How Changes to PayPal Terms Could Impact Your Business

How Changes to PayPal Terms Could Impact Your Business

How Changes to PayPal Terms Could Impact Your Business

PayPal is a big name in small business payment processing, handling most of the payments for sites like eBay and Etsy – as well as many freelancers and those with online side hustles. Users of the platform were alerted to another set of changes to the PayPal Terms of Service on April 14th, leaving some sellers upset at the updates. Here’s what you should know about this newest round of revisions to their policies.

Refunds Will Cost More

Prior to the changes, here’s what a refund looked like:

  • Seller refunds the buyer a part or all of their payment price
  • PayPal refunds the seller the 2.9% transaction fees deducted from the original payment, minus a $.30 fee
  • Buyer paid no fees for the original purchase or the refund.

Under the new terms, sellers would still be expected to refund the buyer the entire cost of the refund, but the 2.9% PayPal fees wouldn’t be restored to the seller’s account. The seller will now be out all of their fees associated with a payment, even if that payment is reversed or refunded.

While it may not seem like much at first, the changes will disproportionately affect sellers who have a high rate of return. Those who do custom products at a high price point, for example, could also see big losses. A furniture seller who is asked to refund the price of a $1,000 table would still have to refund the full $1,000 to the buyer, but would then have to make up the $29 in PayPal fees on their own. This would presumably be taken from the seller’s PayPal account directly or through a draw from their linked checking account.

How It Will Affect PayPal Sales

Many small businesses are upset about the changes, as it will cost them. Some have discussed charging a restocking fee to cover the fee loss for items that are returned, but this may not solve the problem of a canceled order where merchandise was never delivered. Other sellers may feel that they have to change their return or cancellation policies to make them less favorable to consumers.

Another use of the PayPal refund was to give money back to buyers who may have paid much more than the actual cost of postage. In the case of an eBay item with a flat shipping charge of $24.99, the seller may opt to reduce the shipping charge if the buyer purchased two items. (This makes sense, as it wouldn’t cost double the shipping fees.) Refunding the buyer the difference between the actual and charged shipping was one way to reward multiple purchases and save money on shipping and packaging costs. Now, sellers may be discouraged to offer this discount.

In any case, while the changes are designed only to cost the seller fees, these costs are usually passed on to the customer in some manner. Time will tell how the market responds.

Additional Changes

Some other policy revisions will happen, as well, including removal of the flat rate pricing for sending money to friends and family countries outside the U.S. These PayPal users will pay a variable fee of 5% of the amount you send, subject to a $.99 minimum and $4.99 maximum. The new fee is for all countries, where prior charges varied by the recipient’s country. (Note that this is for friends and family payments, not for business payments.)

The currency conversion spread will be 3.25% over a base exchange rate for senders of foreign transactions.

PayPal requires personal users to link their PayPal accounts to PayPal Cash or PayPal Cash Plus accounts to hold or use funds in their PayPal accounts.

Communications for personal accounts will be sent at least 21 days before any user agreement changes; business accounts will receive a minimum of 5 days’ notice for changes.

When Will It Start?

The new updates officially roll out on May 7th, 2019, leaving sellers without much time to update their storefronts to mitigate potential losses. Ultimately, however, the only way out is to close your account before May 7th, something most sellers aren’t likely to do.

This article was originally written on April 18, 2019 and updated on January 27, 2021.

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