chargeback insurance shopify
chargeback insurance shopify
How to prevent and manage chargebacks as a merchant
Update: All eligible US merchants can now get free Shop Pay fraud protection with Shopify Protect.
A chargeback — a credit card payment cancellation that is processed directly by the bank rather than as a refund from the affected retailer — is a way for customers to dispute a charge on their credit card account.
Why do canceled payments occur?
This payback can be initiated for various reasons, e.g. for example.:
Items Not Received: At a time when supply chain and shipping delays are rampant, customers who expect delivery of their products on time can apply for payment cancellations.
Technical error: double load or wrong number of loads
The business name that appears on the card statement is usually different from the shop name
Customer Dissatisfaction: When buyers receive a product that is different from what they paid for
Scams: Either by bad shoppers – the so-called “friendly scam” in which a seemingly legitimate customer uses their own name, address, and credit card to make an online purchase with the full intent of challenging a credit card charge to avoid payment – or when someone claims to be as a victim of identity theft
On average, 2.59% of all transactions end in refund disputes, across all credit card providers (e.g. American Express, Discover, Mastercard, and Visa). E-commerce business costs return $40 billion per year.
There are good reasons for banks and card networks to issue refund rules. They have an important consumer protection function as there are some malicious merchants who try to take advantage of consumers by sending them shoddy, illegal or non-existent products.
But if you send your customer a reliable product carefully, on time and with the brand, and he is grateful for the refund service for the product not received, then you should be sure that you will win this dispute.
Because it’s not just principles at stake -it can become your business.
When you’ve spent your advertising costs buying, selling, and shipping to customers, canceling payments has a real impact on your bottom line.
And unless it’s a “friendly scam,” chargebacks can do more than just pocket money: It’s also a frustrated and rejected customer. Angry customers tend to talk about their frustration with their friends and on social media. This can have a negative impact on your brand reputation over time.
Credit card companies and banks have processes in place to review refund attempts before proceeding to offer them. If the request seems suspicious, the card company and bank can investigate the applicant more closely: Have there been frequent requests to cancel payments in the past? If this is the case, the request may be flagged as fraudulent. These types of invalid requests are usually rejected before being upgraded to the merchant notification level.
However, a certain percentage of refund requests from card companies and banks will and will be honored. So what happens and what rights do you have as a merchant if someone files a complaint against you?
Is the merchant required to return the payment?
Unfortunately, merchants have little formal protection when it comes to refunds.
Most traders’ cashback rights are reactive and aim to limit losses. Here are eight you need to know.
Refunds only cover the purchase price and cannot exceed the original transaction amount. In some cases, some shipping costs and additional fees may be included in the total cancellation amount.
Refund payments cannot include cashback transactions
The customer should attempt to return the item before requesting a refund if the item purchased arrives after the agreed delivery date
Many cardholder agreements require the cardholder to contact the merchant and try to resolve the issue before filing a payment reversal.
If a customer returns an item, the card issuer must wait 15 calendar days to process the payment cancellation (unless the 15 day waiting time exceeds the cancellation deadline) to provide a response window to the merchant.
Most cardholder contracts require consumers to cancel payments within a certain number of days
In most cases, each step of the refund process must be completed before arbitration can proceed.
As a merchant, you have the right to dispute reverse payments through an arbitration process called “Refund Submission”.
This last right – representation – is your most important right in the refund process.
Of course, fighting chargebacks gives you the opportunity to make up for lost income, but in a sense this is a secondary payoff. For a bigger reason to fight fraudulent attempts to reverse payments is strategic.
When merchants give up and just accept fraudulent reverse payouts because they don’t have to worry about fighting them, it encourages scammers and can result in more refunds.
Yes, fighting a payback reversal takes time and effort. You must collect documents to prove that the original transaction is legit. But this will save you time and effort in the future because you will be faced with less and less payments.
Strategically, a merchant’s reputation for rejecting chargeback requests will deter would-be fraudsters from being so eager to file a chargeback. In the same way, legitimate customers will be more willing to simply ask for a refund if it’s quicker, easier, and more efficient than dealing with all the complexities of controversial payment reversals.
Denying reverse payments also sends a strong message to banks. Merchants who consistently oppose payment reversals will encourage banks not to stamp payments reversed but to do their due diligence. This will make the system fairer to everyone while managing risk, lowering costs for traders, and reducing the level of fraud in the system as a whole.
How to avoid payment cancellation before this happens
The truth is that in most cases, banks tend to favor their cardholders over business owners in payment disputes. Therefore, it is very important for merchants that purchases and transactions are well documented and strictly adhere to the rules of the card network.
But what are your options for avoiding chargebacks before they happen?
Follow these general steps to prevent payments and time-lapse requests from being reversed:
Investigate suspicious commands before executing them
Tell customers your shop rules in advance
Make sure photos and descriptions of your products or services are clear and accurate
Have a clear return policy and make it easier to find in your store
Make sure the text of your statement is easy for your customers to read. Use your business name or domain name so customers can identify it on their credit card account.
Send electronic payment receipts to remind your customers what they paid for
Make sure you return the money as soon as possible
In the event of an accidental double billing, return the second charge immediately and contact your customer directly to let them know what happened.
Respond quickly to customers when they have problems
If you ship physical goods to the United States, United Kingdom or Canada, you may only ship products for orders that pass AVS verification. You can also contact the customer before shipping to an address that does not pass AVS verification.
Send the product as soon as possible after receiving the payment for the order
Estimate delivery and delivery date as accurately as possible
If delivery is delayed, contact your customer and tell them what happened to their order
After sending the package, keep your customer updated throughout the shipping process. Use online tracking and delivery confirmation if you can, especially when contacting the courier.
If you’re shipping a physical item, make sure you package and ship your product in a way that protects it from damage in transit.
Respond to your customers quickly and replace defective or damaged products
If you offer a subscription-based service, add a subscription cancellation policy to your store
If the customer asks you, cancel your subscription immediately and send a confirmation of the cancellation.
Explain on your subscription registration page that your customers agree to regular billing and send them a reminder before each bill
If your store is powered by Shopify Plus, fraud protection tools are at hand, including:
Risk Analysis Indicators:
Each order comes with a list of indicators designed to help you investigate orders that you think may be fraudulent based on various behaviors.
Fraud analysis indicators: for example, the characteristics of these orders are similar to fraud orders observed in the past. Payment is made by 1 credit card. The delivery address is 520 km from the IP address location.
Third-party anti-fraud app support: You can find anti-fraud apps on the Shopify Plus Certified App Store. These partners help Shopify Plus brands like CurrentBody, Urban Industry, and iDrinkCoffee reduce the likelihood of false positives while protecting against criminals. The results include up to 75% reduction in fraud attempts and nearly 30% increase in sales.
Fraud Suggestion: If an order has a moderate or high risk of being refunded due to fraud, the order will be marked with a warning icon next to the order number on the Orders page. You can then try to confirm the order, cancel the order or refund the order amount.
Fraud Protection: Once fraud protection is activated, online orders processed through Shopify Payments are analyzed and classified as “protected” or “unprotected.” You pay a fee for each protected order, and Shopify guarantees payment. You don’t have to do anything if a refund goes wrong for a safe order. Shopify will refund your cancellation amount and handle the cancellation process for you.
Finally, fast execution also reduces the refund rate. When you choose Shopify Fulfillment Network for your product storage and shipping logistics, you can bet that your refund rate will also drop because we get your items out fast.
How to deal with reverse payments as soon as they occur
Regardless of how carefully you follow the steps above, you will get at least some reverse payouts. So how do you deal with it when it happens?
One way is to make sure that you have a number of records that prove that the purchase in question is legitimate. One of the reasons we designed Shopify Payments to work seamlessly with other services like Shopify’s Store App and Shipping is the ability to combine payments, receipts, shipping, and package tracking in one place.
And because Shopify Payments comes with automatic dispute resolution, it compiles a complete picture of every transaction and helps you win disputes more often.
Shopify Payments works closely with your other Shopify services to ensure you have the best chance of winning. Our automated dispute resolution, done by combining Shopify Payments and Shopify Shipping, increases your profit margin from 20% to 37% profit: 17% of disputes result from loss to profit. That’s almost twice as many wins: 85% relative increase with almost no work on your part. In fact, Shopify Payments wins 45% more chargeback disputes than its peers.