If you ask any experienced Shopify merchant out there, every single one of them will acknowledge that they have experienced a Shopify chargeback at least once in their e-commerce career. And every single one of them will tell you that experiencing chargebacks is unpleasant and uncomfortable, to say the least.
So what is a Shopify chargeback?
Chargebacks were initially introduced by the large payment networks (such as Visa and Mastercard), in order to protect customers from fraudulent merchants. It’s a dispute process, initiated by the customer after the payment has been made and goods have been dispatched. In this process, the customer attempts to revert the transaction he/she made and request a refund for the order that’s already en route.
There can be multiple causes that motivate a customer to file a chargeback, the most common of which are:
- The customer simply forgot that he/she ordered the goods. The customer opens his/her banking account statement and sees that his/her credit card was charged by a merchant whose name the customer doesn’t recognize. This immediately sparks fear and doubts in the customer’s mind, whether or not he/she fell victim to a fraud. Usually the first reaction, in this case, is to file a chargeback with the credit card’s issuer, instead of contacting the merchant.
- Sometimes the item customer has ordered arrived either damaged or does not match the color, description, or any other parameters. Instead of contacting the merchant first, the customer might choose to file a chargeback straight away, to save himself/herself some time.
- Clerks sometimes make mistakes too. If the merchant processes orders manually, the clerk might have accidentally billed the customer twice for the same order.
- Customer fraud (also called “friendly fraud”) is also a possibility. That’s when a malicious customer orders goods with the intention of not paying for them and filing a bogus chargeback (claiming, for example, that he/she didn’t receive the package).
- Sometimes chargebacks happen simply due to a technical error of the bank or the payment network (invalid card details, insufficient account balance, etc.).
As you can see, there are different reasons why Shopify chargebacks occur and not all of them are fraudulent. But simply by reducing the total number of Shopify chargebacks, you could sleep better at night, not worrying too much about the impact these Shopify chargebacks are having on your business.
Here are 4 things you can do now to minimize the number of Shopify chargebacks or avoid them altogether:
- Make sure you put clearly identifiable details of the transaction in the transaction description. This can usually be configured in your e-commerce plugin, so make sure you don’t leave the description field blank (otherwise it will be automatically filled with random transaction details by your acquirer). Put a clearly identifiable item or order number that the customer is paying for in the description and make sure that the name of your store is listed in plain, easily recognizable form. It can also be helpful to include an email or a phone number, to make it easier for the customer to contact you in case the charge will raise any doubts.
- Offer more expensive shipping options, with package insurance and tracking. This is especially true for high-value items. If you’re sending out something expensive and/or fragile, do not send it via regular postal service and hope that all works out fine. There are fine delivery companies, like FedEx, UPS, and DHL, to name a few, that offer full package tracking and insurance against damages. Yes, they are more expensive than the regular postal service, but if a customer is ordering a high-value item, most likely he/she won’t mind paying a little extra for insured delivery.
- Automate as much as possible. To avoid manual processing errors (that any business is especially prone to in peak seasons, like Christmas or Easter), automate the fulfillment process as much as possible, especially the billing part of it. Not only you will exclude the possibility of data entry errors, but also speed up fulfillment and improve your operational efficiency.
- Use high-quality fraud prevention tools to detect and eliminate friendly fraud. Most friendly fraud cases can be prevented with additional verifications/requests for more information. Fraudsters are very reluctant to reveal their personal information, so simply asking them for a Government ID to verify the customer’s identity or a utility bill to verify the delivery address will make a lot of fraudsters that are conspiring to commit friendly fraud simply abort their plans. Luckily, this part of the process can also be automated. There are excellent Shopify plugins out there, that offer automated identity verification tools that you can start using immediately, for example, Fraud Judge from Pluginhost.
Following these recommendations should help you to eliminate, or at least decrease, the number of Shopify chargebacks your business is experiencing on a monthly basis and help you improve the profitability of your business.