Shopify Chargeback ProtectionProactive Strategies to Stop Shopify Disputes Before They Start
Shopify Chargeback Protection: How to Prevent Chargebacks Based on Reason Code
I talked about Shopify Protect in detail in an earlier chapter of our Shopify Chargeback Knowledge Guide. This service lets offset the costs of chargebacks (assuming the transaction in question meets program requirements, of course).
But, receiving too many chargebacks — even if some of them get reimbursed through Shopify Protect — can still cause your chargeback ratio to exceed acceptable levels set by the card networks and by Shopify. If you get to this stage, the outcomes won’t be pretty: fines for chronic non-compliance can exceed $10,000 per month, and you may risk getting booted off the Shopify platform for good.
The bottom line: Shopify chargeback prevention best practices are the only way to protect your business long term.
In another previous chapter, I outlined how to prevent Shopify chargebacks filed with “fraud” reason codes. Now, I’m going to run down some of the most common non-fraud codes, and show you some Shopify chargeback protection best practices to keep your business safe.
Shopify Chargebacks
If you sell on Shopify, you’ll want to know how chargebacks work on the platform ahead of time. Don’t wait until you receive a Shopify dispute to find out. In this Knowledge Guide, we’ll run down everything you need to know about Shopify chargebacks, from statistics and benchmarks to response and prevention strategies.
Preventing Shopify Chargebacks With “Item Not Received” Reason Codes
To protect yourself against Shopify “item not received” chargebacks, you’ll want to implement rigorous shipping protocols and evidence gathering practices. Your choice of carrier and fulfillment method can make or break your case.
“Item not received” disputes are frustrating because they can occur even when you’ve done your job correctly.
Sometimes, customers file “item not received” claims because they’re looking to get something for free. But other times, they’re legitimately just concerned about a late order. You can minimize anxiety by:
- Sending an immediate shipping confirmation email containing the tracking number the moment the label is created.
- Configuring your notifications to alert the customer when the package is out for delivery so they can plan to sign for it.
- Sending a confirmation email upon delivery that includes instructions on what to do if they cannot find the package.
- Including your customer support contact information clearly in every shipping update to encourage them to call you instead of their bank.
Other best practices to implement as a Shopify seller include:
If you use Shopify Payments and fulfill your order using Shopify, the platform automatically sends transaction information, including the tracking number, to the issuer if a chargeback is filed against you. However, if you use a third-party fulfillment service, this evidence is not automatic — you’ll need to manually upload the tracking information to Shopify admin before the dispute time window expires.
Preventing Shopify Chargebacks With “Not as Described” Reason Codes
To protect yourself against Shopify “not as described” chargebacks, you need to give buyers a clear, realistic impression of what they’re buying, using high-res photos, honest product descriptions, and implementing a pre-shipment inspection and QC process.
“Not as described” chargebacks are frustrating to receive as a Shopify seller because they’re often subjective. The one silver lining, though, is that they usually stem from an expectation gap, or a disconnect between what the customer imagined and what actually arrived.
The key to preventing these disputes is aligning customer expectations with reality before they click “buy.” The low-hanging fruit here, is obviously to begin with fair, factual, honest, and detailed, product listings.
Keep in mind that not all “not as described” chargebacks are legitimate — many may be instances of friendly fraud instead. For example, a customer that experiences buyer’s remorse, may file a “not as described” dispute since they know that banks may be sympathetic to “defective” claims. Detailed documentation in the form of listings, photos, and policies that provide the item delivered matched the item sold can help you defend against bogus “not as described” disputes.
Preventing Shopify Chargebacks With “Transaction Not Recognized” Reason Codes
An unrecognizable billing descriptor is the primary source of Shopify “transaction not recognized” chargebacks. You should prioritize eliminating this source of confusion as soon as you can.
“Transaction not recognized” chargebacks can be malicious…or they can happen because the customer reads their credit card statement and simply can’t recall a purchase they made.
While chargebacks filed by confused customers are technically examples of first-party misuse, they are mostly unintentional. Regardless, the outcome for you is the same: lost revenue, lost inventory, and a $15 Shopify chargeback fee.
The key here is your billing descriptor. You can set or alter the billing descriptor that appears on your customers’ credit card statements by navigating to Settings in Shopify admin. Then, click on Payments. In the Shopify Payments section, select Manage. Then, navigate to the customer billing statement section.
You may notice that Shopify limits billing descriptors to 19 characters. This means you don’t have a lot of space to convey your identity to customers. However, you should try to fit at least your business name and phone number (which isn’t counted against the 19-character limit) into your billing descriptor. Here are some tips on how to optimize this string of text:
Using your legal name (e.g. “XYZ Holdings, LLC” instead of your storefront or “doing business as” name (e.g. “Sunny Pet Supplies”) is a common trigger for “transaction not recognized” chargebacks. When the customer sees your legal name on their credit card statement, they don’t remember buying from them… because they didn’t. They bought from Sunny Pet Supplies, the name they recognize. Always use a descriptor customers know.
Using Chargeback Alerts & Other Post-Transaction Tools for Shopify Chargeback Prevention
You can use chargeback alerts, as well as other post-transaction products like Order Insight, to prevent chargebacks even after a transaction occurs.
The best chargeback management strategy involves a multilayered approach. This means you should complement the approaches listed above with tools like chargeback alerts, which notify you the moment a customer disputes a charge so you can resolve the issue before it escalates into a full-blown chargeback.
Specifically, chargeback alert services give you a brief window of opportunity to pre-emptively refund the customer, effectively allowing you to neutralize the dispute before it counts against your chargeback ratio.
Some popular options for chargeback alerts and other tools for post-transaction Shopify chargeback prevention include:
As a Shopify merchant, you can integrate chargeback alert services with your store using third-party chargeback management services that bundle these alerts with their broader software suites.
Chargeback alert services aren’t a cure-all. Instead, they’re best thought of as an additional layer of protection. Also be aware that they don’t cover every transaction or every bank, meaning some disputes will inevitably slip through the cracks and become chargebacks, even if you’re subscribed to both Ethoca Alerts and Verifi CDRN.
When Best Practices Can’t Prevent Shopify Chargebacks
Let’s be frank: no system, however sophisticated, can reduce your chargeback rate to absolute zero.
Friendly fraud is in large part to blame for this conundrum. Bogus chargebacks filed by customers-turned-fraudsters are exceptionally difficult to screen for because the transaction itself is legitimate — the credit card, device, and IP address all belong to the real cardholder — meaning the fraud only exists in the customer’s mind after the purchase is complete.
It’s for this reason that prevention needs to be bundled with preemptive chargeback mitigation.
Strong documentation practices, such as keeping delivery logs and correspondence, give you the evidence you need to win the chargebacks that you can’t prevent. Similarly, tools like chargeback alerts can intercept a portion of these disputes, helping you stay in the good graces of Shopify.
At the end of the day, the goal is not perfection. Instead, it’s about maintaining a healthy chargeback ratio that keeps your merchant account in good standing and your bottom line intact.
