PayPal Will No Longer Refund Transaction Fees On Refunds

Source: PayPal

PayPal released an update to their Account User Agreement that will significantly impact sellers who use PayPal to accept payments.

Effective May 7, 2019 PayPal informed sellers that “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.”

This will add a significant cost to sellers for handling refunds as previously PayPal would refund the transaction fee (or prorated transaction fee if a partial refund) minus 30 cents.

In other words, for a full refund, a seller would be out only 30 cents when making a refund. Under this new policy, the seller will lose the entire transaction fee which for more expensive items could be very costly.

Another Hidden Cost Of Returns

Unfortunately, this new policy by PayPal will add another hidden cost to managing returns for many sellers.

While PayPal did not provide a reason for implementing this new policy, likely a rise in refunds from more buyers returning products caused the company to evaluate the cost of processing refunds and now is trying to recoup those costs from sellers.

To be fair to PayPal, most banks that offer merchant account services charge a transaction fee when refunding a customer. This new policy by PayPal appears to align its transaction fee policy with many credit card merchant accounts.

READ MORE: PayPal Launches Instant Transfer To Bank Solution

What are your thoughts on PayPal changing its policy how to manage refunds? Please use the comments section below or head over to our Facebook Group for Small Business Sellers and interact with other small business owners.
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  1. Wow! This will make a huge difference in doing business using PayPal invoicing. Perhaps the better alternative is Zelle, which offers free U.S. bank account transfers between merchant and customer with NO FEES TO EITHER PARTY!


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