Recognizing and Preventing Paypal Scams

Introduction

Still one of the most widely used online payment platforms, PayPal is a common target for fraud. Recently, chargeback scams have become a growing concern for merchants who accept payments through the platform. While PayPal does offer seller protections, there are limitations, and bad actors often find ways to exploit them.

This article outlines the most frequent chargeback scam techniques affecting PayPal sellers today, offers practical steps to reduce risk, and introduces how automated chargeback mitigation can help streamline your response process and improve outcomes.

Key Takeaways

• PayPal chargeback scams continue to affect merchants in 2025, particularly those selling through online marketplaces.
• Common fraud tactics include overpayment schemes, gift payment scams, and address manipulation.
• These scams often result in the loss of both inventory and funds due to loopholes in standard buyer protection policies.
• Merchants can reduce risk through preventive steps like verified delivery, documented communication, and avoiding “gift” payments.
• For cases that can’t be prevented, automated dispute response platforms like Justt help recover revenue and reduce internal effort.

Why PayPal is a Common Target for Chargeback Scams

PayPal’s widespread use and buyer-centric policies have made it a popular platform for online transactions, but also a hotbed for fraud. The platform’s protections are primarily designed to shield buyers, which means merchants often face an uphill battle when dealing with disputes or chargebacks.

Several factors contribute to the rise PayPal related chargeback scams:

• Ease of access: Opening and using a PayPal account requires minimal verification.
• Buyer-favorable resolution process: In case of dispute, PayPal and the card networks often prioritize the buyer’s experience, requiring sellers to meet strict evidence standards to win a claim. PayPal’s Seller Protection program outlines which transactions are eligible, and how quickly that protection can be voided.
• Limited pattern recognition: Paypal’s systems flag certain behaviors, but may not account for patterns across multiple transactions or sellers, which limits their ability to detect coordinated fraud.

While PayPal offers a Seller Protection program, coverage is limited and can be voided by factors like shipping to unconfirmed addresses or accepting payments marked as “gifts.” Understanding these limitations is the first step toward building better defenses.

Common Types of PayPal Chargeback Scams 

Scammers use a range of tactics to exploit transaction rules and bypass seller protection. Here are some of the more common schemes:

Overpayment Scam

In this scenario, the buyer intentionally “overpays” for an item, often using a stolen credit card. They then contact the seller, ask for a refund of the difference, and later file a chargeback on the original transaction. This leaves the seller responsible for both the refund and the chargeback amount, while the scammer keeps the product.

Overpayment scam red flags:

• Buyer insists on sending more money than required
• Urgency around getting a partial refund

Gift Payment Scam

Buyers request to send funds using PayPal’s “Friends and Family” (gift) option rather than the standard “Goods and Services” payment. This type of transaction isn’t covered by PayPal’s Seller Protection policy. Once the product is delivered, the buyer may file a chargeback with their card issuer, claiming the transaction was unauthorized.

Gift payment scam red flags:

• Buyer asks to avoid transaction fees
• Suggestion to use the “gift” option to speed things up

Fake Invoice or Phishing Scam

Some scammers send fraudulent invoices that look like they’re from PayPal, tricking recipients into paying for items they never ordered. Others use phishing emails to lure merchants into sharing login credentials or account details.

Fake invoice/phishing scam red flags:

• Invoice for unfamiliar products or services
• Emails that include mismatched URLs or unusual language

Address Manipulation Scam

This scam exploits delivery verification processes. A scammer may provide an address that’s undeliverable or incomplete, causing the shipment to be returned. Once the seller re-sends the item to a “corrected” address, the scammer claims the item was never received and files a chargeback. Because the original shipment record doesn’t show a valid delivery, the merchant may lose the dispute.

Address manipulation scam red flags:

• Frequent requests to change shipping details
• Mismatched billing and delivery addresses

eBay Partial Refund Abuse

Some fraudsters target sellers on eBay by purchasing items, then requesting partial refunds citing minor issues like damage or incorrect sizing. After receiving a partial refund (and often keeping the item) they proceed to file a chargeback for the full amount through PayPal or their card provider.

eBay partial refund abuse red flags:

• Buyer praises the item but requests a refund anyway
• Partial refund requests followed by full disputes

The Real Cost of PayPal Chargeback Scams

For merchants, the financial impact of PayPal scams often goes well beyond the original transaction. Each successful scam can create a ripple effect that drains revenue, increases operational overhead, and damages trust with payment processors.

In a 2024 report by Newsweek, 83% of U.S. adults reported being targeted or scammed on PayPal, Zelle, or Venmo, up from 68% in 2023. While much of this fraud is consumer-facing, businesses often absorb the cost when scams escalate into chargebacks.

Key Costs to Consider:

• Lost Revenue: You lose the sale amount, the product, and any refund issued — often totaling more than the original transaction value.
• Chargeback Fees: PayPal (and underlying card issuers) typically charge a dispute fee per incident, ranging from $15 to $20 or more depending on your agreement.
• Operational Overhead: Dispute resolution requires time-consuming documentation, back-and-forth with PayPal, and internal reviews — especially burdensome for lean teams.
• Account Risk: A high chargeback rate may result in restricted PayPal functionality, delayed funds, or account termination.
• Reputational Impact: Some customers dispute transactions due to miscommunication or buyer’s remorse. When legitimate buyers get caught in manual dispute workflows, it can create a negative brand experience.

According to industry estimates, the average cost of a single chargeback is approximately 1.5–2.5 times the original transaction value, when factoring in time, fees, and losses.

This cost profile underscores why prevention and fast resolution are critical, not only to protect short-term cash flow, but also long-term platform viability.

How to Prevent PayPal Chargeback Scams (and Why Automation Matters)

While not every scam can be prevented, there are clear steps merchants can take to reduce exposure and improve their chances of winning disputes. That said, manual tactics have their limits, especially at scale. The most effective strategies today combine preventative best practices with automated chargeback mitigation.

Practical Prevention Tactics

• Require Signature Confirmation on High-Value Orders
  A confirmed delivery signature can be a deciding factor in chargeback disputes, particularly for “item not received” claims.
• Ship Only to Verified Addresses
  Avoid shipping to addresses that are unconfirmed, undeliverable, or differ from the billing location without added verification.
• Keep Clear Documentation
  Maintain copies of all order confirmations, buyer communications, shipping details, and product descriptions. For digital goods, log access or delivery timestamps.
• Avoid “Friends and Family” Payments
  Never accept gift payments for commercial transactions. Doing so forfeits PayPal’s Seller Protection eligibility.
• Flag Unusual Buyer Behavior
  Large overpayments, frequent order changes, or rushed delivery requests should trigger manual review, or better yet, automated fraud scoring.

The Limits of Manual Defense

While the above tactics help, they’re often reactive and resource-heavy. Reviewing every dispute manually takes time, especially when managing multiple channels. Documentation can be incomplete, inconsistent, or not aligned with PayPal’s dispute resolution format. The odds of winning certain chargebacks remain low even with effort, particularly with well-practiced fraudsters.

How Automation Improves Your Chargeback Strategy

Platforms like Justt help merchants respond to disputes at scale by automatically:

• Collecting and structuring the strongest available evidence for each case
• Mapping chargeback reasons to relevant transaction data
• Tailoring responses to platform-specific requirements (e.g., PayPal vs. Stripe)
• Tracking performance metrics and identifying fraud trends over time

Instead of treating chargebacks as isolated customer service tickets, automation turns them into a data-informed operational process, improving both recovery rates and efficiency.

Justt merchants report higher win rates and fewer hours spent managing disputes, freeing up teams to focus on growth instead of rework.

Justt Helps Merchants Fight PayPal Chargebacks More Effectively

Even when merchants follow all the recommended prevention tactics, chargebacks still happen, especially on platforms like PayPal, where scammers know how to exploit system gaps. That’s where Justt comes in.

Our platform automates the end-to-end process of chargeback management, helping merchants build and submit the strongest possible responses, customized for each payment platform, including PayPal.

What Justt Does for PayPal Disputes:

• Identifies patterns in scam behavior: Using historical dispute data, Justt helps uncover repeat abuse tactics (like coordinated address fraud or refund abuse).
• Builds data-backed evidence packages: We automatically gather the right documents and transaction data — including proof of delivery, customer communication, and product metadata — and map it to PayPal’s resolution requirements.
• Removes manual overhead: Justt saves your team from combing through email threads, exporting PDFs, or formatting dispute responses under time pressure.
• Improves win rates: Our customers benefit from higher recovery rates thanks to cleaner submissions, consistent logic, and better fraud flagging.

By integrating directly with a merchant’s systems, Justt compiles the strongest available evidence for each dispute, including transaction details, communication records, delivery confirmations, and behavioral context. Every response is customized based on the dispute reason and platform-specific requirements, no one-size-fits-all templates.

This automation consistently improves both outcomes and efficiency. Melio, a B2B payments provider, increased its chargeback win rate by over 50 percentage points, achieving an 85.8% success rate after implementing Justt. Hostinger, a global hosting company, tripled its win rate and freed up nearly a full day of internal ops time per week. At Marley Spoon, a meal kit delivery service, Justt helped the team reduce dispute handling time from days to hours while boosting win rates to 37%.

For merchants facing chargeback scams on PayPal, particularly those involving overpayment, address manipulation, or “item not received” claims, this combination of speed, accuracy, and platform-specific tailoring is critical. Justt’s system also learns over time, using feedback from resolved cases to improve future submissions and flag emerging fraud patterns.

In practice, this means higher recovery rates, reduced internal workload, and better visibility into where and how fraud is occurring.

Final Thoughts

PayPal disputes are often stacked in the buyer’s favor by default. That doesn’t mean sellers are powerless; it just means they need a system that works as hard as the fraudsters do.

Whether you’re dealing with a few chargebacks a month or hundreds, Justt gives you a scalable, low-lift way to protect your revenue without draining your team.

Want to see how much you could recover?

Get in touch.

FAQs

What is a PayPal chargeback?

A chargeback occurs when a buyer contacts their card issuer to dispute a transaction. If the issuer sides with the buyer, the funds are withdrawn from the seller’s PayPal account and returned to the buyer.

Can merchants win PayPal chargebacks?

Yes, but it depends on the strength of your evidence and whether the transaction is eligible for PayPal’s Seller Protection. Providing tracking information, delivery confirmation, and communication records improves your chances.

How long does it take to resolve a PayPal chargeback?

Most chargebacks are resolved within 30–75 days. The timeline varies based on the card network and how quickly you submit documentation.

What scams lead to PayPal chargebacks?

Common scam tactics include overpayment with stolen cards, fake gift payments, claims of undelivered items, and address manipulation to bypass delivery verification.

Does PayPal protect sellers against chargebacks?

Yes, but only if the transaction meets the criteria outlined in PayPal’s Seller Protection policy. For example, physical items must be shipped to the buyer’s confirmed address with a trackable service.

What’s the best way to prevent PayPal chargeback scams?

Use delivery confirmation, avoid accepting “Friends and Family” payments, flag high-risk behavior (like urgent overpayments), and maintain clear communication with buyers. For larger merchants, automating dispute handling can improve both prevention and recovery.