2011-09-02

How Paypal rips off online businesses

Paypal has just "resolved" a dispute that a customer filed against our small-scale online business and I am absolutely disgusted by the outcome. Not because of the amount that they've stolen from us (11.25€, we will survive without it), but for what it represents and the inherent risks. I should never have been charged that fee. Let me explain.

A regular purchase?
A few months ago a customer purchased the most expensive VPN plan (72€) on my website VPN1Euro.com. The account was immediately set up, and the customer started using it. A few months later, the customer requested a full refund for the payment (through an automated Paypal dispute), without contacting me prior to sending the request to Paypal. I responded to the dispute by telling the entire truth:
  • the customer purchased the account legimitately (IP address matches the location entered in the Paypal billing address, nothing indicates that there was some kind of Paypal account fraud)
  • the customer used the account for a while
  • the customer never contacted our services to request anything
  • we offer refunds on prorated basis. Basically if you purchase a 1-year plan, you can get a refund after a while. But if you've already used your account for 2 months, you'll only be refund of the remaining 10 months (why would anyone refund a service that has been duely consumed?). That's what happened here. Had the customer contacted us to obtain a refund we would have sent it without question.
Buyers abusing the system
From the moment the customer filed the dispute, Paypal froze the money (the whole 72€). I replied immediately, but it took over 3 weeks for Paypal to process my response. The outcome was just unveiled to me today: not only the customer is getting ALL of their money back, but I am ALSO being charged for a complementary fee called "settlement fee".

So let's summarize what happened here:
  • customer purchases expensive VPN plan
  • customer makes use of VPN plan
  • two months later, customer gets all of their money back
  • seller pays an additional 11.25€
Not only have we provided the service correctly, but we are also being charged for the payment reversal! This is completely absurd and Paypal won't budge on the matter.

A flawed system
With such a system any ill-intended customer can just purchase anything, THEN get their money back, THEN have the seller charged for, well, whatever we're being charged for ("settlement fee"). So I'll say it again: the amount lost in this case is obviously neglectable. But what if it happens again? We haven't receive a single cent for a service that was correctly provided, and we've also been charged for it. What can businesses do against such malpractices? The only answer I'm thinking of right now is: don't use Paypal. As if the 4.5% transaction fees weren't enough, they're now stealing money from us. That's great.

4 comments:

Clément Nedelcu said...

A quick note: I have emailed Paypal protesting the case. I will publish the response that I hope to receive within the next 72 hours.

Tom said...

I agree Paypal's ways are often annoying (they block accounts without asking first, cancel transactions, charge fees etc). But the basic question is: what would you do without them? How would you charge a credit card without setting up a business? And do you know how regular bank works (it's often worse in case of disputes)? ;)

Kbeezie said...

My paypal account is still on a 'limited' basis. Even after the dispute has been resolved and was in my favor, the account was limited just because I had a dispute. For over a month trying to provide all the information just one portion of their site kept giving me an error. Seems you can talk to no one about it and eventually you'll get an email saying they're locking it because they couldn't get such and such info from you (because their website kept failing at the submission of such). I've since then switched to AlertPay (and google checkout for people who don't want to use that). Paypal is pretty much the same as eBay the buyers are always favored especially in any kind of 'non-tangible' transaction. The only possible way around something like that is to actually mail your client a receipt and keep the shipping record for later use.

Clément Nedelcu said...

They have limited my account and seemingly won't unlock it no matter what I do. Great... Thankfully I didn't have tons of money on there.

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