New Changes to PayPal Policy Will Protect Digital Goods

changes to paypal policy

A change is coming to PayPal that is designed to protect both buyers and sellers should a dispute over digital goods arise.

On its website, PayPal gives the examples of services, digital goods, travel and event tickets as intangible items. As of July 1, if a buyer claims they did not receive the intangible item they paid for, or they claim the item they received was not as it was described, PayPal will review the dispute.

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The move is in response to an increase in the sale of intangible goods. Earlier this month, PayPal told that the dollar value of digital goods purchased by the company is growing by about 20 percent a year.

Should a conflict arise, sellers should be prepared to provide PayPal with “compelling evidence” that they provided the intangible item, and that it was as they described it to be.

In this case, physical proof that a non-physical item has been delivered as it was described means proof of download including the date of fulfillment, and as well as the time the product was downloaded. PayPal recommends having proof of download, date of fulfillment and the time of download ready at the time of the transaction.

What This Means for Past eBay Users

PayPal and eBay are parting ways, though eBay has never allowed the sale of digital goods on its website, except through its classified ads.

Under the new policy, PayPal will treat payment authorizations made to eBay as canceled, and PayPal will not complete the payment. If PayPal determines that it would have ruled in favor of the individual who filed the claim, the company will re-file the claim.

PayPal’s Seller Protection Program, however, will not cover all claims filed under eBay.

PayPal’s policy change is good news particularly for businesses that depend on old-fashioned honesty in their industry, such as freelance writers whose products are the equivalent of digital documents.

In an email to Small Business Trends, a PayPal spokesperson says:

“Sellers such as small businesses will benefit because of the extra confidence buyers will have when shopping for goods and services. Also, it is important to note that because of PayPal’s sophisticated fraud prevention technology and expertise, we are able to catch the vast majority of fraud before it ever reaches our sellers. This is a service we provide to our sellers every day, and is a significant benefit of accepting PayPal.”

The company goes on to say it will consider all claims on their merits, and that if sellers can offer solid evidence that they provided the goods or services as described, PayPal may reject the buyer’s claim.


Julie Fidler Julie Fidler is the author of Adventures in Holy Matrimony: For Better or the Absolute Worst and is a legal blogger for a large national law firm. She resides in Pennsylvania with her husband two very spoiled cats. Find out more at her personal blog.

19 Reactions
  1. I would advise correcting this article fast for legal reasons. It’s entirely inaccurate. Though they offer “Buyer protection” Their have stated officially that they do NOT offer SELLER protection.

    As a victim of that same policy myself and having seen countless threads of other victims, the bottom line is this:

    If there’s a reveral the sellers all appear to be losing out, myself included. Paypal I have spoken to and they have said word for word “We do NOT cover intangible items”. If you’re a SELLER think very carefully before dealing with Paypal, unless their policy changes

  2. Paypals response word for word, this time from Facebook:

    “There is a higher level of risk when you sell digital goods online and at this time, the Seller absorbs this risk.”

    As usual hidden in the waffle and disclaimers:

    PayPal Hi Simon, thanks for posting. PayPal has expanded it’s Buyer Protection in recent weeks to offer full coverage globally for both tangible and intangible items. This means that if a claim is open for a digital good or service to state the offering wasn’t received or was not as described, PayPal will gather evidence from both parties before deciding on the case. However, if a payment is reported as unauthorised, the situation is a little different. As it stands, our Seller Protection Policy does not cover intangible items. If the payment in question is deemed to be unauthorised after a thorough review by PayPal, there is a chance the Seller involved will lose out. There is a higher level of risk when you sell digital goods online and at this time, the Seller absorbs this risk. Here’s a little more information about how this works Simon and I hope that makes the whole process a little clearer:

  3. To Whom it may concern,
    The thought that the seller will take all the risks will defiantly create an impact on my decision whether or not to stay with PayPal as most likely many other sellers providing intangible items.

    Though you do have a certain amount of protection here “Should a conflict arise, sellers should be prepared to provide PayPal with “compelling evidence” that they provided the intangible item, and that it was as they described it to be.”
    Then you go on to say
    “In this case, physical proof that a non-physical item has been delivered as it was described means proof of download including the date of fulfillment, and as well as the time the product was downloaded. PayPal recommends having proof of download, date of fulfillment and the time of download ready at the time of the transaction.”
    With these two statements I do not have an issue with
    This may not be the case in our current world. But as you are quite aware, There will be those with fictitious fabrications to try and convince you they did not receive a product that they felt they were getting. When in reality they Knew fully well what they were to receive both with the intangible item and support for that item. From your statement for us as a seller we would have to go well beyond your scope of thinking by supplying email conversations and Personal Messenger conversations as well to prove our intent is honorable.
    This exact scenario is going on right now as we speak with a software company I am affiliated with, whereas a customer is making an attempt to scam a 3rd party developer.
    Buyer Protection is an excellent way to go but the seller should be equally protected

    I feel you really need to rehash your thinking on this policy where the “Seller absorbs the risk”

  4. Ebay most certainly sold digital items before forcing people to use their classified ad format! There were many PowerSellers selling digital downloads on Ebay before the rug was pulled out from under them and they lost their entire incomes. Let’s be clear and honest here, shall we?

  5. PayPal does NOT protect sellers of digital products. We have used PayPal for 10 years and what we have seen in the last year is horrible. We sell software and 100% of the claims PayPal now sides with the buyers. They used to side with us sellers for digital goods but they do not now. We had 21 claims over the past 12 months and lost every one of them. We provided proof that the customer downloaded the software, installed it on a domain registered to them and proof of email delivery and download and PayPal sided with the buyer effectively allowing customers to steal our software.

    We are now going to find another processor for PayPal is becoming a huge joke for online digital sellers.

    If you’re considering PayPal for selling your digital goods, find another solution because they do NOT have your back.

    • Did you happen to find an alternative?

    • Yes, did you find any good alternatives?

    • we sell digital items and have for years, turn over 55k easy and paypal think its fine to accept payments from unauthorised accounts.
      We have told them just have automated callback to ask hey did you buy the item..
      We tracked down one guy buying stolen credit cards from blackhatnet and found YouTube vids of him bragging about the items he buys.
      He scams people for digital goods, sells those for money and withdraws,
      We found his IP, face, name, address, school, xbox gamertag, everything possible even his wedding venue and date of marriage.
      Took the 20 page report to the police (uk) who did **** ALL!
      So we went to the FBI direct and they couldnt touch him as he needed at the time 2011 to commit more than 32k in fraud for the FBI act.


      Paypal send us emails, HEY its okay to send, then blame ebay for allowing the poorly checked sale as there processor.
      ebay are the problems for me, I just cant stand that buggy, scam riddled piece of shit.

    • Really? I’m surprised PayPal sided with the buyer. In my case, they sided with the seller. I sent the seller money to do sequencing of my DNA. Once they got my money, they refused to send me the results until I give them more money for their “additional time” to handle my case. This is obviously fraud so I took it up to PayPal. I filed an “item not received” claim and I somehow lost. I’m out $200 and still have no results. I just figured PayPal usually sides with sellers.

      • I recently just had the same experience. I paid $265.00 to a Graphic Design Company to build me a business website and wound up building it myself, because the design company could not get my request right. Weeks of waiting with much back and forth, just to finally receive a the same website that I designed with very little changes. PayPal said that my service was not covered under the protection services. so now I’m out of $265.00 for a site that I built myself.

    • I am not sure why you are blaming Paypal, do you think if you accept a different type of payment, then you are safe? A buyer can file a dispute with any type of credit-debit card they use, and I am going through that right now, I purchase a digital related service from a site that claims to have a 30 day money back guarantee, and they are pushing back hard, and I may be forced to file a dispute, and to be honest, the money is not technically yours until after the dispute period has expired which can be 90-180 days, so if you do not want to accept this level of risk, then I am afraid that running any type of online business may not be for you. digital sellers are just an after-thought to Paypal, they know that you really do not have a leg to stand on, and if a buyer files a dispute with their credit card, then it is automatic game over.

  6. Jim Farley (@jimfarleyii)

    has anyone found a good alternative to paypal for selling their digital goods yet?

  7. Paypal has a subcription service.
    Digital goods (like software) can be licensed with a subscription.
    The software can check the subscription and revoke the license in case on non-payment.
    This is the basis of SAAS. You are actually selling a service, not goods.

    With things like video, music, and images you have to look at other DRM solutions.

  8. Hello guys
    i have been using paypal since 2005, and have had to deal with such matters.
    i you are a seller, rest assure that you will be protected by paypal as well

    When paypal say they dont cover intangible items, you the seller have to think that it applies to you and and the buyer.
    When the buyer complains, you the seller have to tell paypal that i was a digital download.
    And dont forget to escalate before the buyer does.

    When you receive the notification from paypal that a buyer is complaining they didnot receive their product, go to the case and escalte then you put the download link in the NOTE.

    paypal will tell your buyer the they dont protect againt intengible items. 😉

  9. It a shame that there are individuals out there that want something for nothing and are willing to use loopholes to acquire the same. Then we have to come up with counter measures, then they find more loopholes, and we come up with…..By the time we are done everyone has wasted a lot of unrecoverable energy and resources and we have created a mountain of redundancy that further clogs the system and reduces our rights and costs everyone, including the perpetrators in the end. You would think that our population could think ahead (evolve) a little to realize that gaining a little here and there in the short run just costs us all so much more down the road.

  10. To be honest this rule came in place as there were many rouge digital sellers who were conning buyers, yes I know most sellers are honest and making a living, but the few rouge ones has bought this issue on everyone. I bought a digitial item on ebay, never received it, by time i opened case seller had 5 negatives, guess what ebay said no refund on didgital goods despite 5 negatives in last few days, well hope PayPal will get my money back as they now cover us.

  11. Hi guys!

    I had a ridiculous situation with PayPal! I sell digital cliparts on Etsy. A customer purchased my digital set for 1.98$. Month later she claimed that this transaction was unauthorized. I provided a screenshot showing that she had downloaded all the files. But PayPal replied that intangible goods are not covered under Seller Protection and held 1.98$ + 20$ chargeback fee from my account! I paid 20$ and this customer uses my graphics for free! What a shame!!!

  12. Had similar issue with PayPal just recently. The seller protection worth nothing. You are on your own if you are selling digital goods. And yes, they also take charge back fees.

  13. I have Shopify as my support. I’ve been with PayPal since 1998. I sell intangible digital files for machine embroidery. I sold on EBay too before they yanked us down, and so that statement in the article isn’t true. But I say all of this to say, I’ve won more cases with PayPal Resolutions than I have lost.

    Shopify time stamps and download information is sent to PayPal with the purchase. The will ask you for evidence and all you need to do is print out the Customer Orders in question and send them to PayPal inside the Resolution Claims area. Send as much information as you can. I just won another case yesterday. PayPal DOES look at it all and makes a decision, but you have to have SOLID EVIDENCE. Shopify offers this… Consider using them for web hosting. They are GREAT.

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