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Are PayPal Chargebacks Weapons of Mass Involucration? What Does a Chargeback Do to a Provider?

PayPalWhen you buy something through PayPal, the merchant pays a fee to accept it.

Ironically, this fee they pay also allows you to blow up any profit they make on the deal.

Let’s say you subscribe to a VPS for $5/month.  PayPal is going to take 2.9%, which is 14.5 cents in this case, and yes, PayPal rounds up.  So the provider gets $4.85.

Now let’s say you are unhappy with the service.  What you should do is talk with the provider and see if they can make it right.  They may be able to fix the problem, or they may issue a refund.

But let’s say you are really unhappy, revenge minded, or just like doing thing in a painful and rude way.  So you open a chargeback.

Immediately, the provider is hit with a $20 fee.  Even before any investigation is done or before any right versus wrong decision is made.  The provider could be providing excellent service, exactly what you paid for, but because you opened a chargeback, they get slapped with a $20 fee.

If you’re thinking “that’s 4 months worth of service!” you’re right, but it’s worse.  Ask yourself this: what do you think the profit margin is on a $5/month VPS, and how many of them will the provider need to make to claw back that $20?

What really burns providers to the ground is if they get a wave of chargebacks.  For example, if there is a prolonged outage.  Or if the provider is closing, they may intend to refund unused service but a wave of chargebacks from nervous consumers may make that impossible.

Many providers will immediately shutter your account if you dispute or chargeback a legitimate transaction, and who can blame them?

There are other costs incurred as well.  Responding to a chargeback costs time spent researching, writing a response, etc.  Consumers can charge back for up to 120 days, but merchants have only 10 days to respond.

So When Should You Charge Back?

Chargebacks are a legitimate consumer action, but only when justified.

In my entire time buying LowEnd VPSes, I’ve only ever charged back once.  I’d signed up for a $5/year promotion and a month later, the company said they were going out.  Someone asked about refunds for unused service and they said tough luck, which was ridiculous.

If it had been a provider who’d been around a while and ran into trouble and said they didn’t have the cash, for this kind of money I’d shrug and say they need it more than I do.  But this was an obvious “take annual orders and run” scenario, so I clicked the buttons.

So when is a chargeback legit?

  • Clear fraud, as in this case
  • If you’ve worked with the provider and can’t resolve the issue.  Personally, I would inform the provider that we’ve reached an impasse before charging back.
  • Company is going out of business and hasn’t refunded

Chargebacks aren’t meant to be a punitive weapon.  If the provider can make it right, let them make it right.  If you’re unhappy with the service, move on.  Chargebacks are meant to protect from fraud, not in cases where your subjective judgement is that things could have been better.




1 Comment

  1. great sir beneficial article thanks for sharing.

    May 19, 2024 @ 1:45 am | Reply

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