eBay sellers are concerned about PayPal's decision to withdraw protection for certain types of transactions as part of changes to the PayPal Seller Protection policy next month. It doesn't affect all transactions, only those in which the buyer pays without being logged in to PayPal.





*See important update below.





In an announcement to sellers this month, PayPal stated: "We're updating the additional requirements for coverage of Unauthorized Transactions for sellers under our Seller Protection program to require that the payment must have been made in connection with a transaction where the buyer logged into their PayPal account to complete the transaction in order for sellers to be covered under the program."





Some sellers are asking if they would be able to prohibit buyers from paying without being signed in to their PayPal account. (That seems most unlikely.)





One EcommerceBytes reader who had concerns about the policy change raised an interesting point: "How would the seller know whether the buyer logged in, or not, if PayPal denied coverage for a transaction?"





The change in policy is likely related to eBay's transition to a payments intermediary, which starts on a very small scale in July; eBay and PayPal recently signed a term sheet outside of the 5-year operating agreements the two companies entered into in 2015.





To take a step back, when you go to checkout on eBay, you generally see three options: pay with PayPal, PayPal credit, or Credit or debit card. But PayPal handles all aspects - the "branded" (PayPal), and the "unbranded" (credit or debit card). Until eBay becomes the payments intermediary, PayPal is processing both types, branded and unbranded (except in cases where the merchant offers its own credit card processing).





So in other words, PayPal is withdrawing seller protection from this "unbranded" type of transaction.





PayPal CEO Dan Schulman explained last month, "The "private-branded" processing is highly undifferentiated, it's commoditized and as a result it yields little to no profit. And as we go through this, we are going to be able to shed substantial cost because we aren't going to be doing that "unbranded" piece of it."





Why would it be less profitable for PayPal to process credit and debit card funded transactions? PayPal explains right in its Form 10K filing with the SEC: it pays higher transaction fees when consumers fund payment transactions using credit cards. It pays lower fees when consumers fund payments with debit cards, and it pays "nominal" fees when consumers fund payment transactions by electronic transfer of funds or from an existing PayPal account balance.





While PayPal didn't publish the recently signed term sheet with eBay, part of that deal may have dealt with PayPal's decision to withdraw Seller Protection for transactions when buyers are not signed in with PayPal.





It appears the new change to PayPal Seller Protection is a win for PayPal, neutral for eBay, and a "lose" for sellers.





Things will probably look different once eBay is a payments intermediary, which is expected to fully happen by 2021, since it will be the merchant of record on all transactions including those where the buyer pays with PayPal.





We'd like to hear from readers about how big a problem they think PayPal's change to Seller Protection may be.





- How frequently does eBay seller protection prove adequate?

- How often do you have to rely on PayPal seller protection? (So will this change be a big loss?)





The change to the Seller Protection Policy is part of PayPal's updated User Agreement that takes effect in April, you can read more in this EcommerceBytes Newsflash article





Update 3/19/18: Another way of looking at this. You can pay with PayPal and fund with a variety of methods (for example, credit card, debit card, PayPal balance). Or, eBay lets you pay with "credit or debit card" (without the PayPal branding) - this is so people who don't have a PayPal account can still pay.

However, PayPal is on the backend processing those payments on behalf of eBay.

The change in PayPal's UA indicates it will provide seller protection for the first kind of payments, but not the latter.

Note that once eBay becomes a payments intermediary, eBay will handle all payment processing using a company called Adyen; if someone pays with PayPal, it's going through eBay's PayPal account (not individual sellers), and if someone pays with "credit or debit card," Adyen will be on the backend processing those payments on behalf of eBay.

Will eBay (through Adyen) extend seller protection to those "unbranded" transactions when it takes over from PayPal? eBay may not even know the answer to that question at this point - it's early days.

But in the meantime, it seems sellers are losing out beginning April 19, 2018.





Update 3/19/18: A spokesperson told A spokesperson told EcommerceBytes on Monday:





"We are not proceeding with the amendment originally included in the Policy Update stating a payment must be made in connection with a transaction where the buyer logged into their PayPal account in order for a seller to be covered for Unauthorized Transactions under our Seller Protection program."





Update to the update: PayPal's spokesperson responded to a follow-up question about the reason for walking back the decision: "We decided to remove it because customer confusion was identified."





We can attest to that confusion!