off PayPal. Hoping to get away from them completely in 2020.

  17. Why don’t we ALL AGREE to boycott eBay, and PayPal, close it down for say one week then they may both be desperate for us all to come back on OUR terms ! ???
    I am thinking of finishing it anyway in March as had so many hassles with Global programme, wrong emails etc etc , can’t afford to run it any longer.

  18. So much for a positve start to the year! We have PayPal integrated to our website to take payments. We sell laptops and if a £900 laptop is going to cost me £26.40 to refund then its going to eat into our margins considerably. Online retail for a small business is like pushing a bolder up a mountain while an avalanche is coming the other way all the time.
    Anyone got a recomendation for a different Payment provider? Maybe Tamebay could do a comparision for 2020 on them?

  19. We’re starting own website soon and decided long time ago PP isn’t going to be our payment system because of their vat exemption on fees.
    Plus they have old technology in terms of PoS and cards handling etc.
    And now this wonderful refunds fees issue. Seems like PP have same business advisors as eBay….

  20. Hi

    the workaround on this Paypal fees thing is as follows.
    Buyer purchases item on eBay and then asks to cancel. Well cobblers we will send it. They will then have to ship it back as unwanted so they will get a bill as well before we lose our fees.

  21. Surly eBay can jump ship quicker with a change of contract that will disadvantage sellers with these fees. Usually any significant change to a contract and one side can opt out and leave.

  22. We will switch from Paypal to Amazon on all our Websites. Paypal can p… right off

  23. this whole thing stinks. it’s bs. i’m not willing to waste my time and more importantly be charged for helping a buyer out if a buyer stuffs up. 2 requests to cancel an order in under 24hrs as both buyers have made mistakes. yawn. so i sent this out

    ‘good morning. if a buyer makes a mistake and wishes to cancel an order, unfortunately we don’t get all our fees back from paypal. so if you are willing to pay those fees for us, we are more than happy to cancel your order’

    i’ll first ask the buyer to send a payment to paypal to cover whatever fees i would lose. once that is done, i can refund the original payment in full via the ebay cancel order function and get all the correct ebay/paypal fees back.


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