Can Shopify Cancel Your Account for Excessive Chargebacks?

Usually, when we’re discussing chargebacks, it’s a topic that centers around the merchant, the credit card companies, and the banks that have to handle the details of a payment. Chargebacks cost money to administrate, and that fee is passed on to the merchant. It’s no wonder that banks and payment processors are more than willing to cancel the accounts of people who cause excessive chargebacks.

What about other entities involved in running a business?

Let’s talk about Shopify. Shopify is one of the biggest “out of the box” storefront apps available for someone looking to set up an online business. They will handle every aspect of running an online business, from hosting a website to running a storefront to securing information handled by the business. Shopify even offers a point-of-sale system for use in physical stores, similar to Square and other POS brands.

The question is, if your store generates too many chargebacks, can Shopify cancel your account and effectively shut down your business?

Can Shopify Cancel Your Account for Excessive Chargebacks? The Simple Answer

Before I dig into the details, I’ll just give you a simple answer here: it depends.

Alright, that’s not quite so simple. But, it comes down to just a couple of key details, so it’s not too difficult to think about.

First, it’s important to make one distinction: there are two relevant “Shopify” accounts we need to talk about.

• The first is your Shopify account. This is the account and system you use when you want web hosting, a storefront with products listed, a blog, customer communications and service, and other elements of running a business.
• The second is Shopify Payments. This is a secondary function of Shopify, though it comes with your Shopify account. It’s similar to something like Square, PayPal, or Authorize.net; it’s the payment processor element of Shopify.

So, can Shopify cancel or “pause” your account if you get too many chargebacks?

For Shopify Payments, the answer is yes. Just like any other payment processor, if Shopify determines that you’ve reached too high of a chargeback percentage, they can put you on a performance enhancement plan, and if you stay too high, they can cancel your account.

For the rest of Shopify, the answer is a little murkier. If you use Shopify to manage all of your store and business operations, but you don’t use Shopify Payments, Shopify might not care. As they state on their help center documentation:

“Shopify isn’t liable for chargebacks that occur when using the Shopify platform. Shopify isn’t involved in the decision making of chargeback outcomes.”

They aren’t hurt by chargebacks they aren’t processing, don’t have a say in whether or not the chargeback is legitimate or fraudulent, and they generally aren’t going to shut down your business as long as you’re paying your monthly fees

In these cases, usually Shopify will cancel your Shopify Payments account and force you to use another payment gateway. But, they still want your business and will still allow you to operate your store, just not with the part that’s risky to them.

That said, Shopify’s terms of service allow them to cancel your account at any time, for any reason, or even no reason, if they determine they don’t want to keep you around. If you host a business on their infrastructure and they decide that your rate of chargebacks is too high and could damage their brand’s trustworthiness, there’s no reason they couldn’t cancel your account over it.

How Shopify Handles Chargebacks

How does Shopify handle chargebacks? Are they any different than other storefronts or payment gateways?

Part 1: Fraud Analysis

First of all, Shopify has a proactive fraud analysis system. This system is available by default within Shopify regardless of whether or not you’re using Shopify Payments.

When a customer makes an order, you will see in your dashboard whether or not Shopify thinks it could be a high-risk transaction. They will give you information about the transaction, including “indicators” and any information from third-party fraud apps you might be using. If you have a higher-tier paid plan for Shopify, or you’re using Shopify Payments, you will also get fraud recommendations.

Fraud indicators can be things like:

• The shipping address is very geographically distant from the billing address.
• The order is high value and the customer is unknown to Shopify.
• The payment information used is known to be stolen.
• The IP address used for the transaction is a web proxy, TOR IP, or other cloaked source.

Additionally, Shopify can recognize if the customer is a known high-risk customer. Even if that particular customer has never shopped with your store before, if they have a high rate of chargebacks, Shopify can flag the transaction as high risk for you.

In fact, a common pain point for Shopify business owners is seeing transactions that look fine based on conventional metrics, but are flagged as high risk due to data only Shopify possesses. You’re faced with a choice: do you cancel a potentially good order based solely on Shopify’s hidden data, or do you process it anyway and take the risk?

Orders that aren’t flagged as high risk can be processed right away, and those that are flagged can be proactively cancelled, which costs you nothing. There can’t be a chargeback if there’s no charge, after all.

Part 2: Disputes and Chargebacks

If you process an order, regardless of whether it’s flagged as high risk or not, there’s always the chance of a dispute.

When a customer files a dispute with their bank, the bank sends an inquiry to the payment gateway you’re using. The cardholder’s bank can issue a chargeback if they believe the transaction was indisputably fraudulent, or they can start with an inquiry and begin an investigation. If the investigation proceeds to a chargeback, the same process is kicked off as if there was a chargeback initially.

A chargeback will immediately pull the money for the value of the transaction from your account, as well as an additional chargeback fee. For Shopify Payments, that fee is $15 in the USA. For other regions, the fee is different, and it can be different with different payment gateways.

At this point, you have the option to fight the chargeback. You can provide evidence that the transaction was valid, such as chatlogs with the customer via customer service, proof based on your company return policies that they’re outside the window, or a signature for receipt of the package.

This is where one of the biggest pain points with Shopify comes up: Shopify Payments customers very rarely win chargebacks. This is frequently true with any payment gateway, and it’s why prevention is better than fighting the chargeback. In fact, many people in Shopify communities even celebrate winning a dispute because of how rare it is.

If you’re fighting a chargeback, you submit your evidence, and then you wait. Unfortunately, it can take as much as 75 days for the response to be reviewed. Once that review is completed, the chargeback will either be finalized or cancelled.

One small bit of good news: if the dispute is ruled in your favor and the chargeback is cancelled, the chargeback fee is also refunded to you.

Preventing Chargebacks with a Shopify Store

If you’re running your business using Shopify, especially if you’re using Shopify Payments to handle your transactions, you definitely want to do everything you can to cut back on chargebacks.

Even if you won’t lose your entire store for excessive chargebacks, just switching payment gateways can be time-consuming, expensive, and difficult.

Know the Reasons for Chargebacks in Shopify

Shopify will categorize the types of chargebacks and inquiries they handle, which helps you identify commonalities and be more stringent with preventative measures.

There are eight total categories.

1. The transaction is fraudulent. This happens when the cardholder didn’t authorize the charge, such as when their payment information as stolen. Sometimes this is ” friendly fraud” where the cardholder’s family made the purchase, or they made it and forgot, or they just don’t recognize your merchant descriptor on their bank statement. Other times, it’s truly a case of fraud. This form of dispute can be fought by providing information like the date and time of the order, the billing information used, and details that can prove they made the purchase, but in cases of true fraud, there’s no real defense.
2. The customer doesn’t recognize you. This is frequently a cause of friendly fraud as well; if the customer doesn’t recognize your brand name in their bank statements, often due to a disconnect between your merchant name and your business name, they may file a dispute. You can often reach out to the customer and remind them who you are and the order they made, and get them to cancel the dispute.
3. The customer believes the transaction is a duplicate. If the customer notices more than one entry on their bank statement, and believes they only made one order, they might dispute one as a duplicate. Sometimes this is legitimate, such as if they made two orders. Sometimes it’s a technical glitch, like they refreshed the page while the transaction was being processed and submitted it again. If you can explain it, they can cancel the dispute. If it was a truly accidental double-charge, you can issue a refund instead
4. The customer was charged for a cancelled subscription. For monthly recurring billing products and services, customers who cancel shouldn’t be charged after they cancel. If they believe they were charged after they had cancelled, they can file a dispute. If you had the right to charge them according to company policies, you can fight the dispute; if you want to smooth it over, you can reach out and offer a refund instead.
5. The customer didn’t receive the product. This is a common result of package theft, misdeliveries, loss in transit, and fraud, so it’s difficult to tell whether or not it’s a legitimate dispute. Sometimes, you can provide a signature for the package and fight the dispute. Other times, you don’t have sufficient evidence.
6. The customer deems the product unacceptable. For example, if the product arrived damaged or non-operative, or if it was not as described, they can file this kind of chargeback. Ideally, you have more responsive customer service that can deal with this kind of issue before it becomes a dispute, but that’s not always feasible.
7. The customer’s credit has not been processed. If you promise a refund, or if the customer cancels the transaction, but their funds have not been returned, they can issue this dispute to get the money back. This should be rare, as any refunds and other release of funds should be automatic, but it can still happen.
8. Other general reasons. This is the final catch-all category for chargebacks that don’t appear in other categories.

Prevent, Don’t Fight

Since Shopify is notorious for siding with the customer, and chargebacks are very rarely won by merchants, it’s better to prevent them as much as possible.

Here are some strategies to help with this:

• Pay attention to the fraud alerts. Even if a transaction looks good on the face of it, if Shopify tells you that it’s high risk, take that advice into consideration. Sometimes your entire industry is high risk and you can’t avoid the flag, but other times, it’s much more relevant to audit those transactions before processing them.
• Use third-party fraud detection too. There are a lot of different systems that can detect fraud along different guidelines, which may help you eliminate more fraudulent transactions than Shopify’s systems alone.
• Invest in clarity. Clarity is extremely important for eliminating friendly fraud. Make sure your business name and your credit statement name are the same. Make sure your refund, service, and other policies are all clear and obvious. Be clear with your product descriptions and manage customer expectations. Leave as little room for disconnect and dispute as possible.

How FightDisputes.com Can Help

I’ve been a merchant for many years, and I’ve seen firsthand how chargebacks can be devastating to a business. I’ve also seen how payment processors will side with customers even when the customers are provably committing fraud against the business. That’s why I built FightDisputes; to help you fight disputes.

What my service does is sits between you and the customer banks. When a customer files a dispute, we capture it and send you an alert. You are then given time and leeway to reach out to the customer (or use our managed responses system), and you can work out a resolution without a chargeback.

Sometimes, that might mean combatting friendly fraud by proving the transaction was legitimate, and getting the customer to cancel the dispute. Other times, it might mean offering a refund instead of being forced through the chargeback process. Regardless, if a resolution can be met, the chargeback is cancelled and your metrics are saved.

It’s simple and easy to get started, so drop me a line and let’s chat about how you can prevent your Shopify account from being cancelled due to excessive chargebacks.