Can you still sell digital products on Paypal?

They aren't. PayPal just sort of "recommends against them".

It's not that it is AGAINST it, it's just that they offer no protection to sellers against refunds, and especially chargebacks.

11.7 What are examples of items/transactions that are not eligible for seller protection?

• Claims or Chargebacks for Significantly Not as Described.
• Items that you deliver in person.
• Intangible items, licenses for digital content, and services.
• Payments through PayPal Direct Payment or Virtual Terminal.

1. If you do not qualify for the Seller Protection Policy. When you receive funds through PayPal, if the sender's transaction is reversed for any reason and you do not qualify for the Seller Protection Policy for that transaction, you will owe PayPal for the amount of the reversed transaction plus any fees imposed on PayPal as a result of the reversal. You agree to reimburse PayPal from either your PayPal account or by other means as described in Section IV.2 under "Receipt of Payments."
   
   
   

So, if a buyer purchases an eBook from you, pays through PayPal and claims "it's not as described" - well, no protection from you. What does No protection mean?

This is something I have to explain to people and they still don't get it. PayPal is not a bank, they don't define the laws regarding the exchange of currency. PayPal has rules, but PayPal is actually ruled on a State by State basis because they are not a financial institution. This is why they have no actual leverage in obtaining or preventing a refund or chargeback. Especially a chargeback.

Here's something I want people to read. Understand, I don't dislike PayPal, I use PayPal but I control it, I don't let PayPal control me.

This is what PayPal is.

You read the classified ads and someone is selling a set of dinner plates for $10.00 USD. You want them, but you don't want to have to drive all the way across town to give someone $10.00. So, this guy comes up to you named PayPal with this nice little suit on and a name tag and says "for $11.50, I will deliver your money to that person across town and give them your address." PayPal is a transaction service.

Things might happen though. You get your dinner plates and they are smashed to pieces, so you call up this guy that delivers them and says "Look, it's smashed, I want my money back." and two things can happen, he can say "No, too bad" or he can say "Hey, I'll go get your money back." so he goes to the bank of the person selling the plates and says "I need $10.00, here is a paper the the Dinner Plate seller agreed to when I dropped the money off with him" and your bank gives him the $10.00 because he has a piece of paper that allows him to and then he returns to you and says "I have your $10.00, I'll hold it for you until you want to buy anything else" and your thinking "Well, i want my money back now, but this guy looks legitimate, so I'll let him hold onto it for me just in case I want to buy anything else through the classifieds" when your thought SHOULD be "Alright, hand me the money".

Well, every once in a while, this is what happens. PayPal is now holding a lot of your money, and you call up Mr. PayPal and say "I'd like something from this classified ad, could you go drop off the money for me?" and Mr. PayPal says "Oh, those are steak knives, and they look mighty dangerous so I'm not going to go drop off your money for them... in fact, I'll hold onto it for 6 months to make sure you don't do anything illegal, you know? Plus, you said I could do this because I showed you a piece of paper when you were trying to buy those steak knives." - now you are probably upset, but Mr. PayPal doesn't really care about you, it's just business, and while you are sobbing PayPal is taking your money to HIS bank account and putting it into a big ol' account with a bunch of other peoples money and like most savings accounts, they acquire interest, and that makes Mr. PayPal pretty damn happy. MAYBE Mr. Paypal will wait for you to call in 6 months and demand your money back. This all could have been avoided if you just took all of your money from Mr. PayPal. But hey, we all make mistakes, right? Cause he looks like a bank teller... right?

But lets say YOU are the guy that sold the dinner plates. Mr PayPal dropped off this money for you, and you take it to the bank. Well, a week later the other person got the plates that were shattered in the mail and said "This is not what was described in the ad" and he goes to HIS credit card company who gave money to Mr PayPal to give to the seller of the dinner plates, and now Mr. PayPal walks into your bank with his arm held behind his bank by Mr. Visa who is shoving him around the bank and treating him like a ******* step child and Mr. Visa drags him to the teller and says "Give this Dinner Plate Seller guy back his money." Now Mr. Visa brings the $10.00 back to the buyer. Meanwhile, you are sitting at home and don't know whats going on. All you know is that when you try to use a check for the $10 at the movies, you are going to look like a dolt because you have no dinner plates and no $10.00 and so you call up Mr. PayPal and say "what gives?" and Mr. PayPal says "Oh, good luck with that."

This seems kind of long and irrelevent, but I talk with so many people who would defend PayPal to the death without really know WHAT PayPal is, and what PayPal does.

As for Digital Items, to make my story relevant. Say you sell this guide through the Classified Ads on "how to make your own dinner plates" and people begin to buy it and you e-mail it out to them because they gave you their e-mail address. PayPal says "I have this amount of money for you, let me know when you want me to drop it off at your bank for you" so you accumulate lets say, $200.00. Then all of a sudden, it starts dropping and dropping because people are claiming it isnt what they wanted or what they thought it was, or they just didn't get it at all. Now you've got $80.00 but thats alright, cause all you did was e-mail it out. So you call up Mr. PayPal and say "Please deposit that $80 into my bank account" so he says Alright. Two hours later, Mr. PayPal calls you and says "eh, I see that you've been e-mailing these... and so many people have got refunds from you... so I'm going to hold onto this $80 for 6 months... just so I feel better about you not being a scammer or something." so that's what he does, but in the meantime, you aren't really allowed to use PayPal to sell things anymore.

About 98% of my sales are digital products, and they mostly go through Paypal (some via Google Checkout). I've got a refund policy in place, and I have pretty much 0 refund requests or chargebacks.