Categories: Shopify


How to deal with a Shopify fraudulent chargeback case.

When running an online eCommerce site through Shopify it’s important to fully understand what you need to know and do when you receive a chargeback case opened up against your business. When a chargeback case is open, you need to act fast to remedy the issue otherwise you risk losing the case. The cost of having a chargeback includes loss of the original product/service, shipping cost, time spent dealing with the chargeback case, etc.… A study that was done by Nexus Risk Solution in 2018 shows that for every dollar lost to fraud, merchants can lose up to three times the original revenue made from the sale. It is expected that this number has definitely further increased in 2020 driven by the rapid increase of online shopping activities.

Who is this for?

The purpose of this article is to help merchants who are experiencing their firsthand chargeback experience for mainly Shopify users, but the basics apply to any eCommerce platform you may already be using as well.

The final decision is ultimately made by the bank/payment gateway providers.

Before you read on, it’s important to understand that you can have everything in the world that proved the item was sent out and received by the buyer, but in the end, you can still lose the chargeback case. All payment gateway and banks work very differently, and many times the outcomes are quite random and unknown on how each case is reviewed to reach a final decision. The best way to deal with this emotionally is to expect that you will lose the case.

First step: Analyze the order (The Situation):

You need to know why the customer filled the chargeback. What does the default Shopify fraud analysis show? Name, IP address, phone number, billing, and shipping address are just one of the more common things to look out for. Does the name look strange? Is the billing address different than the shipping address? Was the order placed in the U.S, but the shipping address is in Canada? These are some of the more common things you should look out for while looking at advancing data points like looking up the area code of the phone number can help you dissect what might be wrong with the order. For deeper analysis, consider a follow-up reading on a previous article I’ve written on what data points to look out for here.

Shopify Fraud prevention tips: Here are five things you need to look at to prevent fraud orders from happening.

Second Step: Contact the customer:

Contacting the customer is an important step because you want to learn if there were any malicious motives if any. Sometimes it’s easier to spot while other times it’s much more difficult without the right tools and/or knowledge. You can listen in on clues and gather additional information to help you with your case. Sometimes it could just be a person whose phone number was used by a bad actor/s that was unaware that their information is being used for malicious activities. There are a few basic questions you should be thinking about.

  • Could the customer have mistaken your company name for another when looking at their credit card statement?
  • Did they forget that they have made a purchase on your site?
  • Did they just want a simple refund, but have no way of knowing how?

If you fail to reach out to the customer by phone, then send an email explaining the situation and give a time limit on when you need to hear back from them. If you still don’t hear back within 24 hours, it’s safe to assume that you should move on to the next step where you prepare your documents for submission to counter the dispute.

Third step: Prepare your documents for submission and review:

If you still have not resolved your issue after attempting to contact your customer, you should prepare a well-written letter to your payment gateway provider to counter dispute the case. Like any criminal case, the authorities need to hear from you directly explaining all the steps you’ve taken to deliver the item properly to your customers. The letter should include clearly what your business sells and details about the order and shipment all in a concise, organized, and easy to read manner.  You might have noticed that I bolded these words because it’s that important when making sure you make it easier for the folks on the other side to have the final say on who the money should be returned to. Every screenshot should include the date and time the order was processed and sent out. Be sure to highlight relevant areas for ease of readability by the risk team.

Document Checklist:

  • Letter to explain the situation: The letter should be brief and explain what the entire situation written in a simple format about the case.
  • Shopify Dashboard Screenshots: Highlight the date and time the order was created and sent out.
  • Proof of shipping record: Highlight the date and time the order was sent from the carrier with the tracking number.
  • Shipping labels: A copy of the receipt or carrier label would be a bonus that matches the date and time the order was sent out.

You should include everything listed in the document checklist to help your chances of winning a case. Make sure that the files are nicely named with important parts highlighted to make the reviewer easier to read. Many merchants lose the chargeback case because they often fail to provide the proper documents.

Fourth step: Install a Shopify Fraud Prevention App like Beacon.

Having a dedicated fraud system has many merits that include automating tasks, advanced fraud prevention tooling, and more. It will save you the hassle of worrying if the next order you receive will come back and hit you with another chargeback.

A good fraud prevention system should include standard features like automation, additional data points, blocking customers, etc.… Your time is precious and analyzing every single order can be tedious and time-consuming. There are many different types of fraud prevention apps and services out there including our very own, Beacon app for Shopify users.