Unfortunately, it cost me $300 to find out about this loophole in the PayPal system... hopefully bringing it to your attention will save you a little money.

Have you ever read the fine print when you purchased a digital product or service through PayPal?

If you haven't read the PayPal fine print, then you're in for a surprise.

I admit that I completely skimmed over it myself... In fact, I never really noticed it at all until I had a problem with a someone not delivering what was promised when I made an online purchase of a digitally delivered service. (Click on the link to read the complete story about my experience with IBSoftshop and my review.)

Yes, that is a bold statement... after all, PayPal boasts:

• 100% protection against unauthorized payments sent from your account.

• Buyer protection for eBay buyers.

• Dispute resolution on PayPal purchases.

That all sounds really great until you read the fine print taken directly from the PayPal Website:

"Dispute resolution on PayPal purchases.

When you pay with PayPal, you gain access to a forum for dispute resolution called the Resolution Center. Through it, you can file a claim against:

• A physical good that you paid for but never received.
• A physical good you purchased on eBay that is significantly different than what was described in the listing.

Dispute Resolution specialists gather information about your transaction and help you resolve the issue. Throughout the process, you’ll be advised of your claim’s status via email and on your Account Overview page. For specific terms and conditions, please review the Buyer Complaint Policy in our User Agreement."

In other words... You're completely on your own if you use PayPal to purchase an ebook, software delivered online, or any service... including webmaster services, logo creation, article writing, shopping carts, consulting, or anything else that isn't a physically delivered product.

Considering how many products and services are delivered online and purchased through PayPal... the PayPal Buyer Protection is absolutely worthless to most of us.

I'd be willing to bet that most people who purchase any of these non-physical products using PayPal are totally oblivious to the fact that PayPal won't protect their purchase and won't try to resolve problems they have with a bad digital merchant.

In fact, PayPal washes their hands of any disputes that don't involve physical products... they don't even contact the seller to try to make the digital merchant make good on their promises.

Great News for a Dishonest Merchant!

From a merchant's point of view, this is GREAT NEWS! That means that they can:

• Sell digital products and services without worrying about actually delivering them.

• Make wild claims about their products without worrying if they are true or not.

• Deliver products that are sub-standard or significantly different than advertised.

Hmmm... Let's think about this for a minute. Who wins in all this?

This is a win/win for PayPal... they maintain their reputation because they have that small disclaimer in their dispute resolution information and they still get to keep their fees.

It's certainly a win/win for the digital merchant. They get to keep the money they get from unsuspecting customers... and the customer has nowhere to go for satisifaction or to make a formal complaint.

The big loser here is the consumer. He's out of his money, didn't get the product promised, and his blood pressure had skyrocketted out of frustration.

So, How do you protect Yourself?

Don't use PayPal for ANY intangible product or service!

I'm sorry, was that a little too obvious?

You'll find that some businesses only offer PayPal as a payment option. If you really want the product they offer, do your homework on them, search for reviews, visit some forums, etc. before you purchase from them... especially if it's a big ticket item.

There are a lot of very trustworthy businesses that use PayPal exclusively because it's so easy. You may not have the choice of another payment option.

If you have to use PayPal, use your own credit card rather than the balance in your PayPal account for digital purchases.

Your own credit card will have it's own dispute resolution and complaint process independent of what PayPal provides. If you don't get your product, complain to your own credit card company and it will most likely result in a chargeback on the merchant.

A merchant chargeback is expensive for the merchant... usually they lose all the money from the initial sale plus a chargeback fee on top of that. If you've used PayPal, then the chargeback will go against PayPal and will then be passed on to the merchant.

Too many chargebacks will probably cause PayPal to shut
down the offending merchant... eventually.

Maybe if this happens often enough PayPal will revise their dispute resolution policy to include intangible products... It would be nice if someone were genuinely looking out for the consumer!

I hope this information saves you some dough... I wish I had been a little smarter, then I wouldn't be out $300 myself!

If you come across a "gray area" that you'd like to bring to the attention of others, let me know with the specifics and they may end up in The Doghouse Report too.

In the meantime, remember to...

"Think outside the flock."


Chris Yates
Internet Marketing Tutor

NOTE: This page is not designed to slam or slander any business, person, or product. The information here is provided as my own opinion. You should view the evidence and supporting facts for yourself and form your own opinion.