So you found a customer, made the sale. You thought the story ends happily for you. The next morning, you found a notification of a chargeback. What the hell is this? How do you protect your website from chargebacks?
What is a Chargeback?
A chargeback is the term used by the card networks to the situation where a customer wants to formally dispute a credit card transaction. Credit card companies have this process to protect consumers from unauthorized transactions on their cards from credit card theft or scams by fraudulent companies.
Among small business owner’s dreaded topics, chargeback is top. Your company can find itself faced with enormous financial loss, and the prospect of fighting what seems like an uphill battle to retrieve the revenue you’ve earned.
A Sad Chargeback story
Check the story below of a guy running an ecommerce at shopify. The story is not the first time, there are other stories shared on forums about shopify’s lack of seller protection. I know shopify is an ecommerce platform, and it would be naive to expect more from it than from other ecommerce platfrom such as Prestashop and thirtybees, but the story shared below is downright wrong.
Disclaimer: Chargebacks happens to all ecommerce platform, not only shopify. At the end of this artice, I am going to provide insight and recommendations as to how to protect your website from chargebacks.
I’m currently in contact with a representative about this entire ordeal, but I do suspect that absolutely nothing will happen, so I’m just jotting this down here for posterity while the entire thing is still fresh in my mind.We make custom light up laptops skins primarily for DJs. Everything we do is custom made, and therefore it can be about two months until it arrives to your door once you pay.
Because everything is so custom made, there’s a TON of communication with each customer, going back and forth on the design specifics and graphics, making modifications, and so on.
On June 14th, an individual paid for one of our custom made products after having firstly gone through the graphic design process and confirming their artwork and so on.
August 9th, the customer received their finished product. On August 10th and 11th, the customer posted videos to their public Instagram and Facebook pages of the product in use. It would appear that they are happy with their purchase.
August 18th, the customer filed a chargeback with the reason: fraudulent. Literally just one word. Shopify’s automatic fraud detection system did not flag the transaction, it was seen as low risk.
The name on the shipping address and billing address both matched up. It also matched up with the person I was communicating with on Facebook during the preliminary steps of the order. I replied to the chargeback showing the ample proof that this was not a fraudulent order.
Clearly, the customer just decided to get their item for free once they had received it. Once the item was delivered, I have had zero communication from the buyer, I was not made aware of any problems, and they did not ask for a refund. We offer a one year warranty for all of our customers.
The bank decided in favor of the customer, and I ended up losing the $240 + $15 Shopify chargeback fee + > $110 cost of manufacturing and labor. So a total loss of nearly $400, that I end up being responsible for. I looked up the customer’s name and find out via public records that he has a criminal record including marijuana/cocaine dealing/possession as well as something about an armed robbery.
He is currently on parole for about 7 years for his last conviction from selling cocaine. He lives in Miami, but I guess it’s not worth it for me to fly over there and file a small claim against him in the courts.
Okay back on topic. So I call up Shopify and explain everything. First person tells me I need to bring this up with the bank. Who is the bank? They don’t know who the bank is either, she tells me to call MasterCard. I call MasterCard, they literally give me the f**king number for Experian. Clearly people just trying to get me off the phone.
Called Shopify again, get a much more reasonable person on the line. He again tells me it’s completely out of Shopify’s control and I would need to bring this up with the bank. He has no idea who the bank is, he does not know how to get me in contact with the decision maker on this chargeback.
I’ve been doing this for a while, at least in a PayPal chargeback the buyer and seller get to go back and forth for a period of time and then eventually PayPal steps in to make a decision. In this case, I received a one word explanation of the chargeback: “fraudulent”, I provided ample evidence, and then once the case was settled, I received zero explanation and no opportunity for rebuttal.
Furthermore, even Shopify representatives have no idea how to help me. He just explained that this was a failure in their fraud alert system, he tried to put the blame on my “not lengthy/exhaustive enough refund policy” (at what point did the customer ask for a refund? how is this my fault?).
He explained that I should expect to absorb fraud like this because this is just how business goes, he recommended I use a PAID Shopify add-on that takes 1% of all my sales to offer additional fraud insurance. (Surprise, checking that app’s reviews shows that they don’t cover always cover ALL fraud either anyways.)
At this point I just decided to beg for any sort of recourse. If Shopify can’t do anything, can’t they cover the loss? Maybe Shopify can give me a free year of service to cover my losses? Who knows at this point. I only make about $60-$80 per sale, so my profit margins are sort of low, and this isn’t going to be easy to just write off and move on. He said he’s going to get in touch with his superiors and get back to me to let me know if they’re going to be able to do absolutely anything for me.
A recurring theme during the phone call was about how this is such an extremely rare case, and how the representative has only heard of this happening once before in his 1+ year with Shopify. If that’s the case, and it’s SO OBVIOUS that the customer is a scammer, why am I being expected to cover the loss? Shopify needs to be taking this up with the bank on my behalf and not just throwing me under the bus.
Why doesn’t their fraud detection system incorporate free and publicly available criminal records? Why am I paying a monthly fee for their system and still being expected to cover blatantly obvious fraudulent behavior by the customer? Is there any sort of seller protection like PayPal has in place?
We’ve had over 1,000 customers. This is our first chargeback since moving over to Shopify. Been in business for about 3 years I guess.
Defending Shopify chargeback policy?
- If you are running your ecommerce with Shopify, do not expect way too much from them. They are an ecommerce platform at the basic level. If you want them to cover any losses, you do have the option to pay for that service from them. They offer a seller protection program that you can opt into for a cost.
- As crummy as a response as it is this is the nature of doing business online, some people are going to be dicks. Shopify is doing what they need to by complying with these chargeback regulations, if they didn’t it would be illegal and they would be promptly shutdown.
- The best way to protect your website from chargebacks is to be more vigilant by tracking deeper things like the IP address and possibly placing phone calls and asking for an ID. Which even then, they can provide a fake ID. Shopify’s system only provides basic fraud detection and it’s not foolproof at all.
Brick and mortars get robbed, so do you. It’s just in a slightly different way. Would you expect the landlord of a brick and mortar to cover the losses due to shoplifters? Shopify is just the landlord offering the space to put your store.
What can you do to better protect your website from chargebacks?
- First off, get your refund policy as detailed as possible. Exhaustive as possible.
- Secondly, check the customer’s billing and shipping address everytime. When billing and shipping don’t match, beware on anything over a couple hundred bucks. If billing is a PO Box and shipping is a physical, it might be fine, but it’s still a red flag. Billing and shipping should be two distinct physical addresses, unless one is a business, bigger red flag.
- As a seller you will always bump into people who will cheat you out your money. People who provided their real info, are usually what we call “friendly” fraud. Also, any type of chargeback insurance is not really solving the problem as this can lead to the fraudster repeatedly taking advantage of your service, which leads to the insurance provider charging you more premium.
- Prevention is your key. Study and check your orders closely, getting CC numbers and doing BINN lookups to find the issuing banks, and asking their fraud departments to reach out to the cardholders. It takes a lot of work, but fraud losses will go down.
Chargebacks will never go your way, and that’s not just a Shopify thing. It happens to all Prestashop and thirtybees ecommerce websites, or Magento. Even with signature confirmation on your shipment, the carriers don’t check ID, so the banks always side with the customer. That sucks, but it’s the way it is.
Chargebacks is hard to fight, because you are not fighting a script but real people who wants to scam good business men. It’s the seller who almost always loses! So, let’s keep this in mind! Make your refund policy as clear as possible. always check your orders and customer details. Protect your website from chargebacks, be smart.
Let me know in the comment section is there are better ways to prevent chargebacks from happening. Or a better way to protect your website from chargebacks. Or if you have experiences dealing with CC chargebacks please be generous to share.
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