PayPal's venture capital arm is leading an $11 million investing round in Happy Returns, marking the largest funding round to date for the online returns service and bringing its total to $25 million.

In addition to PayPal Ventures' new investment, existing investors U.S. Venture Partners and Upfront Ventures also participated in the funding. Each investor's interest was not disclosed.

"It's a huge validation for us," Happy Returns co-founder and CEO David Sobie said in an interview. "It speaks to the broader challenge, or mission PayPal has, to make e-commerce as easy and frictionless as possible."

Happy Returns operates more than 350 Return Bars in malls, on college campuses and even inside stores like Cost Plus World Market and Paper Source for shoppers to return items bought online when the brand doesn't have its own physical store. Rothy's, Untuckit, Everlane and Eloquii are among the brands working with Happy Returns. For retailers, Happy Returns optimizes routing returns to different end-destinations based on the condition of the goods and rules each retailer sets.

"Happy Returns has reengineered the return process with the customer in mind and that brings greater cost savings and efficiencies to merchants," said Robert Clarkson, vice president, North America at PayPal. "Working with Happy Returns will help us learn more about how returns can decrease the friction in shopping online and how to help merchants address this growing problem."

Returns are a growing problem for retail as more commerce moves online. According to Sobie, shoppers return 5% to 10% of what's purchased in store, but 15% to 40% of online purchases. Digitally native brands that are building up their shopper base but don't have any, or many, physical locations means mailing returns back to the company is the main option for shoppers. But Happy Returns wants to step in and offer a solution.

PayPal Ventures has also invested in online gift card marketplace Raise, web-based food ordering platform Olo, loan app Tala and investing platform Acorns.