How To Prevent PayPal Chargebacks

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How To Prevent PayPal Chargebacks

With the Russian invasion of Ukraine raging amidst Europe, PayPal has canceled its own years-old policy and allowed PayPal transfers to/from Ukraine, along with lifting several other limitations. This is great news for volunteers from across the globe, who can now directly support Ukraine in its fight for freedom and survival.

However, fraudsters are already making moves. Even if your business is not related to Ukraine, you still have to be aware of how to prevent PayPal chargebacks, as this is a tricky business. Unlike other payment systems, PayPal can freeze all the money in your account or terminate it, should you fail to comply with PayPal fraud prevention rules. Covery shares our insights as well as recommendations from trusted sources on how to protect business, prevent chargebacks and ensure stable PayPal payments for your company.

First of all, we’ve got to acknowledge that PayPal chargeback solutions differ from all others. Therefore, you need to know in detail why this situation might occur, how PayPal deals with chargeback claims, what the possible outcomes are, and how to prevent PayPal chargebacks.

Why do PayPal chargebacks take place?

There are three most widespread reasons for a chargeback:

  • A customer thinks a charge to their PayPal account is unauthorized, making it a fraud from the merchant
  • A customer does not recognize the charge, because it is a friendly fraud (their family members or friends used their account for purchase)
  • A customer is a fraudster themselves and plan to deceive PayPal by decalring they did not get the item delivered, it was SNAD (significantly not as described), or it arrived damaged.

The chargeback starts as usual — the customer contacts their bank and initiates a claim. However, as it is a dispute between two PayPal accounts, the bank then informs PayPal, which handles the case afterward. The process consists of three steps:

  • PayPal informs the merchant of a customer’s chargeback claim within 30 days after receiving it and holds the customer’s funds till decision
  • PayPal requests merchant to provide any proof that they upheld their end of the bargain: signed delivery receipt, transaction receipt, screenshots of direct or email communication with the customer, etc.
  • PayPal submits the gathered proof on merchant’s behalf to the issuing bank or credit card processor. The ensuing analysis and final chargeback decision can take as long as 75 days.

If the bank decides the dispute is in the customer’s favor, PayPal releases the money it was holding to the customer’s account. If the bank supports the merchant, PayPal transfers the money into their account. PayPal charges merchants a $20 non-refundable fee for processing every chargeback claim. However, should you be eligible for the PayPal Seller Protection program and be able to provide proof of shipment, the fee will be waived.

As you can see, the core difference with other chargebacks is that PayPal handles the dispute on the merchant’s behalf. Therefore, the best way to prevent PayPal chargebacks is to ensure you can provide ample proof that you upheld your end of the bargain.

PayPal fraud prevention

Here is how you can protect business from fraudulent chargebacks in 3 reliable steps.

  • Deploy AI to minimize the number of fraud through declining risky transactions. Supervised learning algortihm used by Covery helps combine the data from a wide range of factors and identify fraudulent payments in real-time. 
  • Automate chargeback management through specialized solutions. Covery is integrated with VMPI and Ethoca risk management platform to help you automatically handle PayPal chargebacks and resolve them in your favor.
  • Work with fraud prevention experts to secure your operations. Covery comes with 15 prevonfigured risk logic scenarios for most common cases across 23 industries. In addition, a flexible rule editor enables you to create your own rule-based risk  scenarios, uniquely suited to your business needs. In addition, Covery can provide a dedicated risk analyst under subscription model to help you quickly and correctly configure your chargeback prevention policies.

Naturally, these rules are applicable to all means of payment, but as PayPal might as well become your primary payment method, it’s wise to invest in PayPal fraud prevention first.


PayPal is a great way of enabling transactions worldwide, as almost any bank card can be added to a PayPal account. However, in case of fraudulent activity, a PayPal account can be frozen with all the funds, not only the ones involved in the suspicious transactions. This makes PayPal fraud prevention one of the primary tasks for any business that works with it.

As a specialized anti-fraud system, Covery provides comprehensive risk mitigation, fraud prevention, transaction monitoring and chargeback management services in the USA, Canada, Europe and worldwide. We can help you protect business, prevent PayPal chargebacks and secure your income streams from fraudsters. Contact us for more details on how Covery can help you solve fraud!