If you’re like any of the 4.8 million live online stores using Shopify, you probably already recognize the challenges of identifying and preventing fraudulent chargebacks. But did you know you have options when it comes to protecting your Shopify business?
Shopify users are most likely aware of Shopify’s chargeback protection solution, Shopify Protect.
Shopify Protect for Shop Pay (Shopify Protect) offers chargeback protection from fraud for sellers who activate Shop Pay, the accelerated checkout option.
Shopify offers this feature for free to help protect eligible Shop Pay orders against fraudulent and unrecognized chargebacks. If you have Shopify Payments but not Shop Pay, just turn on Shop Pay at no additional cost and Shopify Protect will be activated automatically.
Sounds like a good deal, right? But is Shopify Protect the right solution for your business?
Here’s everything you need to know about Shopify Protect to determine if it’s the best way to help protect your business against chargeback fraud.
Shopify’s fraud protection technology is powered by machine learning algorithms that are trained on historical transactions across all Shopify stores. Shopify continuously improves these algorithms to better identify fraudulent orders. Once Shopify Protect is activated, online Shop Pay orders are analyzed and classified as "protected" or "not protected."
If you receive a fraud-based chargeback on a “protected” order, Shopify automatically covers the costs of the order and the chargeback fee. Shopify will manage the dispute process for the chargeback. No additional reporting or fees are needed from you.
Clearly, that’s the best-case scenario. But there are a few steps along the way to an order being “protected”: Whether the order is eligible for Shopify Protect in the first place, and whether the chargeback qualifies as fraud.
There are several conditions for orders to be eligible for Shopify Protect:
Once you get into the fine print of the Protect service, you learn there are even more eligibility requirements:
Ineligible orders will continue to be processed in the same way as they were before you activated Shopify Protect but will show as “not protected.”
For orders ineligible for Shopify Protect, sellers may have other chargeback protection options available depending on the payment method. For example, some PayPal transactions will be protected against fraud through PayPal Seller Protection and most credit cards offer a chargeback dispute process.
This is a terrific and important question, and the answer is no! Customers can dispute a payment on their credit card for various reasons, like claims of not receiving the product or believing the product was defective, damaged or not as described.
It's important to note that Shopify Protect will not cover chargebacks made for these reasons:
If a fraudulent chargeback is made on an order that isn't “protected,” the disputed amount and the chargeback fee aren't reimbursed to you unless the credit card company resolves the dispute in your favor.
Mastercard offers a six-step guide to improving your odds of winning a chargeback dispute, but they also caution that “while the chargeback dispute process is relatively straightforward, a business may wonder whether it’s worth their time to organize all the compelling evidence and put together a formal dispute.”
They cite three important considerations before initiating a chargeback dispute with a credit card:
As you already know, identifying fraud isn’t always black and white. It’s often difficult to firmly identify some incoming orders as either fraudulent or legitimate. Making the wrong decision on these orders has serious consequences. Approve a fraudulent order, and you’ll end up with a costly chargeback. But decline a good order, and you’ll end up losing revenue and angering a good customer.
This is precisely why auto-declining these gray-area orders is so dangerous. Instead, best practices suggest gray-area orders should get a secondary review by a trained and experienced fraud analyst who can make those difficult decisions with accuracy.
Currently, Shopify Protect utilizes only machine learning and fraud filters to determine whether an order is fraudulent or legitimate.
Shopify Protect allows gray-area orders to be placed and marked as “not protected” to make it easy for a business to find in Shopify Admin. Businesses can configure Shopify Protect to only authorize payment on such orders so they can review them before capturing and fulfilling them.
Protecting your business against chargeback fraud can be an expensive and a time-consuming process. And even when businesses think they’ve done everything they can do to prevent fraud, costly chargebacks on already-shipped orders can be catastrophic.
Unfortunately, fraud levels continue to rise According to estimates, ecommerce losses to online payment fraud were US$1 billion globally in 2022, expected to grow to $48 billion by the end of 2023. Of that amount, $4.8 billion was due to chargeback fraud and friendly fraud. And these totals are rising steadily as ecommerce increases in popularity.
Every dollar of fraud loss costs businesses an average of $2.40. With revenue levels for the ecommerce industry projected to increase to $12.87 trillion for 2023, the 3% revenue loss rate for false declines could potentially cost businesses up to $386 billion annually.
While Shopify Protect can be the right solution for some businesses, you do have other options.
Plenty of companies and ecommerce platforms offer chargeback protection. Their approaches combine restrictive fraud filters, which either decline or flag potentially “bad” orders, with an additional review of those flagged orders by a trained fraud analyst or whoever is available. Other companies lean on purely automatic solutions to screen transactions. And another subset of businesses only review orders one by one.
All of these scenarios present issues for those businesses. These approaches to fraud prevention can be resource-intensive and time-consuming. Fraud filters and purely automatic solutions create a false sense of security because companies aren’t necessarily “seeing” the fraud.
Then there is the impact on the customer. If your fraud filters and automated rules are too strict, you’re undoubtedly declining orders from good customers. Declining good customers, especially new customers who aren’t so sure about online shopping, creates an even bigger problem for ecommerce businesses.
At ClearSale, we use a hybrid approach that leverages the benefits of approving almost all valid transactions and declining clearly fraudulent transactions with precise accuracy. In fact, our AI-enabled technology uses an auto-approval algorithm that clears 97% of orders. Only about 3% of orders (at a maximum) are flagged for secondary review by our team of fraud analysts, who compile what they learn from those reviews and feed that intelligence into our approval algorithm to teach it to be even more accurate over time.
This allows us to deliver immediate decisions to our clients. In other words, we leverage secondary reviews for better accuracy and faster decisions – which actually improves the customer experience. And our clients see lower chargebacks, lower false declines and higher approval rates.
Secondary reviews help protect the rest of your customers who rely on you for safety and security when they’re shopping on your site. By following these tips, you can conduct secondary reviews in a relatively frictionless way that actually benefits your customers and your company.
Even with a highly effective fraud prevention solution, your business may experience some chargebacks. For those instances, you should consider a comprehensive chargeback protection and management solution.
At ClearSale, we offer clients three options.
For large businesses whose fraud teams have a good understanding of risk profiles and goals, our Total Protection approach allows you to recoup a portion of any losses due to fraudulent transactions.
We’ll establish a Service Level Agreement (SLA) that specifies KPI thresholds related to fraud and chargebacks. And we’ll reconcile to those KPIs every quarter. If they aren’t met, you’ll receive a discounted invoice.
Companies that choose this approach aren’t directly reimbursed for chargebacks that may occur; however, they do benefit from our hybrid fraud prevention model that combines AI-enabled automatic approvals and secondary review by the world’s biggest and most experienced team of fraud experts.
High-risk ecommerce businesses may choose our 100% guaranteed coverage approach to handling fraud-related chargebacks. This “chargeback insurance” guarantees that any approved transaction that turns out to be fraudulent and results in a chargeback will be reimbursed to you.
Regardless of size, your ecommerce business may benefit most from comprehensive chargeback management that includes a chargeback reversal approach designed to recover financial losses.
With our acquisition of chargeback management provider ChargebackOps, we can offer companies chargeback mitigation and resolution services including:
Where it makes sense, this approach also offers companies operational insights that can help improve internal processes that may be contributing to fraud risk and subsequent chargebacks.
By choosing a customized chargeback management approach, ecommerce businesses can also breathe a little easier knowing they’re protected against the increase in fraud attempts and poised for long-term financial success.
Businesses need to be able to protect their revenue against costly chargebacks while preventing costly false declines — and they don’t have a moment to lose. Thankfully, ClearSale’s solutions integrates quickly and easily with Shopify. And we have the proven experience to let you confidently accept more transactions without the risk of business-damaging chargebacks. Contact us today to learn how easy it is to get started.