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.