Shopify Chargeback Protection Guide

Shopify chargebacks are an unwanted surprise. Your customers can file a dispute on any credit card transaction processed at your store and leave you with a nasty surprise of unexpected sale reversals, additional labor expenses, and chargeback fees that will cause a significant hit to your bottom line. And with the rapid increase in fraudulent activity in eCommerce worldwide, chargebacks present a direct threat to both enterprise and small size Shopify merchants.

Luckily, Shopify provides seller protection that can help you defend against the financial damage of customer disputes. Let’s explore all you need to know about Shopify chargeback protection.

A chargeback refers to when a customer asks their card issuer to reverse a purchase transaction. When consumers can dispute unknown or fraudulent credit card payments, they feel safe engaging with the digital payments industry and eCommerce. Chargebacks are a helpful consumer protection that builds trust in the payments ecosystem your eCommerce store relies upon.

Since Shopify is a credit card payment processor, it adheres to the chargeback process. If a customer has an issue with a payment related to your Shopify store (due to criminal fraud, items not received, damaged products, etc.), they can file a chargeback to reverse the transaction. The card issuer immediately credits the repudiated transaction amount to the customer and debits the value from your merchant account. As you can imagine, a chargeback hurts revenues for all Shopify sellers.

To confuse the issue, chargebacks also occur for a variety of reasons unrelated to fraud, such as customer dissatisfaction, buyer’s remorse, or forgetfulness. In many instances, the merchant is not at fault.

You can fight the legitimacy of a customer chargeback claim to protect your profits. With the proper evidence showcasing proof of a legitimate transaction, the card issuer will rule in your favor and relieve you of most chargeback costs. Since some consumers take advantage of the chargeback process (known as friendly fraud), it is in your best interest to fight false chargebacks.

To aid its sellers, Shopify provides chargeback support through its Shopify Protect service. Shopify Protect will fight on your behalf for any fraudulent or unrecognized chargeback. Only certain transactions qualify, but Shopify chargeback protection covers all fees and sale reimbursements related to eligible orders. In addition, the service is free, and you pay none of the costs that Shopify Admin expends when disputing a chargeback. The entire dispute process is handled for you, a simple way to prevent chargebacks.   

Shopify also provides pre-transaction support through its Fraud Protect service. The best way to avoid chargebacks is to prevent instances of fraud before they even happen.

Fraud Protect analyzes and evaluates all your incoming Shopify transactions. The platform flags suspicious entries or payments that have a high likelihood of resulting in a dispute, helping lower total chargeback volume. High-risk payments that are allowed through by the merchant regardless may not be covered by the service. Fraud Protect comes at a price, with a fee that varies but typically lies somewhere around 1 percent of the transaction value.

All payments covered by Fraud Protect are reimbursed all chargeback fees and expenses. As a result, the service functions as a form of fraud detection and chargeback insurance. Note: Fraud Protect and Shopify Protect cannot operate at the same time.

Compared to Fraud Protect, Shopify Protect provides more robust support that prevents chargebacks, especially for small business owners. But Shopify Protect does come with several limitations:

• The service only applies to physical sale items (not digital goods)
• All orders must be processed through Shop Pay
• The service is only available for U.S. Residents and U.S. Shopify accounts
• All sellers must use Shop Pay-supported shipping carriers
• You must fulfill orders within 7 days and transit to customers within 10 days. 

In addition, Shopify Protect offers no coverage for service chargebacks initiated by customers. Merchant service disputes refer to claims related to merchant error unrelated to Shopify, such as claims of product not as described, service dissatisfaction, duplicate charges, or canceled subscriptions. Only chargebacks associated with instances of true fraud or Shopify error apply under Shopify Protect.

As a result, even though Shopify represents you through the official chargeback dispute process, the scope of the service is not comprehensive. The platform assists you with fraud-related disputes alone, but you still remain exposed to a significant portion of possible chargebacks.

Many Shopify merchants opt for third-party support from qualified chargeback mitigation services to better defend against chargeback types Shopify does not cover. Not only do chargeback partners provide complete protection, but you gain more control and knowledge over your chargeback strategy.

For Shopify Protect eligible chargebacks, Shopify reimburses or pays out all fees. For chargebacks that do not qualify for Shopify support, the standard fees outlined by the customer credit card issuer apply. If you lose a chargeback, Shopify will automatically take the needed funds out of your merchant account, including the bank chargeback fee and all processing payments. If you win the dispute, Shopify refunds all payments.

Shopify passes on issuer charges, which vary by country and range between $10-30, denominated in your country’s currency.

Shopify is a useful and popular web hosting eCommerce platform. And to support its vendors, the company offers free chargeback protection that manages the entire chargeback lifecycle—including reimbursements for all fees and costs.

But while Shopify gives helpful chargeback support, the coverage is not thorough. Not only is there an extensive qualification list you must adhere to, but Shopify Protect only applies to disputes related to true fraud. The ideal strategy for Shopify merchants is to supplement Shopify’s chargeback protections with a third-party mitigation partner who can expertly help you compile evidence, win disputes, and prevent chargebacks.

Want more information on how you can better protect your Shopify Store?

Contact Justt today to talk to the experts about comprehensive chargeback mitigation.