The protections, which will be made available from quarter four of 2008, will cover all transactions except cars, heavy machinery and property, and won’t incur any extra charges.
eBay.com can be used by buyers anywhere in the world but sellers using the site must be based in the US. The new protection service won’t yet be on the company's country-specific marketplace sites.
Buyers will be covered for 100 percent of an item's purchase price, with no limit on the price, which previously was capped at a maximum of $2,000 (£1,000). For sellers, the PayPal protection has previously been available to PowerSellers, which must meet certain requirements to qualify, but is now being extended to all merchants, and it also has no price maximum.
eBay will refund the money in the form of cashback to buyers' and sellers' PayPal accounts. Auctions, fixed-price products and store items are all covered by the protections.
Buyers would be protected for items that either aren't received or that are significantly different from the description provided by sellers.
Meanwhile, merchants would be protected against claims, chargebacks and reversals due to an unauthorised payment or an item that was not received. The protections extend to items shipped by sellers to the 190 markets worldwide where PayPal is accepted.
In addition, eBay is increasing its incentives for PowerSellers, offering a 20 percent discount from their final transaction fees if they have at least a 4.9 rating in the four 'detailed seller rating' (DSR) categories. eBay already offered PowerSellers smaller discounts based on DSR ratings.
The announcement clearly seeks to address one of the biggest deterrents to doing business on eBay: the fear of fraud.
Historically, eBay has defined itself as a neutral, mostly hands-off marketplace where third parties meet to buy and sell products. In other words, eBay enables transactions between buyers and sellers and doesn't get as involved in the actual deals as more traditional etailers. For example, Amazon.co.uk, in addition to selling its own inventory, also has an eBay-style marketplace, but exerts more control over its activities than eBay does.
It is one of eBay's core beliefs that people are overwhelmingly honest and that its large community of buyers and sellers can police itself by publicly rating its members via the marketplace's feedback system.
However, as eBay has sought to grow by attracting more mainstream and less adventuresome buyers and sellers, it has progressively become more involved in intervening whenever transactions go sour due to alleged fraud or miscommunication between the parties.
Recently, eBay officials have made it a priority to boost the buying experience on its marketplace. Earlier this year, eBay announced sweeping changes aimed at rewarding those sellers who provide good customer service and charge reasonable shipping fees, betting that this will in turn attract more buyers to the marketplace.
As often happens whenever eBay announces changes, controversy erupted, as sellers complained about the modifications they didn't like, such as a rebalancing of seller fees and the cancellation of sellers' ability to leave negative feedback for buyers.
See also: eBay embraces third-party apps