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.

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