PayPal No Longer Refunding Fees

You might be aware that earlier this year, PayPal indicated they were updating their policy regarding refunded transactions.  In fact this was their policy as of May 7, 2019.  However, they haev now confirmed that when a transaction is refunded the fees associated them will not be. Ouch!

To quote:

Earlier this year, we notified you that we were updating our User Agreement to change our refund policy. We want to let you know that the policy change is going into effect beginning on October 11, 2019.

In line with industry practice and according to our updated policy, we will not charge a fee to process refunds, but the fees from the original transaction will not be returned. This policy will not apply to duplicate transactions, voids and most disputed transactions. You can review the PayPal User Agreement for more information on our return policies.

We only adjust our policies when we are confident the changes are fair and aligned with the value that our services provide to your business.

PayPal brings you more than just payment processing – your business has access to our platform’s full suite of tools, products and support built to scale with you, such as customized invoicing to help you get paid sooner, access to business loans, world class fraud monitoring, seller protection for eligible transactions, and business services designed to simplify your day-to-day operations.

PayPal invests in bringing you buyers – with over 268 million active account holders worldwide, PayPal works hard for your business to make sure we continue to bring your buyers the shopping experiences they have grown to associate with our brand. PayPal is the most-used digital wallet** and PayPal shoppers complete their checkout 88% of the time on average, helping you close more sales.

While this missive is written like some sort of reprieve as in “we will not charge a fee to process refunds”, they never did. The change is actually they won’t be refunding the commission they took on the sale. They already keep the transaction fee of $0.30 but now they are keeping the ~2.9% as well.  And if your transaction involved currency conversion, watch out, because the refund is based on the exchange rate of the day.

The impact of this could be quite severe for some sellers who will be forced to pass on those costs to their customers, that is, refunds might not just be less shipping costs and even a restocking cost but also a PayPal fee cost.  To do some math then if you sell something for $1000, you will pay a $0.30 transaction fee and 2.9% in commission = $29. If the buyer gets a full refund then they get $1000 back and you have a loss of $29.30.

They generously say this will not apply to duplicates, voids or “most” disputes.  But we will know PayPal does little to help the seller in a dispute. It is cheaper, for them, to just give the money back.  At least they won’t have the gall to also keep their commission in this case.

They claim this is in line with standard industry practice. If so, store owners need to look closely at what they are being charged by financial institutions these days because you generally don’t get to keep commission on a sale that falls through. Sure keep the fee for  processing the transaction, maybe charge another $0.30 to process the refund but to keep the commission seems unconscionable.