Paddle receives 2 types of events in regards to chargebacks: Chargebacks and Pre Chargeback Alerts. This document will explain each type of event and the differences between them.

What are Chargebacks?

Chargebacks occur when a buyer contacts their card issuing bank or PayPal to dispute a charge. This can be for many reasons, that include, but are not limited to:

• Fraudulent transactions
• Unrecognised charges
• Cancelling recurring billing
• Product unsatisfactory/ not as described
• Refund not issued

Chargebacks are a common part of dealing with online payments and are especially common in the world of software. We always recommend trying to resolve any issues in the early stages to avoid chargebacks from being filed. One way could be issuing refunds to buyers who are not satisfied with your product.

Chargeback Rates

It’s important that chargeback rates are kept low on all of your accounts with Paddle. To learn more on how to do so, please ensure that you read the “Best Practices” section on our Seller Handbook and our blog post on chargebacks. 

A chargeback rate below 0.65% is acceptable to Paddle and the card payment networks. We calculate the account’s chargeback rate by the dollar amount of all chargebacks received rather than by count of chargebacks i.e. total transaction volume in a given month vs total chargeback volume received in the same month. This method gives us a better view of the real impact chargebacks have on your account.

If your chargeback rate rises to an unsustainable level (above 0.65%), Paddle reserves the right to mandate changes to help bring your chargeback rate to an acceptable level. This is done on a holistic, cooperative, case-by-case basis with our Risk Team but we will never make changes to your account without informing you. 

Paddle’s Defence System

When a chargeback is received, Paddle’s Dispute Defence System collects the required documentation based on the chargeback reason, to fight the chargeback in a dispute. The documents and information submitted in the dispute are called evidence. The evidence may include communications with the buyer, subscription payment history, and other proof the card holder authorised the purchase. We also understand that you may want to submit your own evidence to help defend a chargeback, however, with the Dispute Defence System this is not necessary and additional evidence provided by a seller will not be taken into account.

All chargebacks incur a fee of $15, £15, or €15 for card payments and $20, £20, or €20 for PayPal transactions, depending on the currency the buyer was charged in. When a chargeback is received, the chargeback fee is passed onto you, along with the total amount of the disputed transaction is deducted from your Supplier fee payment, also known as the account balance. If we win a chargeback dispute, we return the original transaction amount and remove the chargeback fee to your balance.

Pre-Chargeback alerts

Pre-Chargeback alerts are separate from chargebacks. Pre-Chargeback alerts are notifications that a chargeback is about to be received on a transaction, and to avoid the chargeback a refund must be issued. These alerts are very beneficial as they allow Paddle to refund a transaction before it turns into a chargeback and therefore it does not affect the chargeback rate. This helps keep account chargeback ratios within an acceptable threshold, avoiding penalties that can include account closures.

Pre-Chargeback alerts also enable the ability to immediately revoke access for a buyer who might continue using your product until a chargeback is formally registered, and prevent users from exploiting the returns process.

In the event we receive an alert from one of our partners, we automatically refund the transaction to the original payment method, to avoid receiving a chargeback and stay within the acceptable chargeback ratio. Each alert incurs a $15, £15, or €15 fee, which is deducted from your Paddle balance. 

How we’ll notify you about chargebacks and chargeback alerts

You can identify a chargeback on a transaction in the Vendor Dashboard. If you’re using Paddle Classic, a transaction that receives a chargeback or a pre-chargeback alert will have a note saying that you have received a chargeback. If you’re using Paddle Billing, you'll see a specific label indicating that you've received either a pre-chargeback alert or a chargeback.

If you are looking for instructions on how to get notified about disputes, please head to this help article.