What’s the Shopify Chargeback Fee in 2024?

I used to sell on Shopify, which meant that I needed to prepare myself for various scenarios. Including chargebacks. I want to use this guide as a chance to pass my knowledge to you.

I’ll explain Shopify’s chargeback fee and its cost. Then, I’ll discuss other expenses that result from disputes and different ways to prevent chargebacks.

Let’s see how much disputes will cost you.

Key Takeaways

• Chargeback fee is $15.
• It is refundable as long as you win the chargeback.
• Fraud Protect will reimburse eligible fraudulent purchases of the chargeback fee.
• Shopify’s fee is lower than those of most payment providers.

What Is the Shopify Chargeback Fee?

Shopify charges merchants a chargeback fee when a customer disputes a transaction. This fee is separate from the disputed amount and typically ranges from $15 to $30 per chargeback.

If, for instance, you use Stripe through Shopify, you won’t receive a Stripe and Shopify chargeback fee at the same time. You’d only receive the Shopify fee. Since they’re your payment processor.

It's meant to cover the administrative costs Shopify incurs when handling these disputes.

The fee serves a dual purpose:

1. It offsets the expenses associated with processing chargebacks.
   1. This includes communication with banks and gathering evidence.
2. It encourages merchants to implement strong fraud prevention measures and maintain high-quality customer service.

For high-volume sellers, these fees can add up quickly. They're an unwelcome addition to the potential loss of goods and revenue from chargebacks. This makes chargeback prevention crucial for maintaining profitability.

Shopify's chargeback fee is in line with industry standards. Most payment processors and platforms charge similar fees to cover their costs and incentivize fraud prevention.

Summary: The Shopify chargeback fee helps cover administrative costs. It’s charged to merchants who incur chargebacks.

Shopify Chargeback Fee Cost

• Chargeback Fee: $15

Shopify’s chargeback fee is 15 USD per chargeback for US merchants. They don’t specify any other fees, such as arbitration.

However.

This fee will vary by your country:

* Some of these items have multiple currencies. The fee will vary based on your payout currency. For instance, you'll pay the USD fee if you’re a Canadian merchant and receive USD as a payout.

Shopify will refund the chargeback fee if you win the dispute. And you’ll receive this refund regardless of your country/region.

Well, what about withdrawn disputes? Stripe considers them “won.” Does Shopify? I couldn’t find an answer, so I tried reaching out to their customer support. And you know what?

They couldn’t give me an answer, either.

Summary: The fee is $15 per chargeback. And yes, it’s refundable if you win the dispute.

Shopify Chargeback Protection: Why You Should Know About It

Shopify's Fraud Protect is a tool that helps keep merchants safe from fraud. It automatically analyzes orders and marks them as either protected or unprotected. If an order is protected, Shopify guarantees reimbursement.

This means Shopify pays back the merchant if there's a fraudulent charge.

Fraud Protect is only available for certain purchases. This includes orders processed through Shopify Payments. Also, it’s only available for merchants based in the United States. Not all orders are protected. The tool uses algorithms to decide which ones qualify.

We provide more information in a separate guide. There’s too much to write here. As the requirements are pretty strict.

Summary: Fraud Protect reimburses sellers on chargebacks related to fraud. These purchases must be eligible, though.

How Does Shopify’s Fee Compare to Other Chargeback Fees?

Here’s how Shopify’s dispute fees compare to other platforms:

• PayPal: $20 per chargeback, but is waivable if the seller has chargeback protection
• BigCommerce: $20 per incident
• Stripe: $15 per dispute, is waivable through chargeback protection
• Square: $0
• Cash App: Varies by situation
• Ayden: Varies by payment method
• Venmo: $0
• Braintree: $15 per incident
• Amazon Pay: $20 for seller fees. For suppliers, costs will vary
  • Sellers who are eligible for Payment Protection Policy won’t pay chargeback fees
• Authorize.net: $25 per incident
• Apple Pay: $0

Some of these providers don’t have a chargeback fee, but there’s more than meets the eye, here. You’d need to check out their guides for more information.

They’re the only payment processor I’ve seen that’ll refund fees for won chargebacks. Stripe used to do this but limited the refund to merchants inside Mexico.

Additional Costs of Chargebacks

Chargebacks bring additional costs to merchants beyond the disputed transaction amount.

Administrative expenses pile up quickly when handling disputes. Staff must spend time gathering evidence and preparing responses to each case. This takes them away from other important business tasks.

Merchants often need to invest in software to manage chargebacks. These tools can be costly but are essential for tracking and responding to disputes. Some businesses hire dedicated chargeback specialists. Adding to payroll expenses.

Returns can eat into a company's bottom line. Shipping costs add up, especially for big items. It's even worse when customers don't send products back. Businesses lose the item and the sale.

In addition to increased payment processing fees, higher rates will result in being placed in certain programs. For instance, Visa’s Dispute Resolution Monitoring Program results in higher chargeback and review fees.

The review fees can range in the tens of thousands.

Excessive chargebacks may result in fines from card networks like Visa or Mastercard. In extreme cases, merchants risk losing their ability to accept certain payment methods. This can severely impact sales and customer trust.

Summary: Administrative costs, fines, and shipping costs are also financial consequences of chargebacks.

What Is a Shopify Chargeback?

A Shopify chargeback happens when a customer asks their bank to reverse a payment to a Shopify store. This can cost the store money and extra work. Chargebacks may occur due to fraud, unhappy customers, or mistakes.

In the context of Shopify, a chargeback works the same way as with any other platform.

When a customer initiates a dispute, Shopify notifies the merchant and provides relevant transaction details. This information helps merchants build a case to fight the chargeback if it's unwarranted.

For stores using Shopify Payments, Shopify acts as the acquirer during the chargeback process. They communicate with the card networks and issuing banks on the merchant's behalf. The merchant is still responsible for providing evidence to contest the chargeback.

Unless you have Fraud Protect enabled. Then Shopify will handle those chargebacks.

Anyway.

It's worth noting that many payment processors use "dispute" and "chargeback" interchangeably. Both terms refer to the process of a customer challenging a transaction. And sometimes, folks will refer to them as “chargeback disputes.”

Summary: A chargeback is a forced reversal of funds. The chargeback process will vary by the card processor.

Aren’t Chargebacks the Same as Refunds?

The customer initiates refunds directly through the merchant. They're a normal part of business and don't usually involve banks or card issuers.

Chargebacks involve the customer's bank reversing a transaction. They bypass the merchant, which can be costly due to additional fees and potential penalties. Refunds are smoother and less expensive for sellers to process than chargebacks.

The timeframe for chargebacks is often longer than for refunds.

Customers can usually file chargebacks months after a purchase. Refunds tend to have shorter windows.

Chargebacks can negatively impact a merchant's standing with their payment processor. Too many might lead to higher processing fees or account termination. Refunds don't carry these risks and are seen as a normal part of business.

Vendors have more control over the refund process than chargebacks. They can set conditions and handle customer communication. With chargebacks, merchants often have limited input and must follow dispute processes.

Summary: Merchants control the refund process. The same doesn’t go for chargebacks.

How Do I Prevent Shopify Chargebacks?

There are tens of reason codes that involve different prevention methods from these card issuers:

• Visa
• Mastercard
• Discover/JCB
• American Express

Check out those guides for more specifics. Otherwise. We’ll talk about broad preventative tips here. But first, we’ll need to know the most common chargeback types.

And they are:

• Friendly fraud: Customer disputes legitimate charge to get refund.
• True fraud: Unauthorized use of a card for purchase.
• Merchant error: Business mistake causing incorrect or unauthorized charge.

Each type will have its own set of preventative measures. And we’ll cover those now.

Friendly Fraud Prevention

Here’s what I recommend doing to prevent friendly fraud:

• Use clear billing descriptors on credit card statements.
• Send order confirmation emails.
• Use delivery confirmation and require signatures.
• Offer hassle-free cancellation options.

In friendly fraud scenarios you’ll encounter someone who wants to get free stuff.

Or an instance of family fraud. A subset of friendly fraud is when a family member purchases a customer’s card. For instance, your nephew could buy a microtransaction on a mobile game without your knowledge.

You need to prove that the purchase was legitimate. And you need the customer to understand what they’re buying.

These account for more than 70% of chargebacks and are often the easiest to win. Since they have a more than 40% win rate.

Third-Party Fraud Prevention

Follow these tips to prevent true fraud (AKA third-party fraud):

• Use Address Verification Service (AVS) for all transactions.
• Use 3D Secure authentication.
• Verify customer location matches billing address
• Use device fingerprinting to identify and block known risky devices
• Review high-risk transactions before processing or shipping orders

Your goal is to ensure that it’s the actual customer making the purchase. Shopify Fraud Protect does a decent job at this by offering fraud scoring software for free. But it’s only usable by US merchants using Shopify Payments. And who also meet their strict eligibility requirements.

You’ll likely have to rely on third-party tools to help you score chargebacks. And how much do sellers usually spend to prevent fraud?

A lot.

Small businesses spend about 6% of their annual revenue on prevention. Mid-sized companies spend 11%. And many spend at least $5 million a year. But the average fraud cases result in a monthly cost of $8,300 [1].

By preventing fraud, you reduce the chance of being placed in card network fraud monitoring programs. Such an example includes the Visa Fraud Monitoring Program (VFMP). This results in the potential for them to revoke your ability to accept visa cards.

Merchant Error Prevention

And here are some tips that’ll help you prevent merchant error chargebacks:

• Double-check all order details before processing.
• Use clear, accurate product descriptions.
• Ensure timely shipping.
• Provide real-time tracking information to customers.
• Clearly communicate refund and return policies.

All I can say for this section is to ensure you don’t make mistakes. Because if you make a mistake, there’s not much you can do to prove your innocence.

In addition to the above, I recommend using external tools like chargeback alerts. These notify you when there’s an issue with a transaction. This gives you a chance to reimburse the customer to prevent a chargeback.

Usually, for optimal coverage, you’d need to set up alerts from multiple providers (e.g., RDR and Ethoca). However. We make this process easier and can save merchants a lot of time.

Wrapping Up

Shopify’s $15 fee for chargebacks is lower than what most payment processors charge. Moreover. It’s refundable so long as you win the chargeback. And if you have Fraud Protect, it’s refunded during fraudulent disputes.

Do you know what’s better than dealing with the fee at all? Having no chargebacks. It’s difficult to prevent them, but it’s possible with the right combination of tips and tools. One of those tools is chargeback alerts.

We provide these alerts and can help you reduce chargeback rates by 91%. Learn how.

Sources

• Snappt. Fraud cost.