Shopify Chargeback Protection: Complete Guide for Sellers

As someone who sold on Shopify, I was paranoid about chargebacks and wanted as much protection as possible. Such paranoia led me to look into Shopify’s chargeback and fraud protection.

If you’re as paranoid as me, you probably want to know what this program is. And that’s what I’ll teach you in this guide. You’ll also find Shopify’s dispute fee and other relevant information regarding their chargeback process.

Let’s get “protected”.

Key Takeaways

• Shopify Protect (AKA Fraud Protect) is free.
• It analyzes transactions, fights chargebacks on your behalf, and reimburses chargeback fees.
• Shopify has a $15 chargeback fee.
• Fraud Protect only applies to transactions with reason codes that relate to fraud.

What Is Shopify Chargeback Protection?

Unlike most companies (e.g., PayPal), Shopify does not offer chargeback protection for chargebacks outside of fraud.

However.

They offer Fraud Protect.

What Is Shopify Fraud Protect?

• Price: Free

Shopify Fraud Protect works by analyzing various data points related to each transaction. It looks at the customer's purchase history, IP address, and device information. This helps identify suspicious patterns that might indicate fraudulent behavior.

When a potential fraud risk is detected, Shopify alerts the merchant.

This early warning system allows sellers to take action before a chargeback occurs. They might cancel the order or gather additional evidence to support the transaction's legitimacy.

It’ll also reimburse eligible purchases for chargeback fees and the disputed transaction amount.

Let’s say you had a chargeback on a $100 purchase and paid a $15 dispute fee. If your transaction is eligible for Fraud Protect, Shopify will refund you the $115.

When a chargeback happens, Shopify's system assists merchants in fighting false claims. It provides relevant transaction data and evidence to help build a strong case against fraudulent disputes. This increases the chances of winning chargeback cases and recovering lost funds.

Here’s an example of how Fraud Protect would gauge fraud:

This is an example of a fraudulent transaction. We’ll teach you how to deal with these in a separate guide.

Summary: Shopify Protect reimburses merchants' chargeback fees and disputed amounts for eligible purchases. It also acts as a fraud-scoring tool.

Who’s Eligible for Shopify’s Fraud Protection?

The following order types are eligible for Shopify Fraud Protect [1]:

• You have Shopify Payments enabled.
• 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.

Shopify Protect will support the following carriers:

Finding the order status.

I need to write this section because finding the filter section (when it shouldn’t be) was a nightmare.

1. After logging into your Shopify admin panel, navigate to Orders.

2. From there, you’ll click on this icon on the far right side of the screen:

Then, the Add Filter button will appear…

3. Click it and scroll down to almost the bottom to find Shopify Protect.

4. Click it and then click the checkbox beside Protection Active or Protected.

Here’s what each means:

• Protection Active: Shopify Protect is available; you must meet other requirements first.
• Protected: This order is fully protected.
• Not Protected: Not eligible for Shopify Protect.

I guess the days of having easy-to-access filters are gone.

Anyway. If an order doesn’t show up when you tick the Protection Active and Protected boxes, your order is not covered.

Costs & Limitations

Here the limitations of using Shopify Fraud Protect:

• Must be a US-based merchant.
• You must enable Shopify Payment on your account.
• Must fulfill orders within 7 days.
• Applicable only to fraud chargebacks.
• You have to ship orders within 10 days.
• Only applies to physical items (not digital goods).
• Order cannot be picked up in-store.
• Purchase cannot have tracking added after the fulfillment deadline.

Moreover.

Shopify Protect will not cover any other chargeback type. That means you won’t receive coverage for merchant error, friendly fraud, or a billing issue.

What Is Shopify’s Chargeback Fee, Anyway?

Shopify’s chargeback fee is $15 for American merchants. This amount will vary for sellers in other countries. It is, however, refundable. But only if you win the chargeback.

Shopify is much more forgiving with their chargebacks than other merchants. However. Chargeback protection will protect you from instances where you’ll lose a dispute.

How Would I Prevent Chargebacks

Firstly, there are 3 types of main chargebacks:

• Friendly fraud: Customer disputes a charge but did make the purchase.
• True fraud: Someone steals card information and makes unauthorized purchases.
• Merchant error: The seller makes a mistake with the transaction or delivery.

I compare the differences among these different types of chargebacks in a separate guide. These are “umbrella” terms. The actual reason for your chargeback will vary by chargeback code. And these will vary by provider.

Here are guides with the reason codes (and how to prevent them) in separate guides:

• Visa
• Mastercard
• Discover/JCB
• American Express

We also provide more general approaches to preventing chargebacks here. These preventative methods will apply to most payment processors. Then, we have another guide that recommends various chargeback protection tools.

Your approach to prevention is nuanced, so a precursor was necessary.

Here’s how to prevent Shopify chargebacks in different categories.

Merchant Error Chargebacks

Here are tips I recommend following to prevent merchant error disputes:

• Double-check order details before you process them.
• Use clear product descriptions and accurate images.
• Ship orders on time and give tracking information.
• Set up a strong customer service system.
• Train staff to handle transactions correctly.
• Update inventory often to avoid overselling products.

Most of these preventative methods focus on just not making mistakes. Your goal is also to be as upfront with the customer as possible. The other part of this involves training staff not to make mistakes. For instance, training needs to prevent double-charging a customer.

I can’t find the win rate for merchant error chargebacks.

However.

I’d imagine it’s not too high. Let’s say a seller makes an obvious mistake. It’s hard for them to prove they’re innocent. Thus, the customer wins, and you don’t get a refunded chargeback fee.

Friendly Fraud Chargebacks

Follow these tips to help prevent friendly fraud:

• Use clear billing descriptors on credit card statements.
• Send order confirmation emails with purchase details.
• Use delivery confirmation for all shipments.
• Offer easy cancellation options before shipping.

Your goal here is to prove that the transaction was authorized. In some instances, friendly fraud can account for more than 75% of chargebacks [2]. This could happen because a family member purchased a customer’s card. Or they want to try to scam your business.

Thankfully, merchants have a 43.82% chance of beating friendly fraud disputes [3]. That’s much higher than the average 30% win rate.

But this rate isn’t so high for third-party fraud…

True Fraud (AKA Third-Party Fraud) Chargebacks

Here are some of my tips to help you prevent true fraud disputes:

• Use Address Verification Service (AVS) for all transactions.
• Implement 3D Secure authentication.

Your goal is to do everything you can to ensure a transaction is legitimate. Or you’ll find yourself a part of the businesses that lose 5% of their revenue yearly to fraud [4]. That’s why many businesses will spend $5 million annually to prevent fraud.

Shopify Protect will help you a bit. So long as you meet the stringent requirements. Otherwise, you’ll need to shell out more money for third-party tools (e.g., Signifyd).

Other Considerations

Here are some more broad ways to prevent chargebacks:

• Use chargeback alert services to get early warnings.
• Offer multiple customer support channels for quick resolution.
• Set up automatic refunds for specific dispute scenarios.
• Analyze chargeback data to identify and address patterns.

Chargeback alerts help a lot. They tell merchants about disputes early. This way, merchants can fix problems before they become chargebacks. This can lower chargeback rates by 91% and cut fees.

We have partnered with providers like Visa RDR and Mastercard Ethoca to make it easier to access such alerts. Learn how we can help.

Consider a chargeback analyst if you experience a lot of chargebacks — more than 0.65% of your monthly sales. They’ll analyze your dispute history and provide more information on preventing future ones. I highly recommend them because they’re always up-to-date with everything.

Conclusion

Shopify Protect offers protection from fraudulent chargebacks done through Shopify Payments. Otherwise, if you use a different payment processor, it’s not helpful. Thus, you’ll need to take measures to prevent chargebacks altogether.

That’s where we come in. We’ve helped businesses reduce chargebacks by up to 91% and increased revenue by 5%. We can help you, too. Try out our alerts for free.

Sources

• [1] Shopify. Considerations.
• [2] Verifi. Friendly Fraud on the Rise.
• [3] Chargeflow. Navigating Ecommerce Resilience.
• [4] Snappt. Fraud Cost.