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eCommerce merchants using Shopify payments are bound to experience chargebacks at some point. And chargebacks cost merchants at least 0.47% of revenue.
eCommerce merchants using Shopify payments are bound to experience chargebacks at some point. And Shopify chargebacks cost merchants 0.47% of their total revenue each year.
As we explained in this article, when a cardholder has an issue with a deduction on their credit card, the law allows them to ask their bank (a.k.a, the issuing bank, card issuer, or financial institution) to reverse the charge. The bank will then have to decide whether to make an immediate chargeback or inquiry.
If the cardholder's bank makes a chargeback, they will deduct the amount under dispute and a chargeback fee from your wallet. And you will have to represent the transaction to them with compelling evidence that shows its legitimacy.
Depending on the compelling evidence you present to the customer's credit card company, they can resolve the dispute to your advantage, in which case you win the dispute, and Shopify will refund the chargeback fee. But if the dispute results favor the cardholder, the disputed amount goes to the cardholder.
If the cardholder's bank sends an inquiry, you have some grace period to resolve the chargeback request with your customer.
In the remaining parts of this article, we shall excavate valuable insights that'll help you manage your chargeback mediation efforts excellently.
According to the famed author and speaker Simon Sinek, it's always wise to start with why. Before we dive deep into best practices for winning payment disputes on Shopify, let's look at the root causes of Shopify payments chargebacks.
Shopify has broken down the labyrinth of the reasons codes that cardholders give for disputes into eight distinct categories. Let's evaluate these reason codes one after the other.
A fraudulent transaction chargeback happens if the cardholder does not authorize the charge. This class of disputes are at the top of the list for all Shopify payments chargebacks. They often occur if the card was stolen. According to research, actual fraud or online shoplifters accounts for only 29-30% of total fraud losses for e-commerce which is a criminal fraud. However, ~71% of digital commerce losses result from chargeback fraud or friendly fraud.
An Unrecognized Transaction chargeback means the cardholder does not recognize the transaction, vendor's name, etc., as stated on the bill. You can minimize this dispute occurence with better merchant descriptor. Equally important, get authorization from the cardholder, and use CVS and CVV. Reduction in unauthorized transactions will reduce fraudulent chargebacks.
Shopify marks the chargeback reason as "Duplicate" if the cardholder believes the merchant charged them twice for the same transaction. This dispute can result from a simple human error of the merchant failing to void multiple billing. It could also be that the merchant tried to process numerous transactions fraudulently, or the consumer authorized the transactions but later retracted them.
A Canceled Subscription chargeback happens if the cardholder believes the merchant charged for a subscription after they canceled. It can equally mean the client forgot about the subscription and the merchant didn't send a reminder before a recurring billing. A well-crafted subscription cancellation policy can save you lots of headaches in this instance.
A Product Not Delivered chargeback means the customer believes they did not receive the goods or services they purchased.
Vendors who do not have a well-drafted shipping and order fulfillment policy are susceptible to this category of Shopify payments chargeback. And according to available industry data, over a quarter (26%) of all chargebacks result from a product not being delivered. However, what that data does not show is that scammers also use "product not delivered" Shopify payments chargeback to steal from merchants.
Shopify classifies the chargeback as "Product Unacceptable" if the cardholder feels they received the product alright, but it was defective, damaged, counterfeit, or not as the vendor described them. This category of Shopify payments chargeback often results from poor product descriptions or strict return policies.
To avoid this, ensure that your product descriptions are well-crafted, and accurately describes the product sold. More so, ensure that your return policy isn’t letting you down. Research shows that merchants shipping the wrong product is the reason behind 15% of all chargebacks. Additionally, 8% of chargebacks happen when a purchase doesn’t meet a customer’s expectations, or the product does not match the description the vendor advertised on the website.
If the customer returned the product they purchased or canceled the transaction, and the merchant has yet to refund or credit the customer, Shopify will mark the chargeback as Credit Not Processed. Another cause of this category of Shopify payments chargeback is when the vendor issued the disputed credit but didn’t make the deposit on time before they filed a case.
When the chargeback reason code does not fall into any of the above categories, Shopify will mark it as "General" in line with its chargeback rules.
Now that you’ve understood the various reasons why customers file Shopify payments chargeback, let’s look at proven best practices on how to win disputes without breaking much sweat.
The first course of action in handling fraudulent chargebacks is contacting the cardholder. In some instances, the cardholder may have forgotten about the transaction, or a relative made the purchase.
If, upon initiating contact you managed to find a middle ground and the client accepts the charge was legitimate, have them ask their bank to drop the chargeback. However, you must send sufficient evidence of your agreement with the cardholder to the credit card company.
But if you cannot reach a consensus with the cardholder or think their claim is untrue, the following are crucial pieces of evidence you can submit to the credit card company to fight the dispute.
Always evaluate your orders before satisfying them and try human-proof payment records to minimize clerical errors. That also helps you excavate fraud patterns and determine potentially high-risk orders, thereby avoiding chargebacks.
Fulfilling high-risk orders can lead to more Shopify payments chargebacks. When you get a high volume of disputes, Shopify will discontinue your payment processing and bar you from transacting on their platform. So, it is highly imperative to keep your chargeback rate as low as possible.
As in Fraudulent chargeback, you should try to contact the client to handle an Unrecognized chargeback case. Again, the cardholder may have forgotten about the transaction. Or the purchase was made by their relative, and the cardholder does not want to pay the bill.
As stated above, if you can reach a consensus upon initiating contact, and the client accepts the charge was legitimate, tell them to ask their bank to drop the chargeback. Remember to send the evidence of your agreement with the cardholder to the credit card company.
But if you cannot find common ground with the cardholder or think they are not telling the truth, you should submit the following evidence to the credit card company to fight the dispute.
To win this category of chargebacks, examine your books and see if you charged the client twice. If you find that the customer’s claim is valid, you need to accept the chargeback.
But if you realize you didn’t place a double billing, try to talk to the customer. Show them the transaction details. If the customer accepts the bill, tell them to contact their bank and drop the chargeback. Below are the documents you must add to your response to the credit card issuing company:
If you can’t reach an agreement upon contacting the customer or think h/se didn’t cancel the subscription before the bill, then you have to show the credit card company some evidence to that effect. Below are vital pieces of evidence to include:
To win the Product Not Received chargeback, you should have strong evidence that the customer received the product before filing the dispute. Present your strong reasons to show the cardholder received the product or service. If you reach out to the customer and cannot resolve the dispute, the next cause of action should be to represent the case with the following documentation.
If the customer picked up the product from your physical location, then you should include:
If you delivered the product to the cardholder’s home or business address, then include:
If the product or service was digital, add the IP address, timestamps, Server, or activity logs to show the customer accessed the product or service.
In instances where the client’s Product Unacceptable claims are untrue, or the customer didn’t try to return the product or cancel the service before they made a chargeback, or you already replaced the order, below are compelling evidence to use in your representment:
In instances where the client’s Product Unacceptable claims are untrue, or the customer didn’t try to return the product or cancel the service before they made a chargeback, or you already replaced the order, below are compelling evidence to include:
Suppose you couldn’t resolve the dispute after contacting the client, and you think the chargeback is invalid. In that case, you should send your compelling evidence to the credit card issuing company—state whether you refunded the customer before the chargeback or weren’t entitled to a payment refund.
Add the following compelling evidence in your rebuttal letter:
If you are fighting any other Shopify dispute that does not rank within the categories we’ve discussed, but was rather marked as General, below are some critical evidence you should send to the credit card company:
While you can take the vital steps listed above to mediate issues and minimize legitimate Shopify payments chargebacks, there’s no guarantee they’ll help you stop fraudulent chargebacks. You can use all the best practices in the world and still have meritless disputes filed against you. Plus, implementing numerous chargeback prevention checks and balances can impact your customer service.
Again, fighting false chargebacks manually is becoming incredibly difficult and time-consuming, with only a 12% success rate for the most part. An efficient chargeback mitigation strategy such as Chargeflow helps you stop chargebacks and recover revenue on autopilot.
Chargeflow helps the boldest merchants worldwide focus on building their brands, serving their customers, and delivering better products without the burden of disputes and chargebacks. Sign up here and join the fastest-growing brands in the world to experience a 5x ROI Guarantee with chargeback automation. We also have a chargeback protection app for Shopify merchants, built for chargeback management and to keep chargeback claims to a minimum without merchant involvement.
Recover 4x more chargebacks and prevent up to 90% of incoming ones, powered by AI and a global network of 15,000 merchants.