PayPal: A Business Cyber Attack Dream

PayPal Keeping Seller Fees After Refunds

If you haven’t seen PayPal’s latest update yet, there’s one line, in particular, that should raise a flag for any seller who processes PayPal refunds frequently.

Going into effect on May 7, 2019:

“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.”

Wait a minute. What?!

PayPal: A New Way To Lose Money

First, you have your returns to deal with. That’s a normal business activity. This is going to hurt in that regard and only cause you to raise your rates even more to cover the potential loss.

But secondly, I see a number of people pop in, buy something, pay for it, then right away request a cancellation and full refund. Sometimes for no reason, other times because they entered the shipping address wrong. Either way, that’s a bad deal for you all around.

To put it into perspective, for every $1,000 refunded you’d end up losing $29 at current 2.9% rates. And I’m assuming that the $0.30 fee per transaction is on top of that. That can add up fast depending on what your volume looks like.

I know, I know, I’m probably a little “out there” in this line of thinking, but hear me out.

In business, we’re competing with other businesses for customers and sales. When you start to encroach on someone else’s bottom line that gets their attention and the war begins.

In some cases, you will see this on eBay in terms of VERO claims. Or on Amazon, you might see IP or unauthorized seller claims and suddenly find yourself “gated” in a certain product line or category. Those are only two examples, but you get the point.

Taking that a step further, there are stories of people having their entire inventory purchased, presumably by a competitor, then returned. This leaves the seller stuck with refunds, excessive shipping fees if you offer free shipping and free returns, and to add insult to injury, a product that can no longer be sold as new, if at all. Oh, and you can add the loss of PayPal processing fees on top of that.

With this new PayPal refund return policy, someone could set up a bot attack that makes multiple large purchases through PayPal, then immediately cancels the orders requesting a refund. While this is somewhat better than the scenario above, it could also be scaled much larger.

PayPal Protections

While I don’t think my cyber attack scenario is very likely to happen, it is feasible.

I’m going to assume that PayPal has some sort of measures in place to stop this and would work with you to refund you those fees. But even then, it’s still a waste of your time. Time that you could be spending working on your business instead of dealing with such headaches.

E-Commerce Platform Protections

While I could see this sort of cyber attack happening on any platform, you’d probably be more likely to experience it if you’re running your own platform on your own website. I know that we see people trying to push through fake orders on our website.

Also, if you’re using a third-party platform that keeps your money until a bank deposit is made, you probably don’t care what changes PayPal is making. Amazon, Mercari, Posmark & Etsy all come to mind. eBay is on the road to join them.

Suddenly eBay’s new payment system doesn’t seem so bad, now does it?