Shopify Chargeback Protection: What Merchants Should Know About the Platform
If you do any online business at all, you’ve probably heard of Shopify. They're an commerce platform that allows anyone to easily sell over the internet or at a retail location.
The company’s integrated platform features all the eCommerce and point-of-sale features you need to start and operate a retail business. This includes the ability to accept credit card payments with a phone and a mobile card reader. However, you have to remember that any merchant accepting credit cards also runs the risk of Shopify chargebacks.
Shopify offers a product called Fraud Protect, which gives merchants a certain amount of shielding from customer chargebacks resulting from criminal activity. Is this enough, though? Let’s take a look at those Shopify chargeback protections, and see how much they truly protects sellers.
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What is a Shopify Chargeback?
When a cardholder has an issue with a transaction, they can contact their bank to dispute the charge. The bank can then reverse the transaction, deducting the funds from your account and returning them to the cardholder's account. This process is called a chargeback.
A Shopify chargeback occurs when a cardholder contacts the bank about a transaction processed by Shopify on behalf of a merchant. The cardholder can be one of your customers, or someone claiming that their card was used in your store without authorization. In either case, you end up losing the funds from the sale and the cost of the merchandise. You also get hit with additional fees for every chargeback.
The ability to file a chargeback is an important consumer safety mechanism. It is also a source for fraud, though. Consumers can engage in a practice called “friendly fraud,” which lets them to abuse the process and file chargebacks without a valid reason.
How Does Shopify Handle Chargebacks?
If a chargeback is issued, the claim will follow the standard chargeback process. The cardholder’s issuing will investigate the cardholder’s claim and request additional evidence from you if applicable (sales receipt, proof of delivery, etc.). After reviewing the case, the issuer makes a decision.
If the decision is in favor of the cardholder, then the bank takes the disputed amount from your merchant account. This will be accompanied by the chargeback fee ($15 in the US for Shopify merchants). Otherwise, the dispute will end here.
If you think a chargeback was either an error, or is a case of friendly fraud, have the option to try and fight back through a process called representment. You can collect evidence and submit it to Shopify, who will then forward it along to the issuer. The issuer will review your case and, if they find in your favor, the original transaction amount gets deposited back in your merchant account. Shopify will also refund you the chargeback fee.
What is Shopify Fraud Protect?
We want to note that Shopify itself claims no responsibility for chargebacks, and that they have nothing to do with the final decision at all. The company also claims to have no actual chargeback protection at this time. That said, the platform does have options that can help you curtail fraud which will, in turn, offer some degree of Shopify chargeback protection.
Shopify offers fraud protection technology called Fraud Protect. The tool uses uses advanced algorithms to analyze and accurately identify fraudulent orders, classifying them as either "protected" or "not protected." By doing this, it lets you proactively search for and identify potential fraudulent transactions.
If a dispute is filed on a protected order, Shopify reimburses you, then actively works with the bank to resolve the issue. This can be a huge benefit, as it guarantees your revenue while completely relieving you of the burden of representment. So, even if there’s no official Shopify chargeback protection product, using Fraud Protect can ensure you don’t get hit with chargebacks tied to fraud reason codes.
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Shopify Fraud Protect: Costs and Limitations
Keep in mind, though: businesses must meet certain criteria to become eligible for Fraud Protect.
First, you must be based in the US. Second, Shopify fraud protection is only available for online orders processed through Shopify Payments. PayPal, point-of-sale, and other orders that do not qualify for Fraud Protect will be processed as if Fraud Protect were not activated on your account.
Fraud Protect only ensures the value of covered items included at the time the order was placed. Any items that were added later are not covered, as they wouldn’t be subject to the same rigorous fraud screening.
Also, remember that only disputes with a “fraud” reason code qualify. You would not be protected against Shopify chargebacks filed using any of the following reasons:
- Duplicate charges
- Cancelled subscriptions
- Items Not Received
- Product Isn’t as Described
- Credit Not Issued
According to the Shopify website, Fraud Protect requires a small fee on each protected order. As most of the company’s services are available across multiple plans and pricing, the fee for Fraud Protect likely varies according to the plan.
Finally, we want to offer a quick word about third-party fraud protection apps. While the company doesn’t offer explicit Shopify chargeback protection, the platform is large enough to have its own app store. There you will find dozens of apps that can be used to fight chargebacks in some way, plus more than 1,000 that are aimed at fighting fraud. Whether any of these will work in your situation depends on your business needs and how you use Shopify.
You Need to Address Chargeback Sources
Built-in protection against chargebacks may be a great asset for some merchants, but it does come with built-in deficiencies. For example, Stripe’s chargeback protection doesn't address the underlying issue that caused the chargeback. Total reliance on Stripe Chargeback Protection means you’ll continually be fighting the same types of disputes, over and over.
Reducing chargebacks over the long haul requires a proactive prevention strategy that addresses disputes at their true source. If you’re feeling overwhelmed by chargebacks, maybe it’s time to look beyond payment-platform protection.
Chargebacks911® can take card-not-present chargebacks and other dispute issues completely off your plate and up your ROI. Contact us today to learn more.