Safeguarding Your Store from Shopify Chargebacks with Chargeback Management

Ogunmah Victor
Business Finance Writer
February 3, 2024
All posts

Platforms like Shopify have revolutionized the way businesses operate online. However, despite the convenience and growth opportunities made possible for merchants by these online platforms, every online store owner must tackle a few hurdles to remain successful. 

If you're running a Shopify store, you know how these unexpected payment reversals disrupt your operations and decline your profits. This is why we will uncover the secrets behind chargeback management, share eye-opening statistics and discuss the causes of Shopify chargebacks.

But hold on tight because we go beyond just understanding Shopify Chargebacks. We introduce an innovative business solution that will ensure smooth sailing for your business in the digital landscape.

What are Shopify Chargebacks?

Shopify is one of the leading e-commerce platforms, allowing entrepreneurs to sell their products online and reach customers globally. However, every rose has its thorn, and chargebacks is a prickly issue for online businesses using this platform.

So, what exactly are Shopify chargebacks? Simply put, they occur when a customer disputes a transaction made on your Shopify store with their credit card company or bank. 

This dispute could arise for various reasons, such as fraudulent activity, unsatisfactory product quality, or delivery issues. Chargebacks can be quite detrimental to your business if left unaddressed. Not only do they lead to financial loss, but also damage your reputation and result in higher processing fees from payment gateways. 

Understanding how Shopify chargebacks work is crucial for safeguarding your Shopify store against potential risks. 

To combat these tricky situations effectively, merchants need to take proactive measures like implementing ChargePay - an innovative solution that helps minimize the negative impact of chargebacks on your business. 

6 Causes of Shopify Chargebacks

Chargebacks is a frustrating and costly problem for any online merchant, including those with a thriving Shopify store. These chargebacks occur when customers dispute transactions and request their funds to be returned.

While taking necessary precautions to safeguard your store from chargebacks is vital, it's equally important to understand the root causes of Shopify chargebacks.

1. Unrecognized Transactions

One common cause of chargebacks for Shopify store owners happens when customers don't recognize a transaction on their credit card statement. This can happen if the store's name or descriptor is different from what the customer expects, leading them to dispute the charge out of confusion.

To avoid this, it's crucial for merchants to clearly state their business name in invoices and receipts, making it easily recognizable to customers.

Dissatisfaction (Product Unacceptable):

A chargeback is designated as "Product Unacceptable" when the customer asserts that the received product was defective, damaged, or not as described. Get in touch with the customer to address the issue. 

If a resolution is achieved, instruct the customer to contact their bank to withdraw the chargeback and submit evidence to the credit card company indicating the customer's agreement to drop the charge. 

In cases where the customer did not attempt to return the product or cancel the service before initiating the chargeback, or if you provided a replacement product or service, include evidence of these actions. 

Relevant evidence may include:

  • Date and time of order fulfillment
  • Billing information used by the customer
  • Shipping and tracking details for the order
  • Descriptions or images of products from your store confirming their alignment with the provided descriptions.

Dissatisfaction (Product Not Received):

On the other hand, a chargeback is categorized as "Product Not Received" if the customer claims non-receipt of the goods or services purchased. You should contact the customer to understand and resolve the issue. 

If a resolution is achieved, advise the customer to inform their bank about dropping the chargeback. Also, in your response to the credit card company, include evidence of the customer's agreement. 

If resolution with the customer is not possible, submit evidence to the credit card company proving that the customer received the product or service before the chargeback was initiated. 

Issues with delivery or shipping:

Problems related to delivery and shipping logistics often give rise to chargebacks as well. Late deliveries, damaged goods upon arrival, lost packages — the list goes on — can all result in disputes from frustrated customers who feel shortchanged by their shopping experience. 

Ensuring reliable shipping partners and keeping open lines of communication throughout the fulfillment process can help mitigate these types of issues.

Fraudulent Activities:

Fraudulent activities pose significant risks for Shopify merchants, resulting in chargebacks that damage revenue and reputation. Instances include unauthorized use of credit cards or identity theft, where scammers make fraudulent purchases through your store without the genuine cardholder.

Implementing robust security measures like Address Verification Service (AVS) and Card Verification Value (CVV) prompts at checkout can help deter fraudsters. Merchants should also stop high risk Shopify orders to avoid any fraud related chargebacks in future.

Duplicate Charges:

A chargeback is categorized as “duplicate” when a customer believes they have been billed twice for the same product or service. If you haven't double-charged the customer, reaching out to them is advisable. Clarify that the two charges correspond to distinct products or services.

If the customer acknowledges the validity of the charges, encourage them to contact their bank and withdraw the chargeback. However, accepting the chargeback is appropriate if you billed the customer twice for the same product or service.

The Magnitude of the Problem

To truly understand the magnitude of this problem, let's discuss some eye-opening statistics that paint a clear picture of the rise of Shopify chargebacks in recent years.

The rise of Shopify Chargebacks

Online payment fraud occurs when scammers use someone else's payment details to make unauthorized purchases through your Shopify store. This can also manifest as credit card fraud, where scammers create duplicate versions of your website, leading customers to make transactions on a fake platform unknowingly. 

This enables hijackers to retrieve funds and store credit card information for future scams. While online payment fraud affects retailers worldwide, it saw a particularly notable 71% increase in Canada last year.

InsiderIntelligence predicts global e-commerce sales will reach $6.3 trillion in 2024, this represents ample opportunities in the e-commerce landscape to attract potential scammers seeking to exploit customer data for fraudulent activities.

Card testing ranks as the third-most prevalent form of e-commerce fraud across all merchants. Beyond causing frustration for customers, excessive blocking of online payments due to card testing can subject your business to additional fees and disputes.

Despite having stringent return policies in place, the issue of return abuse remains a costly challenge for many merchants. According to the National Retail Federation, retailers incur a loss of $10.40 for every $100 in returned merchandise due to this type of fraud. This particular online fraud witnessed the most significant increase, with merchants reporting a 56% uptick in refund abuse in 2022.

Account takeover represents a form of fraud wherein scammers gain unauthorized access to a customer's online account and exploit stored payment cards for fraudulent purchases. In 2022, 51% of surveyed brands reported an increase in account takeover fraud, often occurring through weak passwords, phishing emails, or malicious software on the device used for purchasing.

Loyalty fraud, impacting 22% of global retailers, occurs when customers exploit loyalty programs by earning points through stolen credit cards and subsequently selling them for a percentage of their value on the dark web.

Promotion fraud, experienced by 73% of retailers in 2021, happens when scammers identify and exploit loopholes in a retailer's promotions to claim products for free.

Numerous studies indicate that the yearly escalation in the quantity and financial implications of retail fraud has been a notable trend with a rapidly expanding reach. This issue poses a significant challenge for smaller sellers and retailers, given the potential negative impact on their financial performance. 

While chargebacks, or reversals, have long been a struggle for retailers, the surge in online sales has increased the complexity of the problem.

In 2018, retailers witnessed a substantial 30% surge in fraudulent transactions compared to the previous year, according to the LexisNexis Risk Solutions 2018 True Cost of Fraud report.

Another report highlighted the particular vulnerability of mobile transactions, with mobile fraud rates nearly doubling in 2018 compared to 2017, according to German fraud prevention firm Adjust. 

E-commerce emerged as the most affected category, with the 2018 Fraud Attack Index from Forter revealing a staggering 119% increase in return abuse during the last quarter of that year. 

In 2023, retailers incurred a total of $31 billion in chargeback costs, with $19.4 billion attributed to cyber-shoplifting.

The impact of this surge in fraud is substantial, with a reported cost of $2.94 to merchants for every dollar lost to digital fraud in 2018. This represents a year-to-year increase of 6%, as highlighted by LexisNexis

For smaller retail businesses, such as those within the Shopify ecosystem, where 600,000 active stores generate $72 billion in sales, the problem can be particularly devastating. 

This underscores the urgency for proactive measures and robust solutions, like those offered by platforms such as ChargePay, to assist retailers in navigating and mitigating the challenges posed by the relentless growth of retail fraud.

Impact of Shopify Chargebacks on Businesses

The adverse effects of Shopify chargebacks extend across businesses of various sizes. Smaller and medium-sized enterprises with smaller profit margins may experience a more pronounced financial setback due to chargebacks.

In contrast, larger enterprises, while potentially facing less impact from individual chargebacks, are susceptible to the risk of chargeback fraud occurring on a broader scale, resulting in cumulative consequences. 

Here are several ways in which chargeback fraud can impact businesses:

Financial setbacks:

Like other fraudulent activities, Shopify chargeback can lead to substantial financial setbacks for businesses. Beyond the loss of income resulting from fraudulent transactions, businesses may find themselves obligated to cover chargeback fees and related expenses.

If instances of chargebacks become frequent or severe, they have the potential to contribute to financial instability and insolvency for the business. Store owner can opt for Shopify Chargeback Protection in this instance but it would decline the transaction rate.

Reputational damage:

Frequent occurrences of chargebacks can give rise to negative reviews and adverse comments on social media platforms, tarnishing a business's image and credibility.

If a brand becomes linked to fraudulent activities, customers might perceive the business as unreliable or risky, leading to a decline in customer loyalty and potential loss of future sales.

Consequently, it is essential for Shopify businesses to take proactive measures in safeguarding themselves against these detrimental consequences.

Implementing advanced solutions like ChargePay can provide an extra layer of protection beyond traditional anti-fraud measures offered by payment gateways alone.

By effectively combating fraudulent chargebacks through robust verification methodologies and real-time monitoring services, merchants can shield themselves from financial loss while preserving their invaluable reputation within the fiercely competitive e-commerce landscape.

ChargePay: AI Automated Solution to Shopify Chargebacks

As a Shopify store owner, one of your biggest challenges is dealing with chargebacks. These unexpected and frustrating occurrences can leave you feeling helpless and financially drained. However, a powerful ally is now in your corner - ChargePay.

Tailored for Shopify store owners:

ChargePay’s Dedicated Shopify Application has been specifically developed to protect your online business from the potentially devastating impact of chargebacks. With its advanced features and strategic approach, ChargePay empowers you to take control of this often chaotic process.

What truly sets ChargePay apart from other solutions is its proactive defense strategy.

Leveraging insights gained from analyzing countless past chargeback cases across a vast network of stores helps predict and prevent future occurrences before they even happen.

With integrated dispute management tools at your disposal, navigating disputes becomes effortless as you gather essential evidence to defend your case effectively.

Streamlining chargeback management:

ChargePay is designed specifically for Shopify merchants who seek an uncomplicated way to streamline their chargeback management process. Navigating through the intricacies of payment disputes can be time-consuming and often frustrating.

That's why ChargePay developed a comprehensive platform that empowers you with the tools and insights to tackle this challenge head-on.

With ChargePay’s Dedicated Shopify Application at your disposal, you get simplified dispute resolution, quick response times, and enhanced automation capabilities — all without compromising the security or integrity of your precious data. 

Take Charge with ChargePay

Shopify chargebacks pose a significant challenge to business stability.

Understanding the causes and consequences and embracing strategic solutions like ChargePay can protect your store's financial health and reputation. ChargePay integrates with Shopify Payments to manage chargeback with any manual efforts.

Don't let chargebacks drain your resources or jeopardize your hard-earned reputation any longer! Empower yourself with ChargePay — your ultimate companion in safeguarding against Shopify chargebacks and securing long-term success for your online store.

Take the first step towards chargeback management today – explore our free demo to experience the effectiveness of ChargePay’s Dedicated Shopify Application in securing your Shopify store.

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Ogunmah Victor
Business Finance Writer
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