PayPal was founded in 1998 and is now the world's fifth-largest processor of credit transactions after Visa, Mastercard, American Express and Discover. PayPal has more than 360 million users worldwide and is the default payment option for eBay purchases.
PayPal has two types of accounts: personal and business. The personal account is used to send and receive funds between “friends and family.” The business account is used by vendors selling merchandise on the internet.
Because of its size, PayPal is a favorite target for hackers and scam artists. So, how safe is it to use PayPal as a buyer, seller or just for personal transactions?
Is PayPal Safe?
Personal financial information that is stored on PayPal is very safe. PayPal uses the latest state-of-the-art encryption and cybersecurity measures to protect your private information as it is transferred from buyer to seller. Its security procedures and systems are some of the best in the industry.
The security problems with PayPal occur mostly with scams promoted by con artists, not with PayPal itself. However, PayPal has several types of security measures to limit the risks for both buyers and sellers.
PayPal Purchase Protection
If you’re a buyer, PayPal will help you get a refund if you have purchased something that doesn't arrive or is “significantly not as described.” You have up to 180 days to dispute a transaction with PayPal.
As an additional precaution, you can pay for your purchases through PayPal with a credit card. Then, even if PayPal does not refund your money for some reason, you still have recourse to go back to your credit card provider to dispute the purchase.
While PayPal purchase protection will provide some security, it is not governed by the same legal obligations as credit card providers and banks.
PayPal’s Purchase Protection program has some limitations. In general, PayPal will not cover purchases of large items, such as machinery, cars or custom-made products. You should review PayPal's full policy to understand the limitations.
If someone makes an unauthorized purchase on your account, PayPal will not hold you liable if you report it within 60 days.
Read More: How Can I Add Money to My PayPal Account?
PayPal Security Measures
Email notifications – PayPal will send you an email whenever you send or receive a payment. If you receive an email for a transaction that you don’t recognize, you can notify PayPal and they will immediately investigate.
Two-step authentication – PayPal offers you another way to increase your security. You can select to enable the SecurityKey feature. The SecurityKey is a two-step procedure that sends you a one-time personal identification number each time you log into PayPal. This PIN is temporary and unique for each login session.
Tips to Protect Yourself
Follow these tips to increase your protection on PayPal.
- Only make online purchases through secure websites. Secure sites will usually have a URL that starts with "https" instead of "http" and will display the symbol of a lock. These are indications that the connection between the website's server and your web browser is encrypted.
- Don't make purchases over public Wi-Fi, such as those available at coffee shops and airports. Making any kind of financial transaction over public Wi-Fi is always a bad idea. Even something as simple as checking the balance in your bank account could expose your data to hackers. If you absolutely must access your bank, turn off searches for public Wi-Fi and use your mobile data system instead.
- Change the password on your PayPal frequently and don't use any obvious passwords, such as your kids’ birthdates.
- Keep balances in your PayPal account low. PayPal is not insured by the FDIC, so your funds do not have any government-guaranteed protections.
- Check your PayPal account regularly and watch out for any suspicious transactions. Con artists will frequently make a small purchase, like $1 or so, to test a newly stolen account. If you’re not monitoring your account, the transaction will go through, and they’ll make larger purchases to quickly drain the funds out of your bank account. If someone makes an unauthorized purchase on your account, PayPal will not hold you liable if you report it within 60 days.
Many of the scams on PayPal accounts involve phishing.
One scam is for a hacker to send you an email that appears to come from PayPal, but it's really a link to a fraudulent website that is set up to steal your financial information. The email may state that there's “a problem with your account,” and you need to click on a link in the email.
If you click on the link, you will be taken to a PayPal look-alike site and asked to provide your login information. Once a hacker has this information, they can access your PayPal account and withdraw your funds.
Simple rule: Never click on links in emails that appear to have come from PayPal. Instead, log in directly to your PayPal account and look for any messages.
Tips for PayPal Seller Protection
Sellers can follow these tips to avoid falling victim to a scam.
Fake shipping labels – Scam artists will send a fake shipping label, claim the merchandise was never received and request a refund. Sellers can avoid this problem by always using a reputable shipping service, such as FedEx or UPS, that provides an online tracking number and proof of delivery. Do not use a shipping service designated by the buyer.
Overpayments – With this scam, the alleged buyer makes a payment to the seller in excess of the cost of the item. Afterward, the scammer contacts the seller and explains the mistaken overpayment and asks for the difference in the balance to be paid back to the buyer.
After the seller refunds the overpayment, the scammer files a complaint with PayPal claiming that they never intended to send a payment to the seller. PayPal cooperates and reimburses the full original payment to the scammer. Even if the seller hasn't shipped the item, they still lose the overpaid amount they set back.
Fake emails – Scammers will sometimes send an email to a seller telling them that the scammer has sent money into the seller's account, but PayPal is holding the funds until the seller provides a shipment tracking number. The email appears to be from PayPal.
Only after the seller has shipped the item and forwarded a tracking number to PayPal do they realize they've been scammed, and PayPal was never holding any money. PayPal doesn't work this way and sellers should not respond to this fake email.
Phishing email to sellers – For this scam, the con artist will send an email that appears to be from PayPal telling the seller that funds have been transferred to their account. The email will ask the seller to click on a link and the money will be made available. The link will lead to a fake PayPal site that will ask for the seller’s login email and password. With this information, the con artist can access the seller's account to make payments or withdraw funds.
PayPal is a sophisticated website with the highest levels of security that makes it safe to use and store private financial information. However, as with all internet transactions, users must apply caution and common sense and be aware of and recognize the many types of scams that con artists will use.
- Digital Commerce: PayPal Among the Top Payment Methods Accepted With Retailers
- PayPal: Is PayPal Safe?
- CreditCards: Using PayPal? 10 Tips to Stay Safe
- TheStreet: Is PayPal Safe? Yes, and Here's Why
- PayPal: Security For Buyers
- Kapersky: How PayPal Users are Tricked
- PayPal. "Data Encryption." Accessed Feb. 11, 2020.
- PayPal. "PayPal Bug Bounty Program." Accessed Feb. 11, 2020.
- FTC. "How to Recognize and Avoid Phishing Scams." Accessed Feb. 11, 2020.
- FTC. "Tips for Using Public Wi-Fi Networks." Accessed Feb. 11, 2020.
- Evergreen National Bank. "Fraud Prevention." Accessed Feb. 11, 2020.
- Consumer Financial Protection Bureau. "Fraud and Scams Key Terms." Accessed Feb. 11, 2020.
- PayPal. "Resolving Disputes, Claims, and Chargebacks." Accessed Feb. 11, 2020.
- Federal Trade Commission. "FTC Advises Consumers Not to Use Wire Transfers for Online Purchases." Accessed Feb. 11, 2020.
- PayPal. "How Seller Protection Can Help Support Your Business." Accessed Feb. 11, 2020.
- PayPal. "What Is FDIC Insurance and How Does It Work?" Accessed Feb. 11, 2020.
- FDIC. "Prepaid Cards and Deposit Insurance Coverage." Accessed Feb. 11, 2020.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.