The Truth About Chargebacks and Disputes on Digital Deliveries

  • Jason@DPD
  • October 24, 2012

We often get asked as a pre-signup question for DPD if our system will help vendors fight chargebacks and disputes from buyers. Usually vendors have been burned in the past by unscrupulous buyers downloading their product and then doing a chargeback, leaving the vendor out of luck.

We deliver terabytes of downloads like games, music, video, graphics, and ebooks for thousands of vendors, so we’re in a pretty good position to spill the beans on this one.

They want to know if anything can prevent chargebacks for digital orders.

The short answer? No.

Why You’re Going to Lose A Chargeback


PayPal has built their business on security and safety for buyers. This makes them nearly 100% biased toward siding with buyers when it comes to chargebacks and disputes. This is not the court system where vendors are innocent until proven guilty. In every case we have ever heard about (and trust me, we talk to a lot of vendors) PayPal seems to start with the logic that “The seller is wrong.”

We have never heard of a single case from any of our thousands of vendors where they won a PayPal dispute even with IP addresses and download logs. If a customer disputes your charge through PayPal you will lose the money, period.

Edit: A couple vendors have responded and said that they won a PayPal dispute in cases where the person who filed the dispute didn’t actually follow up on the dispute process, so PayPal decided in the vendor’s favor. So hey, at least if the person that does the chargeback is lazy you might have a chance!

We’re a PayPal partner. They’re our #1 payment processor in use with DPD and they probably wouldn’t like that we wrote this, but it’s the truth.

Just about everybody who is buying stuff online has a PayPal account. If you don’t accept PayPal then you’re turning away a huge number of sales. PayPal knows this, so they have very little motivation to change their dispute practices.

Credit Card Processors

For Visa and MasterCard the credit card processor dispute and refund polices are controlled by the issuing bank so the enforcement of chargebacks vary broadly. One chargeback might be handled by Wells Fargo and another by Chase or Citibank.

In the vast majority of cases we have heard about the only way they will side with you in any dispute case is if you can provide a tracking number and proof of delivery for the order.

By tracking number we mean a USPS, UPS, or Fedex tracking number in the US (or other carriers internationally). By proof of delivery we mean “signature required” where the person who ordered the product actually signed for the delivery. Letting UPS leave it on the doorstep without a signature doesn’t count for proof of delivery- “The neighborhood kids must have stolen it! I didn’t get it!” works for a dispute.

For Discover and American Express the policies are set by the credit card company. From what we have heard with other vendors, American Express seems to be more willing to hear the vendor’s side of the story, but as with all internet transactions the deck is still stacked in the buyer’s favor. Unfortunately, we really don’t have enough experience with Discover to offer valid feedback on them.

The trump card for all disputes? Simple- the buyer only has to assert that the item was not as described. Easy. The credit card company says you didn’t sell them what they thought they were getting, the buyer get’s their money back, and that’s it. They win the dispute.

What can you do about it?

Sadly, not much.

However, a tactic that has been said to work by some vendors is this:

Buyers are looking for instant digital delivery and you’re looking for peace of mind from chargebacks. A simple solution to this is to bundle your instant download with a tangible good. When a customer makes an order of your digital/tangible bundle, they get the instant delivery they are looking for and you ship them an item (which could be just a sheet of paper with download instructions, or a CD with a copy of their order) via the cheapest method you can with proof of delivery. In most cases in the US, that’s Postal Mail with signature confirmation.

When a dispute comes up you can reference the proof of delivery and hold off the “I didn’t get it” claims.

Of course, this comes at a price. Instead of just hanging out and collecting payments for your instantly delivered download without any action on your part you now have to mail something out in a timely maner. But, if you’re plagued with chargebacks it might just be a viable alternative to eating the lost sales.

[box]The information in this post is based on our real world experience talking to and supporting the vendors who use DPD to sell downloadable products. We welcome any outside experiences or tips in fighting chargebacks and reversals![/box]

Responses (10) / Trackbacks (0)

    by Greg Thurman
    Oct 24th, 2012


    So true, but I was pleasantly surprised earlier this month when I actually WON a dispute from PayPal. The customer said the merchandise was never received (it was a digital download). The DPD processor showed of the two downloads, so I contacted the customer by email. No reply, so I sent another email a few days later. After no response from the buyer, I forwarded my email service attempts to PayPal to let them know that the buyer refused to contact or reply to me.

    Here is the final email that PayPal sent to me afterwards:

    Hello Greg Thurman,

    We have concluded our investigation and have decided in your favor. Any funds that may have been temporarily held have been returned to your account.

    Transaction Details

    Seller’s Name: GATor Trading Corporation Seller’s
    Seller’s Transaction ID: xxxxxxxxx474Y

    Transaction Date: Sep 8, 2012
    Transaction Amount: -$147.00 USD
    Your Transaction ID: xxxxxxxxxxxxx5728
    Case Number: PP-xxx-xxx-655-585

      by Jason@DPD
      Oct 24th, 2012


      Greg, as much as I’d like to believe that DPD’s download tracking won you that case, I suspect that PayPal found in your favor due more than anything to the lack response on the buyers part.

        by Greg Thurman
        Oct 26th, 2012


        Yes, you’re right Jason. Sending screenshots of the DPD downloads has never won me a case in the past, but the lack of response from the user and my willingness and attempts to provide great service… won. Yeah!

    by Vincent Le Moign
    Oct 24th, 2012


    I’ve got the same experience.
    The only time I won a chargeback was because the buyer didn’t make the effort to answer me, and my attempts to contact the buyer were tracked by Paypal dispute system.
    At the end Paypal decided in my favour.
    The fun part: I give a 30 days free refund to any buyer who write to me and ask refund. No questions asked. But I still have a few buyers who are too lazzy to do it and just dispute the case over paypal (and don’t answer my email after…)

      by Jason@DPD
      Oct 24th, 2012


      Thanks Vincent. I’ve added an edit based on your experience along with Greg’s on “if they don’t respond to the dispute PayPal might decide in your favor.”

    by Terry Howard
    Mar 13th, 2013


    We had a customer dispute a payment to paypal we won the case but now the buyer files a claim with his credit card company. we sell web hosting his site is online and his VPS server is online but yet he is claiming he never recieved his product ? i think were going to be out the money

    by jack
    Oct 25th, 2013


    well the problem is I sell digitals good over the world, so how can I send something so far away with signature proof?
    Paypal is so bad that in the last chargeback I sended no only the proof that the customer was using my digital good, but screens of the customer telling me that all was a mistake and he no want the chargeback, I asked him to contact paypal, he dont do it, so I no only lost the money but they charge me fees! the money was $75 and they charge me $115. MADNESS

    by Tony Simon
    Feb 02nd, 2014


    The problem is not really with chargebacks, as much as it is about the unjustified extra cost “the banks / payment processors such as paypal” put on vendor.

    Chargeback, if it is a right for customer as per law, should be a service that should be provided free of cost by the banks/paypal for all (customers as well as vendors). How justified is it for banks to charge money from vendors to implement the law?

    This article at nicely summarize the steps banks should be taking to make this chargeback more meaningful.

    If vendors are offering no-questions asked refunds, customer who resort to chargebacks should be rather redirected to refunds and not charged extra.

    At the end of the day the main problem here is: banks/paypal trying to juice extra money out of vendor and no body thinks it as wrong !!

    by Kelly
    Apr 28th, 2014


    We have managed to save a lot of money in chargebacks by offering a money-back guarantee. This assures our customers that it’s safe to buy our software and try it out, allows us a direct dialog with the customer when there are problems (giving us a chance to work the issue out prior to processing the refund), and of course gives us a free mechanism to handle most unsatisfied customers.

    As I read a lot when we were deciding to add our money-back guarantee: Upset customers will be upset regardless of your refund policy, and you will likely lose their money no matter the case. A clear and generous refund policy will get a small online business more customers than it will lose you!

    by Steve Sims
    Jan 28th, 2016


    I have the same problem mentioned by Le Moign. I’ve been so proactive and offer a 100% Guarantee no questions asked.. I post that everywhere on my site.. and I get the lazy ones that will not ask for the refund and contact their bank for a chargeback instead.

    I then contact the customer with a well written letter asking them to please contact their bank and reclassify it from a chargeback to a refund as we provide that to begin with. We even give a brief explanation on why it is important to us as a small company to have it reclassified to a refund instead of chargeback. They do not care and I have never had someone do that for me.

    The problem is the credit card company will not allow you to go over 1% ratio of chargebacks or they will close your account. Whether it is your fault or not.

    I have sent several emails to my payment processing company (not PayPal thank goodness) asking for help on this topic. They respond in agreement that it is not fair but there is nothing they can do as their hands are tied as well.

    How can someone change the laws about this? I am ready to head something up because it is not right.

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