Risky Business Part 1

Risky Business Part 1

Just like with many things in life, business can be risky. As a business owner, you take risks everyday. From launching a product, to pitching to investors, there are many unknowns and financial risks. One thing I don’t often see mentioned on promotions targeting potential or new eCommerce merchants is the risk of customer fraud. For Part One of this series, we’re going to dive into chargebacks.

You’ve got a great product, you’re attracting lots of visits to your website and lots of likes and comments on the ‘Gram, business is about to take off. Cha-Ching, Cha-Ching. Your Shopify Mobile app notifies you that sales have started coming in. You’re so excited to finally be making some moola rather than dishing it out, because let’s face it, businesses have many costs we don’t realize are required until they are due. So, you open up the app and fulfill your orders. Life is good.

Not so fast.

The name “Johnny Johnsonson” sounds a little odd, but you’ve already got his money, so from here on out, it’s smooth sailing. You also wonder why he tried to checkout 4 times, with three different credit cards that all declined before the 4th one was successful, but hey, times are hard and people have multiple credit cards these days, so you continue on, package up the shipment and send it out.

Three days later, you log in to Shopify to see a banner stating that a customer has issued a chargeback. What, this can’t be possible, and it certainly isn’t fair at all. They already paid and you shipped the order. The bank/your eCommerce platform/the customer can’t just take that cash from you.

Unfortunately, they can though.

As a method of fraud protection for their customers, the credit card companies have a chargeback process which allows the customer to contest any charges they believe they have not placed themselves. When a customer finds an unknown charge on their statement and opens a claim with their credit card issuing bank, the bank will actually pull back the payment and look into the transaction and charge you a fee. The fee is typically in the $15 USD range.

Based on evidence provided from the customer, the merchant and the information on the transaction itself, they will make a determination on whether or not this order was authorized by the customer. If they feel it was not, they leave the funds with the customer. If, by chance, they find that the customer did place the order, they would return the payment to you.

It’s important to note that this investigation is conducted and decided on solely by the credit card issuer. Neither you nor your eCommerce platform or payment gateway can force their decision.

There are also a few other scenarios in which a chargeback can occur and that includes the product not being as described or not received at all, and a customer’s fraudulent abuse of the chargeback process. For more information on the different types of chargebacks, check out this document.

While fraud protection is a great thing, chargebacks can negatively impact merchants for a few reasons.

First, when a chargeback happens, as mentioned, there is a fee charged to you. More chargebacks mean more fees. Math aside, I think we can agree that the goal in business is to spend as little as possible while making as much as possible.

Next, payment gateways do pay attention to your chargeback rate. When you start getting too many chargebacks (“too many” can vary between payment gateways), they may determine your account too high a risk to support, and you will then need to find a new gateway.

If you’re getting a ridiculous amount of chargebacks on a certain credit card network, they may begin to become concerned with your business as well and begin reaching out to you (possibly via your payment gateway). However, don’t let this scare you. There are so many things to do before this would even become an issue, it should really never become an issue for you unless you yourself are committing fraud! Seriously, don’t worry, we got you covered below so keep reading.

Third, chargebacks are a pain in the butt and will require a few extra steps on your part as you will want to gather and provide as much evidence as possible that you have done your due diligence in determining whether the order was legitimate.

Shopify has a great guide on fraud prevention. Even if you are using another platform, this will help you out.

Keep in mind that the higher fraud rating an order has (if your platform/gateway does not provide a rating, you can still check out the information found in the order to make a call yourself), things like phoning the customer to verify their info are not typically sufficient. For example, a fraudster can use their own number when checking out and lie to you when asked to confirm their identity and info, so please keep your guard up a little here.

The issue is that, while some credit card holders may mean well, someone may have compromised their information and are using that to buy the awesome products on your store. Another scenario could be that someone wants your products but doesn’t want to pay for it and so they try a chargeback to see if they can get their funds back.

In any case, when your product has already shipped out but a chargeback has occurred, there’s a chance you will lose the chargeback and not get your product back. Because of this, you want to look into all orders to see if they make sense before fulfilling them. You will begin to grow more comfortable with the process and making a decision. Remember that it’s ok to reach out to the customer for more info before deciding and shipping the order. If you have any doubt, the decision is up to you, but you may wish to cancel and refund the order to prevent a chargeback.

The last step is one that is often forgotten. If you do not ship the order and also do not refund it, you’re still at a high risk of a chargeback because on the off chance the person who placed the order really owns the card, they may file a chargeback for non receipt.

Running a business requires hard work and difficult decisions but you wouldn’t be reading this article if you weren’t up to the challenge. The fact that you’ve made it to the end of these risk-related ramblings shows that you have the initiative to do what is needed to make your business a success. By following the steps above (and recapped below), you will be able to reduce chargebacks and prevent unnecessary stress and hassle for yourself.


  • All credit card companies have a chargeback process in place, if you are accepting credit card payments you are subject to this process.
  • While it’s a great tool for credit card customers, chargebacks can negatively impact merchants
  • There are many things you can do to reduce the amount of chargebacks you receive : ) Don’t forget to checkout the resources listed in this post.
  • Stay positive and stay vigilant

Christina is a fraud operations specialist at Shopify and a communications freelancer with a BA in communications. She loves puppies and Beyoncé and she’s played just about every sport in the book. You can check her out and reach out to her on Instagram: @millenniallifebiz

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