PayPal warning: Paying someone you don't know? DON'T use 'friends and family'

PayPal's system allows users to select between making a payment for 'goods and services' – which comes with its 'Buyer Protection' should something go wrong – or 'friends and family', which is essentially a money transfer and comes with no protection.

In the last two weeks alone, we've spoken to several MoneySavers who have been encouraged by sellers to make payments using the 'friends and family' option – in some cases by online scammers.

We don't know for certain why scammers do this, but we believe it's because it's harder for shoppers who have paid via 'friends and family' to get their money back. Legitimate traders can also benefit from being paid via 'friends and family' because those paid via it aren't charged a fee, unlike with the 'goods and services' option.

However, the message on this is clear and simple: if someone selling you goods or a service asks you to send a friends and family payment, you should refuse. Otherwise you won't be reimbursed if something goes wrong.

For 40+ tips to slash the cost of buying online, see Cheap Online Shopping.

'I lost £160, I was very naive'

We've spoken to several PayPal users who have told us stories about when sellers tried to get them to pay by 'friends and family'. Here's what they told us:

• Alex told us she bought a Nintendo Switch which she saw on peer-to-peer shopping website Depop. The seller asked her to send the money outside of Depop, by PayPal 'friends and family'. Later, the seller she was speaking to on Depop told her that someone else had hacked her Depop account and was posing as her to scam people.

  Alex told us: "I was very naive and didn't think that this sort of thing could happen, but because I put the money through as family and friends I can't get this money back. It's silly looking back on it now. 

  "I approached PayPal about it, and it said because I'd opted for friends and family there is nothing they can do about it. Depop also said it was unable to help because I had left its site and didn't pay through the app. The most it could do was to send me a link to report it to the police."

• Jackie tried to buy gig tickets for the band The 1975, after finding a seller online. She agreed to pay in instalments and the seller insisted she use 'friends and family'. After she sent the first payment as 'goods and services' the seller got angry with her and she became suspicious. She later discovered that the tickets were subject to a 'no resell policy', so she could never have used them.

  She said: "I found the seller on Twitter, he seemed like a really nice guy. I checked his YouTube channel and Instagram account and everything seemed legit. But when I paid by goods and services he became angry and said that I shouldn't have done that. I apologised so he finally agreed on keeping this payment as a first instalment.

  "I later discovered that the original buyer of the tickets must show their ID to gain access to the venue, so I realised something was wrong. I asked for a refund but he started to reply less often. I then raised the issue with PayPal who informed me that they were turning this into a dispute and if the seller didn't reply to them in two weeks, they would make a refund without his intervention. I was lucky because, as I'd used 'goods and services', PayPal refunded the money."

• João similarly tried to buy gig tickets, this time for the band Sum 41. The seller tried to persuade him to send the money by 'friends and family' but he refused. In the end after buying using 'goods and services' he was able to get his cash back after the ticket he was sent turned out to be fake.

  He said: "They insisted that I use the 'family and friends' option from PayPal because it has no fees. They also said it would arrive quicker. But I used the other option and got my money back in a couple of days."

How does PayPal's 'Buyer Protection' work?

Making PayPal payments using 'friends and family' is appropriate if you are paying – you guessed it – family or friends. 

But if you're buying from an unknown seller or online retailer, only payments made using 'goods and services' will be covered by PayPal's Buyer Protection.

Under this, PayPal says it will fully reimburse you for the cost of the item and delivery if your order doesn't arrive or match its description. Here's how to make a claim:

• First dispute the transaction (within 180 days of making the payment). To do this, log in to your PayPal account, then click on 'Dispute a transaction' under 'Report a problem'. PayPal says it'll facilitate communication between you and the seller to try to work things out.

• Still unhappy? Escalate your dispute into a claim (within 20 days of opening a dispute). To do this, log in to your PayPal account, click on your existing dispute and choose 'File a claim'. 

For more info, see PayPal's Problem with a purchase page. 

What does PayPal say?

A PayPal spokesperson said: "PayPal Buyer Protection does not cover money transfers between friends or family. If someone selling you goods or a service asks you to send a friends and family payment, you should refuse.

"Identifying a payment as being for goods or a service ultimately ensures we can reimburse you if something goes wrong."