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Shopify Fraud and Chargebacks: How to Deal with High-Risk Orders


Shopify Fraud and Chargebacks: How to Deal with High-Risk Orders

Shopify is undeniably the gorilla in the e-commerce platform room.

And for good reason. With platform sales now exceeding $82 billion, Shopify is a winning option for over 600,000 businesses and growing.

But as appealing as Shopify is to merchants, it’s also become increasingly attractive to fraudsters looking to take advantage of online businesses.

Here’s what merchants need to know to defend their businesses from the increased risk of Shopify fraud.

How Shopify Prevents Fraud

When Shopify merchants receive an order, the platform automatically scans the transaction for fraud indicators and provides fraud recommendations (for select Shopify plans). Merchants can easily evaluate their Shopify transactions for fraud by following these three straightforward steps.

1. View the Fraud Analysis

Merchants will want to investigate any order that they believe to be fraudulent or that Shopify has flagged with an exclamation mark. By clicking on the Fraud Analysis link on their order page, merchants can review their order’s fraud indicators, which are marked in three colors:

  • Green icons indicate the marked information appears legitimate.
  • Red icons mark order information that’s usually associated with fraudulent activity.
  • Grey icons flag data that can be used to evaluate the legitimacy of an order.

Fraud Analysis indicators

Source: Shopify

Merchants should remember that these indicators don’t calculate how likely it is that an order is fraudulent; instead, they simply list what legitimate or suspected fraudulent activity Shopify identified during its fraud analysis.

2. View the Fraud Recommendation

Merchants that are using Shopify Payments or are on the Shopify Plan or higher will see the fraud indicators plus a fraud recommendation for each of their orders.

 Fraud Recommendation

Source: Shopify

This recommendation classifies an order’s chargeback risk as low, medium or high and then flags medium- and high-risk orders on the Orders page. These rankings give merchants added insights that can help them make their transaction decisions.

To develop these recommendations, Shopify applies machine learning algorithms to its historical database of transactions across all Shopify stores and identifies fraud trends and patterns. To help protect merchants against emerging threats, Shopify continuously updates these algorithms based on new fraud information and reports from merchants.

3. Analyze Third-Party App Recommendations

If a merchant is using a third-party fraud app, that app’s transaction indicators and recommendations display under the Fraud Analysis section.

Shopify and High-Risk Transactions

Sometimes, high-risk orders slip through the Shopify platform and are approved. And unfortunately, they may result in costly chargebacks. Shopify hopes to prevent these chargebacks with its new Shopify Fraud Protect solution (currently with just a limited rollout). Using advanced algorithms to analyze and identify fraudulent orders, Fraud Protect will mark an order as “protected” if it detects an at-risk transaction. And if a chargeback is then filed on that protected order, Shopify will reimburse the merchant for the chargeback and manage the entire chargeback dispute process.

But until that solution is available to all merchants on the platform, merchants may need extra help in preventing — or winning — chargeback disputes. That’s why Shopify has grouped the myriad chargeback reason codes among the card networks into these eight categories and has outlined the documentation needed to increase merchant’s chances of winning chargeback disputes.

1. Fraud

Customers will file fraud chargebacks when their credit card has been lost or stolen and unauthorized purchases have been made.

To strengthen their representment case, merchants should submit proof of delivery, like a signature on a delivery form or the identification details of the individual who signed for the delivery. If merchants can demonstrate that the cardholder has or is using the merchandise in question, that evidence should also be submitted.

2. Unrecognized Purchase

If the customer doesn’t recognize the merchant descriptor or the transaction on their billing statement, they might file a dispute.

Merchants can prevent these chargebacks from being successful by ensuring the company descriptor that displays on card statements is clear and recognizable to customers and by providing proof of the transaction, including order confirmations and email communications.

3. Duplicate Purchases

When a customer is charged twice for the same transaction, they may opt to file a chargeback instead of calling customer service for a refund.

If merchants notice that a customer was double-billed for a purchase, they should immediately refund one of the transactions and notify the customer about the mistake.

4. Recurring Subscriptions

Customers may forget they signed up for a recurring subscription and didn’t see the reminder notice (if the merchant sent one) — or they might think they cancelled their subscription before the next billing cycle.

In this scenario, avoid a chargeback completely by cancelling the subscription immediately. But merchants who pursue representment should provide documentation of their subscription and cancellation policies and proof that the customer agreed to them both. Merchants might also submit proof that customers used or accessed a product after they claimed to have cancelled their subscription.

5. Product Not Received

After claiming they didn’t receive the goods or services they ordered and paid for, customers may file a chargeback on the transaction.

While packages are occasionally lost in transit, merchants can bolster their case by submitting tracking numbers, shipping addresses, proof of delivery (or, in the case of digital goods, proof they were downloaded or accessed). Merchants should provide customers with regular shipping updates, including estimated delivery dates.

6. Product Is Unacceptable

The customer claims the item arrived damaged or defective or the delivered product was not as described.

To win this type of chargeback dispute, merchants should demonstrate the pictures and descriptions online match the actual product, and they should ensure the product is packed to minimize the risk of shipping damage.

7. Credit Not Issued

The customer files a chargeback because they’ve returned the product or cancelled their order, but the merchant hasn’t issued a credit.

If the cancellation or return was outside a merchant’s return, refund or exchange policy, merchants should submit a clear copy of the policies in their representment documentation.

8. General

This is the catch-all category for chargebacks that don’t fit into any of the other categories.

To successfully defend themselves, merchants should research the specific chargeback reason code with the credit card issuer.

Outsource Your Fraud Prevention Solution

Even with the tools and support available through Shopify, merchants must closely monitor their transactions’ risk indicators and minimize their fraud exposure. Many merchants find that the built-in solutions or free fraud apps just aren’t enough to protect their business against Shopify fraud.

So when you’re ready for a comprehensive solution that will secure customer data, prevent fraudsters from slipping past Shopify’s defenses and protect your business 100% against expensive chargebacks, consider ClearSale. We combine highly trained analysts with advanced artificial intelligence to offer one of the most comprehensive solutions on the market. Contact us today to get started.

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