Maybe the seller has got the wrong end of the stick about what FREE postage actually means LOL

I would message the seller, Rose and ask them to transfer the £1.69 into your Paypal account.  I'm sure it was a genuine mistake on their part and they will be happy to give you the money. You could always scan a copy of the card if they require proof from the PO.

However, if they refuse to give you the money, file an item not received dispute to get your money back and buy elsewhere.

The parcel will eventually be returned to the sender I assume if no one picks it up.