Why PayPal is Bad News For Digital Download Sellers

On the surface PayPal seems to be an ideal solution for new or small online stores looking for a low cost solution for processing payments online. However there is a real pitfall if you sell digital products that your customers download after purchasing from you using PayPal - the dreaded PayPal chargeback.

And forget about 'buyer protection', you don't qualify!

The Dreaded PayPal Chargeback

We learned about PayPal's rediculous chargeback policy the hard way on more than one occassion. Auspire owned an online store that sold website templates for online shopping systems using CubeCart software. Like all template stores, customers were able to download the templates immediately after making their payment.

The checkout process was as follows:

1. Our customer decides on a template then proceeds through our checkout process to pay for it.
2. When it comes time to enter their payment information, they are redirected to the PayPal website.
3. Once the payment is completed at PayPal, the PayPal system sends a notification to our website telling it that the transaction was successful and the funds have been received.
4. This immediately allows the customer to download their template from our website. After all, it's been paid for, right?

Here is where the problem arises...

Soon after the transactions were completed and the templates were downloaded, we would receive a notification from PayPal saying the transaction was being investigated. Here's what you receive via email:

"We've concluded our investigation into the transaction detailed below.

We determined that you did not meet the eligibility requirements for the PayPal Seller Protection Policy, and you are therefore being charged for this reversed transaction.  We've returned the funds to the PayPal account holder, and your account will be debited for the amount of this transaction."

In our experience the PayPal "investigation" was a trivial process whereby each party (the seller and the buyer) are given the opportunity to state their side of the story. Regardless of what you might say, you are ignored. No further consultation is sought and at no time do any PayPal staff actually contact you - some investigation.

After a few more days PayPal in their infinite wisdom passes down their decision - you've been screwed. PayPal puts a chargeback on your account, refusing to release the funds to you. As for the template that was downloaded, tough! You aren't getting paid for it.

There is also no such thing as PayPal's 'seller protection' for digital downloads.

File a Complaint with PayPal? Don't Bother!

Naturally we wanted to take this further. After all, PayPal and the 'buyer' are supposed to be the only ones who can access the buyers account, so how on earth is it the fault of the seller if the buyers account is possibly being accessed by someone else. What is stopping a buyer simply claiming it wasn't them making the purchase? The buyer could even access their account from a different location or IP address to give the appearance of a stranger accessing their account.

I called PayPal Australia (an Indian call centre) and were given a feedback email address to forward our complaint to. This was an even more pointless exercise than going through their dispute process. At least the dispute process sends an automated email. The feedback process is completely ignored.

My Suggestion for Sellers of Downloads

Do not consider using PayPal to accept payments for digital products under any circumstances. Unless of course you like to give things away.

And don't just take my word for it. Numerous similar complaints and experiences can be found on forums on the internet. One such discussion can be found at:

http://www.cubecartforums.org/index.php?showtopic=6850&hl=paypal