The Ultimate Guide To Shopify Chargebacks

As someone who used to sell stuff on Shopify, I’ve had to prepare myself for chargebacks. I want to pass this knowledge to you. I have also noticed that A LOT of merchants don’t know much about Shopify’s role in chargebacks.

I’ll talk about whether Shopify’s chargebacks are different and other important information you should know (e.g., time limits). The goal is to give you the information that I wish I had when selling on Shopify.

Let’s begin.

Key Takeaways

• Shopify literally does not have any say in the chargeback process.
  • They only act as the intermediary between the seller and customer’s bank.
• Chargebacks with Shopify only happen through Shopify Payments.
• They charge $15 for chargebacks, but it’s refundable if you win the dispute.
• The time limits depend on the card the customer used.
• Chargeback disputes typically take 120 days to resolve.

How Are Shopify Chargebacks Different?

Shopify is an e-commerce platform that uses many payment processors. The chargeback process will vary by payment provider.

Let’s say a customer makes a purchase through a PayPal portal on your Shopify site and then wants to charge back the money. The chargeback process will switch to PayPal.

Regarding “Shopify” chargebacks, they’re done on purchases made with Shopify Payments. And that’s what I’ll focus on in this guide.

Anyway.

You’ll manage Shopify Payments chargebacks through your Shopify dashboard. This is where you can track your dispute’s progress, submit evidence, and whatever else. I’ll talk about this more later.

Let’s see what protection you’ll have that’s different from other platforms.

Summary: The chargeback you’ll encounter on Shopify depends on the payment method. If done through Shopify Payments, the chargeback process will happen on Shopify.

Shopify Chargeback Protection

• Price: Free

Shopify’s Fraud Protect (AKA chargeback protection) combines chargeback insurance and fraud scoring. If a purchase is eligible for Fraud Protect, merchants will get refunded the disputed amount and the chargeback fee.

It also includes a fraud scoring tool. This uses machine learning to gauge whether a transaction is fraudulent.

Here’s an example order that I made to illustrate it in use:

This looks pretty fraudulent, right? I explain how to deal with these orders in a separate guide.

Anyway.

First off, this only applies to chargebacks with fraud-related reason codes. Then, there are these requirements:

• You have Shopify Payments enabled.
• Must be a US-based merchant.
• Physical products.
• Must be “Fulfilled” status.
• Purchases are done through Shop Pay/Shopify Payments
• The order must have “Protection Active” or “Protected” filters.
• Must provide a valid tracking number for a supported carrier.

I discuss the supported carriers and how to deal with the filters in a separate guide. Because either I’m dumb, or the filter wasn’t obvious. It was a nightmare to find.

Summary: Fraud Protect reimburses sellers the chargeback fees and disputed amount for eligible purchases. It’s also a fraud-scoring tool.

Chargeback Fee

• Chargeback Fee: $15

Shopify charges a $15 fee per chargeback for US merchants. They will refund this fee if you win the chargeback. It doesn’t matter what type of chargeback it is.

However.

They don’t specify whether this applies to withdrawn disputes.

They charge this fee to compensate for the fee that issuers charge Shopify during the chargeback process. It’s also for the administrative costs that occur during a chargeback, since Shopify has to delegate staff to represent you.

This fee will also vary by country:

* You’ll see multiple currencies for some of these countries. Whatever you’ll pay depends on your payout currency. If you’re Canadian and receive USD as a payout, you’ll pay the USD chargeback fee.

Shopify Time Limits for Chargebacks

Shopify does not have a specific time limit for merchants or cardholders. The limits will vary by card provider.

And they’re as follows for sellers:

• Discover: 5 days
  • Retrieval requests: 20 days
• American Express: 20 days for inquiries and chargebacks
• Mastercard: 45 days
  • Second chargeback: 30 days
• Visa: 20 days

Shopify will tell you how long you have to respond to a chargeback. The above numbers are general references.

Do not respond past the time limit. Otherwise, you’ll automatically lose.

This doesn’t include time limits for responding to arbitration and inquiries for some providers. You’ll need to explore those individual guides for further information.

You SHOULD know to keep transaction information for the following durations:

• Visa: Minimum 13 months
• Mastercard: Minimum 13 months
• Discover: Minimum 36 months

Those time limits are the maximum amount of time that customers have to file a chargeback. If you don’t keep the transaction information for this long, you’re almost guaranteed to lose.

Okay. So how long do customers have to file a chargeback?

Here:

• Visa: 120 days
• Discover: 120 days
• American Express: 120 days
• Mastercard: 90 – 120 days

The actual time limits will vary by the chargeback reason code. For instance, customers can file fraudulent chargebacks up to 2 years after a chargeback for Discover. That’s why the minimum duration to keep evidence for them is so long.

Shopify Chargeback Process

• How Long It Takes: Within 120 days
• Who’s Involved:
  • Customer
  • Cardholder’s issuer (bank or card network)
  • Merchant
  • Shopify (Acquirer)

Here’s the typical process for a chargeback:

• Cardholder initiates a dispute with their bank.
• Issuer files a chargeback, deducting funds and fees.
• Shopify requests evidence from the merchant.
• Merchant gathers and submits evidence.
• Shopify forwards the merchant's evidence to the credit card company.
• Issuer reviews the evidence and determines the chargeback outcome:
  • Merchant wins: Chargeback is reversed.
  • Buyer wins: Chargeback stands.

This information comes from Shopify’s staff [1].

This process only applies to transactions done through Shopify Payments. The actual chargeback process will vary depending on the payment processor.

Because remember, Shopify is an e-commerce platform. Not solely a payment processor.

Here are separate guides to help you understand how other processes will go:

• PayPal
• Amazon Pay

If you use manual payment methods outside of your online store, the chargeback process will depend on what method.

Shopify Chargeback Threshold

Shopify doesn’t publish any numbers for specific chargeback rates for Shopify Payments. Some other sources suggest that the threshold is 1%.

Keep your dispute rate under 0.65%. Because that’s the dispute rate that’ll land you in the Visa Dispute Monitoring Program. I recommend working on chargeback prevention if your rate remains in this area.

I’ll dive into this in a bit.

Shopify will calculate your chargeback rate by the number of orders that have resulted in chargebacks. You’ll find your current chargeback rate by following these pages: Analytics > Reports.

Their staff specified that if you have a high number of chargebacks, they’ll remove you from Shopify Payments.

What Are Shopify Chargebacks?

Chargebacks are a way for customers to get their money back from a purchase. This happens when a customer asks their bank to reverse a charge on their card.

It's worth noting that "disputes" often refer to the same thing as chargebacks. Card issuers and payment processors use these terms interchangeably. This can be confusing, but they're talking about the same process.

Shopify doesn't have its own chargeback or dispute system. Instead, it acts as a go-between for merchants and banks and follows the chargeback process set by the card issuer.

This means that when a customer files a chargeback, Shopify isn't calling the shots. They're just passing along info between the merchant and the bank. It's up to the merchant to provide evidence to fight the chargeback.

Summary: Customers reverse charges through banks; Shopify mediates disputes.

Are They the Same as Refunds?

Refunds occur when customers ask the merchant directly for their money back. The merchant then processes the return of funds to the customer's account. This is usually a smooth process that's part of normal business operations.

Chargebacks involve the customer's bank. The customer goes over the merchant's head to their bank to dispute a charge. This can happen even if the merchant has a no-refund policy.

With refunds, the merchant is in control of the process. They can set policies and handle requests as they see fit. Chargebacks, however, put the merchant on the defensive.

Refunds are also quicker and easier for everyone involved. Chargebacks can drag on for weeks or even months. They also come with fees and can hurt a merchant's reputation.

Merchants usually prefer refunds because they're cheaper and cause less hassle. As chargebacks can lead to fines and even account terminations if they happen too often.

Summary: Merchants control refunds. They don’t control chargebacks.

Reasons for Chargebacks & How to Prevent Them

If you’re going through Shopify Payments, you won’t see typical reason codes like what many other payment processors would show.

Instead, you’ll see one of the following chargeback types:

1. Fraudulent Chargeback

This happens when someone uses a stolen card to make a purchase. For example, a thief buys a laptop using someone else's credit card info.

Here are some ways to deal with fraud:

• Cancel potentially fraudulent orders.
• Verify billing and shipping addresses match.

Shopify Payments will automatically give you 3D Secure for purchases. This adds another barrier that customers have to pass to prove that they’re the authorized cardholder.

They also offer Fraud Protect. I covered this. It’s fraud scoring software available on certain purchases.

2. Unrecognized Chargeback

The customer doesn't remember making the purchase. They might see "Shopify Store" on their statement and get confused.

Here’s how to prevent this:

• Use a clear business name on statements.
• Send detailed order confirmations.
• Provide excellent customer service for inquiries.

3. Duplicate Chargeback

The customer is charged twice for the same order. This could happen due to a system glitch.

To prevent:

• Double-check all transactions before processing
• Quickly refund any accidental duplicate charges

4. Subscription Canceled Chargeback

Customer cancels a subscription but still gets charged. Maybe they forgot to cancel or the system didn't update.

To prevent this, you’ll need to:

• Make cancellation process easy and clear
• Send reminders before renewal dates
• Process cancellations promptly and confirm via email

5. Product Not Received Chargeback

The customer claims they never got their order. The package might've been lost or stolen.

Here are ways to prevent this:

• Use tracking for all shipments
• Require signature for high-value items
• Communicate shipping updates to customers

6. Product Unacceptable Chargeback

The item doesn't match the description or is damaged. For example, a shopper orders a red shirt but gets blue one.

Follow these tips to prevent them:

• Provide accurate product descriptions and photos
• Use sturdy packaging to prevent damage
• Offer an easy return or exchange policy

6. Credit Not Processed Chargeback

The customer returned an item but didn't get a refund. The refund might've been overlooked or delayed.

Here’s what I recommend doing:

• Process refunds quickly
• Send refund confirmation emails
• Keep detailed records of all returns and refunds

7. General Chargeback:

This covers issues not fitting other categories. It could be anything from pricing errors to misunderstandings.

To prevent:

• Maintain clear communication with customers
• Have detailed policies for all aspects of your business
• Respond promptly to customer concerns and complaints

Shopify doesn’t offer the most tools to prevent chargebacks in general. Thus, you’ll need to resort to third-party providers.

One such tool that’ll work well is chargeback alerts. They’ll let you know when there’s a problematic transaction and allow you to fix it. This prevents the customer from escalating to a chargeback.

These can be a pain to implement, though. Since you’d need to go through multiple card providers. We make that process easier and have reduced chargeback rates by up to 91%. Learn how we can help.

How Do I Fight & Win Shopify Chargebacks?

Let’s begin with how you’ll know whether you have a chargeback through Shopify Payments.

If you have chargeback alerts (like what we offer), you’ll receive a notification through your dashboard and email. Otherwise, you’ll receive an email from Shopify and find a chargeback notification on your Shopify dashboard.

Here’s what the email will look like:

To find the notification on your dashboard, you’ll navigate to orders and then see this:

And when clicking on the order, Shopify will greet you with this:

You’ll have one of 2 options; accept the chargeback or fight it.

Accept a chargeback in these scenarios:

• Clear evidence of fraud.
• Product not delivered.
• Item damage.
• Unauthorized transaction.
• Customer service failure.
• Incorrect item shipped.
• Insufficient evidence to fight.

And here’s when to fight it:

• Product delivered as described.
• Customer received item.
• Strong evidence of purchase.
• Chargeback filed late.
• Friendly fraud suspected.
• Merchant error corrected.
• High chance of winning.

If you accept the chargeback, Shopify will charge you the disputed amount plus the chargeback fee.

If you fight the chargeback, whether the fee sticks will depend on the results. If you lose, you’re still charged the fee. And if you win, Shopify will refund the fee.

Anyway.

If you accept the chargeback, you’ll see a button in the first section that says Accept chargeback. Click that if you want to accept your fate.

Do you want to fight it? You’ll need to submit a bunch of evidence. This is your key to winning. And without sufficient evidence, you’ll almost always lose.

Scroll down the page and provide all the information that isn’t automatically filled in already. For instance, add your tracking details, interactions with customers, and an explanation of why you feel the order was justified.

In the example I provided, I’d need to explain why it wasn’t fraudulent. 

Here would be my explanation:

I believe this chargeback claim is invalid for the following reasons:

1. The order passed all standard fraud checks, including [list checks, e.g., AVS, CVV].
2. We had [X] positive interactions with the customer, including [examples: order confirmation, shipping updates].
3. Tracking information shows the courier delivered the package to the address provided by the customer on [date].
4. The item shipped matches the product description on our website. We have not received any complaints about the quality or condition of the item.
5. The customer did not contact us about any issues before filing this chargeback.
6. This purchase aligns with the customer's previous ordering history in terms of [product type, price range, shipping address].

Given these factors, we believe this is a valid sale and request that the chargeback be reversed.

You probably shouldn’t do this in list form (that’s up to you). I just love writing lists.

From thereon, you’ll need to provide additional evidence relevant to your sale and industry. For instance, you should provide a screenshot of your terms of service and draw a red box around the specific paragraph/section that’s relevant to the chargeback.

Also provide a link to the policy.

Once everything’s filled out, you’ll see these buttons:

Click Preview response first. Ensure that everything is correct. From there, click Submit.

You want to give the issuer enough evidence to prove that the transaction was legitimate. However. You don’t want to overwhelm them. If they have too much to review, they’ll likely miss crucial evidence that could have resulted in your win.

Otherwise, there’s no secret to winning chargebacks. I can’t teach you a spell to convince the issuer to side with you. Just provide evidence, respond on time, and be professional.

If you can convince the customer to withdraw their dispute, that’ll also work in your favor.

Summary: Provide relevant evidence on time to increase your chances of winning.

When is Chargeback Insurance Worth it?

Chargeback insurance protects merchants from financial losses due to chargebacks. It covers the cost of goods and shipping when a customer disputes a charge. With this insurance, merchants don't have to pay for chargebacks out of pocket.

Consider getting chargeback insurance if you sell high-risk products or have many chargebacks. It's also suitable for new businesses that can't afford unexpected losses. The insurance can help you focus on growth without worrying about chargebacks.

But it's not always the best choice. The cost can be high, especially if you don't face many chargebacks. You might end up paying more for insurance than you would for chargebacks.

Some insurers have strict rules about what they'll cover. Read the fine print before signing up. Make sure you understand what's covered and what's not.

Shopify offers its own variation of chargeback insurance, Fraud Protect. However. It’s free. Though, it has strict requirements to qualify. And this protection only applies to fraudulent chargebacks.

Summary: Chargeback insurance can reimburse merchants for disputed amounts and other fees. It’s costly, though.

Wrapping Up

The chargeback process for Shopify Payments is identical to what will happen with other issuers and payment processors. The only difference is that Shopify is your acquirer.

Regardless, the preventative measures remain the same.

One of the better ways to prevent chargebacks is to use chargeback alerts. What’s better than knowing when a customer has an issue with a transaction before it escalates? We can help with that. Learn how.

Sources

• [1] Shopify Community. Chances of winning a dispute