Do Chargeback Alerts Work with Shopify Stores?

Chargebacks are devastating for a merchant, especially when they’re too frequent. They’re also incredibly frustrating, because a lot of the time, the process is already well on its way by the time you’ve found out a customer even filed a dispute. How can you try to fight back or be proactive with chargebacks when you’re not even told about them?

The solution is what I do here at FightDisputes.com: chargeback alerts. You likely have some questions about them, especially if you’re a Shopify merchant, given how often Shopify requires special extensions or processes to do what a more free-form merchant system doesn’t. So, let’s talk about them.

What Are Chargeback Alerts?

Normally, when a customer files a dispute with their bank, that bank goes to the payment processor and your bank, does a quick investigation into whether or not the transaction was obviously legitimate, and usually sides with the customer right away. They claw back the money from your account, and you’re issued a notice of a chargeback.

At this point, the only way to fight the chargeback is through representment. Representment requires you to present evidence that the transaction was valid, and it’s one part of operating a business that feels like it’s still a holdover from the 70s or something. Who wants to write a letter these days?

A chargeback alert gives you advanced notice of a dispute. It’s basically an agreement with an intermediary like me and the major credit card companies. When a dispute is filed against your merchant ID, the issuer notifies me, and I can tell you a dispute is coming in.

Since the dispute has not yet been upgraded to a chargeback, you have a lot more opportunity to address it. You can do that in several ways, such as through proof of validity of the transaction, reaching out to the customer and offering a refund, or just accepting that it’s fraudulent and adjusting your fraud detection processes.

If you successfully prove that the transaction was legitimate, or you issue a refund to the customer, we tell the issuer, and the dispute is cancelled. You lose the transaction, but you aren’t issued added chargeback fees, your chargeback ratio doesn’t increase, and you aren’t otherwise penalized.

Can You Get Chargeback Alerts with Shopify?

The good news is, yes, you can get chargeback alerts (through FightDisputes.com or another provider of your choice) when you’re using Shopify.

In fact, the process is entirely divorced from your merchant platform. Instead, it’s tied to your Merchant ID, the one you use regardless of what platform you’re running your store through. It even works with offline brick-and-mortar stores. At least, as long as you’re not a cash-only business.

Chargeback alerts work through communication between credit card issuers like Visa and Mastercard, and a third-party intermediary like FightDisputes.com, and our ability to alert you directly. Instead of waiting days before you know anything is wrong, only to be hit with a notice and penalties simultaneously, you’re notified often within 5-10 minutes of the customer filing the dispute.

From there, you can choose what you want to do, whether it’s reaching out to the customer directly, automatically issuing refunds, or tracking down proof of the transaction’s legitimacy to submit to the bank. We can handle some of that automatically for you, or let you handle it all on your own.

Depending on how you want to handle disputes, you might not need to involve Shopify in the process at all.

Fighting Fraud with Shopify and Dispute Alerts

Shopify may be limited in some ways, but fraud protection is very much not one of them. Compared to things like the Commerce Control Center, Shopify’s fraud protection tools are incredibly good. I honestly think they’re among the best in class, if you use them right.

Dispute alerts are powerful for preventing chargebacks, but they can’t stop all of them. Sometimes a customer will refuse to engage with you and push for the chargeback regardless. In the case of legitimate transactions being used for first-party fraud, you’re kind of stuck.

Additionally, if you aren’t willing to set up refund automation (and there are plenty of good reasons not to), you have a limited amount of time to respond to a dispute alert before it’s processed into a chargeback. All sorts of emergencies and distractions can keep you from noticing and ending up with a chargeback you could have avoided.

They say an ounce of prevention is worth a pound of cure, and that’s definitely true here too. The more you can prevent fraudulent transactions from happening, the less you have to deal with chargebacks. Shopify’s anti-fraud tools are easily a pound of prevention, so let’s talk about ways you can set them up.

AVS Verification Through Shopify

AVS stands for Address Verification System. It’s one of the simplest verification tools you have available to you, and it’s quite effective, though it isn’t quite as potent as it used to be.

AVS works by comparing the billing address a customer has on file with their credit card issuer, with the address they enter when they make a purchase. Since you need to plug in your billing address when you make a credit card purchase,

This system was very good at preventing fraud from lost or stolen credit cards or leaked credit card numbers. Unfortunately, in the last few years, it has gotten less and less effective, for two main reasons.

The first is a convenience feature. Have you noticed that, when you go to make a purchase online, sometimes the checkout process will offer you a suggested version of your address? You can keep the format you plugged in, or you can use their chosen format. While this is handy for ensuring consistency in address information, it also erases subtle mismatches that would have been signs of fraud.

The second is the amount of data available online these days. Someone who finds a lost card could search for the person’s name and have a decent chance of finding their address. Beyond that, massive data breaches have leaked immense amounts of associated information, so it’s easier than ever for criminals to have the right information.

Shopify’s AVS verification is actually addressing this, in a way. They are rolling AVS into a broader verification system that uses 400+ signals and machine learning to identify pattens in fraud that run deeper or on more subtle levels than the prior basic tools could identify. This does mean that AVS as we know it won’t be available, but the system that replaces it should be passively better than using AVS only.

Fraud Protection Apps for Shopify

Part of the power of Shopify is the ability to use it as-is, or expand its functionality in a thousand different ways with apps that provided added features or integrate third-party tools. There are over 100 fraud defense apps on the Shopify app store, some of which hare very powerful.

What kinds of features should you look for to implement?

IP filters and blockers. Everyone has an IP address their internet connection comes from. There are plenty of ways to route and redirect that IP address, but patterns will emerge. If an IP is known for submitting disputes or meeting signs of fraud, you can block it from making a purchase on your site in the first place. You can also proactively block TOR nodes, VPNs, and known proxy IP addresses, and international IP addresses from area you aren’t willing to do business in.

Added verification apps. Some apps allow you to add layers between accepting a transaction and blocking it outright. If there are some signs of a risky transaction, but they aren’t enough to warrant outright blocking the purchase from happening, you can request added verification. This can be CV2 codes, SMS or 2FA verification, or ID verification, among other options. With that added data in hand, even if the customer does issue a dispute later, you have it to prove the transaction was legitimate.

Fraud risk indicators. There are a lot of small bits of user behavior, both individually and in groups, that can indicate fraudulent use of your store. Even things like transaction velocity can be monitored and used to tighten restrictions until you’re no longer a target.

All of this is in addition to Shopify’s native fraud analysis, which is already quite good.

Dispute Alerts. As I’ve already mentioned, there are bunch of vendors for dispute alerts, including mine. Some of them have Shopify apps, so you can see alerts and manage them directly within your dashboard. Some shop owners find this extremely convenient; others don’t. Let me know if you’d like me to develop a Shopify app as well!

Should You Automatically Refund Disputes?

One of the features of dispute alerts, both through apps and through stand-alone systems like mine, is the ability to automatically issue a refund when a dispute is detected. You basically have four options.

1. Alerts Only. When a dispute is filed, you’re alerted to it, and you can do what you feel you need to do. That could be reaching out to the customer or even issuing a refund immediately, but the key is that you make the decision individually when you see the case.
2. Alerts + Communications. This is one of my specialties; you receive an alert and you have a goal, whether that’s offering a refund or clarifying the validity of the transaction with the customer. You can do that yourself, or you can use a managed replies systemto do it for you.
3. Automatic Refunds. When a dispute is filed, you already know there’s a very good chance you’ll be issuing a refund one way or the other. So, you just automatically issue the refund, and either the customer cancels the dispute, or you tell the issuing bank about it and they cancel it.
4. You’re always free to ignore the dispute, let the chargeback happen, and eat it. It’s never the right option, in my opinion, but it’s one you have available to you.

The biggest question is number three. Is it a good idea to automatically issue refunds to counteract chargebacks?

The answer is a solid maybe. Sometimes it’s a good idea, but sometimes it can conflict with your goals and your situation.

If, for example, you get friendly fraud in a way that isn’t easy to fight, people could start using the fact that you auto-submit refunds to make orders, file disputes, get refunds, and keep the items they received. It would be very easy for your store to be exploited. Automatic refunds would do more harm than good until you find other fraud indicators to use to prevent those transactions in the first place.

It can also cause issues with partial disputes. If a customer makes a valid transaction but you accidentally over-charge or double-charge them, automatic refunds will generally be all-or-nothing. It can then be a hassle to work with the customer to re-receive partial payment.

If your refunds are rare enough, your filters are otherwise good, and you aren’t likely to be caught in a situation where your store can be exploited, automatic refunds can dramatically increase response times and nearly eliminate chargebacks. But, it’s always worth thinking about the worst-case scenarios to make sure your needs align with the process.

Eliminate Chargebacks with FightDisputes.com

Chargebacks are, to an extent, a reality of doing business in the modern age. You’ll never be able to satisfy every customer 100% of the time, and there’s no 100% reliable way to eliminate fraud without cutting out a lot of legitimate business as well.

The best things you can do are:

• Enhance clarity of product descriptions, policies, and costs, so customers have little reason to dispute charges they didn’t know about.
• Use advanced fraud protection tools to minimize the chances of fraudulent transactions slipping through, including the powerful native Shopify tools and apps that extend functionality.
• Use dispute alertswith FightDisputes.com to receive notice within minutes of a dispute, offer refunds, and have disputes cancelled before they become chargebacks.

Whether you reach out to the customer to resolve their concerns and validate a transaction, or you issue a refund to stop a chargeback in its tracks, it’s easy to cut off chargebacks at the pass and nearly never pay a chargeback fee again. With the right action, you can cut chargebacks by as much as 95%!