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New Paypal Refund Policy: How Will it Affect Small Businesses

In April PayPal announced that they were planning to make a change to their refund policy. Instead of refunding the 2.9% transaction fee and retaining the $.30 flat fee, they would be keeping the 2.9% transaction fee and only refunding the $.30 flat fee to the seller. Sellers were livid about the change and voiced their displeasure loudly on social media. PayPal soon announced that they wouldn’t be moving forward with the change.

But just last month, PayPal announced that they would, in fact, be moving forward with the changes to the refund policy. The change is set to go into effect October 11th. And again, sellers, especially ones running their small businesses via PayPal, are raving mad.

Wondering how this change to the PayPal refund policy will impact your small business?

We’ve got all the info you need.

How Will Processing a PayPal Refund Change?

When someone running a small business uses PayPal to sell their goods and services, they pay a small fee to PayPal for every transaction processed. This fee is equal to 2.9% of the total sale plus a flat $0.30 fee. This processing fee is paid by the seller, not the customer as a cost of doing business. Many small businesses take this fee into account when pricing products or services they’re selling via PayPal and adjust their prices accordingly.

Currently, when a customer wants a refund for a product or service purchased through PayPal, the seller would issue a refund for the full amount of the product or service to the customer and PayPal would refund the 2.9% processing fee to the seller and keep the $0.30 flat processing fee.

With the new refund policy, will not be returning the 2.9% to the seller. This means that sellers lose that 2.9% transaction fee no matter what.

How Will This Change Impact Your Business?

While PayPal sellers were always losing $0.30 when they had to refund a sale, they were losing such a small amount it was negligible. Losing the 2.9% processing fee is a much bigger deal for sellers’ bottom lines.

To illustrate, if a boutique jewelry maker has to refund a customer for a piece that cost the customer $1,000 they are now losing $29 due to not getting back the processing fee from PayPal. And they have the piece of jewelry back in stock and have to try to sell it again. They’ve essentially lost $1,029.30 refunding that sale. And if the piece was custom, they may not sell it again for quite a while.

While sellers that sell relatively low priced goods and services will not feel the hit as much as sellers selling his priced goods and services, they’ll still be losing much more money than they used to on every single refund. That’s a big deal for small businesses and home businesses.

Losing money on refunds could cause sellers to adjust their prices to take this loss into account. That would pass higher prices onto the customer. Sellers may find that they have a harder time selling their products or services at that higher price point and could lose business in the long run.

Doing Business on PayPal Moving Forward

Without the new PayPal refund policy actually being in effect it’s impossible to say exactly how it will change the landscape of doing business on PayPal. But it can safely be said that the change will not be good for sellers. That may cause some sellers to look for alternatives to PayPal for the online portion of their business.

Read the entire paypal user agreement here.

Looking for some help running your online business? Get in touch today to schedule a free consultation with our experts.


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