Layman’s Version of New Visa Mastercard Requirements For PayPal Merchants

Posted on July 19, 2010. Filed under: eBay, Paypal, Tips & Hints - Website Sales, Tips - for the eBay Seller | Tags: , , , , , , , |

All ecommerce sellers who accept PayPal will need to accept the new Commercial Entity Agreement by October 1, 2010 in order to continue receiving Visa and Mastercard funded payments.  

Accepting this new Commercial Entity Agreement actually means that you are agreeing to accept each of the different commercial agreements for several banks.

  • Commercial Entity Agreement with JP Morgan Chase
  • Commercial Entity Agreement with HSBC
  • Commercial Entity Agreement with Wells Fargo
  • Commercial Entity Agreement with Wells Fargo – Pro
  • Commercial Entity Agreement with National Westminster Bank
  • Most of the Commercial Entity Agreements are very similiar but there are some differences.  While the agreements are obviously very complex, I have tried to boil them down into a short list of 5 Do’s and Don’ts that encompasses the highlights of various agreements. 

    1. WHO can and should give and get information?

    Ecommerce merchants must clearly identify themselves to buyers so that buyers know from whom they are purchasing.  This includes the requirement that sellers provide the address of their permanent establishment on their website if they are accepting PayPal payments on their website.

    Sellers cannot ask buyers for their Visa/Mastercard information (card number, expiration date, CVV2 number) and if for some reason the seller gains access to this information, either by design or by default, then the seller agrees to notify PayPal and the buyer promptly.  This is a major requirement because all sellers who accept PayPal must be compliant with the Payment Card Industry Data Security Standards.

     2. WHAT must sellers do in the event things do not go as expected?

    If sellers plan on limiting the return of their item, they must clearly indicate that to the buyer BEFORE the purchase (thus explains eBay’s requirement that all listings have a return policy stated).  If the seller does not want to offer a refund for the return of an item, they need to state something like “NO REFUND, EXCHANGE ONLY”.  Of course, the seller must always provide the item as described.  For example, if a seller offers a blue shirt but delivers a red shirt then Visa / Mastercard would expect them to give a full refund.  But if the seller delivered a blue shirt but the buyer decided that they didn’t want the shirt because it didn’t look good on them then the seller has a right to offer to exchange the item rather than refund the purchase price.

    In the event of a chargeback, sellers must work through PayPal to resolve complaints.  This is often a source of seller frustration because PayPal decides which chargebacks they will fight.  

    3. WHEN can an ecommerce merchant accept PayPal?

     Sellers can only use PayPal to accept payment for goods and services they have provided within a 30-day window (and the days are counted as BUSINESS days).  PayPal cannot be used to collect payment for any previous “debt”.  So, for example, if you are a service provider who offers payment terms (ie customers normally pay their invoices by check within 30 days)  and your customer doesn’t pay your invoice then you cannot agree to accept PayPal for the service you provided 6 months ago but never got paid for with a check. 

    PayPal also cannot be used to accept payments for any good or service that would be considered illegal.  

    Partial shipments can be billed separately so that means one shipment tracking number must be provided for each and every PayPal payment.  If  an eBay buyer purchases 3 items and makes 3 separate payments, each with full shipping cost, a seller who combines all 3 items into one package and gives back a partial refund of shipping for each transaction is at risk for 2 out of the 3 transactions since there will only be one tracking / delivery confirmation number available.

    4. WHERE can ecommerce merchants indicate to buyers that they accept Visa / Mastercard?

    Sellers can display the Visa / Mastercard logos on their own websites as long as the logos are not misleading.  Sellers cannot make it appear to potential buyers that they are accepting Visa / Mastercard directly unless they have their own merchant account.  So any ecommerce merchant who accepts Visa / Mastercard only through PayPal must make that clear by using appropriate logos and wording.    And ecommerce merchants cannot display logos in a way that would imply that Visa / Mastercard endorses the product or the website.

    5.  HOW are ecommerce merchants expected to accept PayPal?

    Sellers cannot establish a minimum or maximum transaction amount.  If a buyer wants to use PayPal for a $1  purchase, for example, then an ecommerce merchant must accept payment and must not charge extra (surcharge) to the customer who uses PayPal.  This provision applies to U.S. sellers but some countries do allow merchants to add a surcharge if it is disclosed in advance.  But this is strictly forbidden in the U.S. 

    Additionally, sellers cannot in any way try to discourage buyers from using credit card funded PayPal payments.

    NOTE that I am in no way giving any financial or legal advice, just doing my best to summarize all the lengthy legal agreements of the new Commercial Entity Agreements.

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