Shopify Fraud Protection — Understanding Risky Orders And Chargebacks | TBS #315

Every once in a while you might receive an order on Shopify or in your payment gateway that’s flagged as risky or fraudulent.

A lot of people are confused about what this means.

So let’s shed some light on this topic.

Credit card frauds are common on the Internet and people steal credit card information all the time and then use it to make purchases. The reasons why people do this vary and can actually be quite complex.

VICE has a nice mini-documentary on online frauds:

https://www.youtube.com/watch?v=lA4R84xfLOQ

For example, a friend of mine runs a Shopify store where he sells plugins, software and tools for music producers. He gets a lot of credit card fraud from cyber-pirates who use stolen credit card information to buy his software. Then they post the download links on illegal piracy sites and forums where people download them illegally.

Whenever that happens, he gets a chargeback from the actual owner of the credit card because the original credit card holder sees it’s a fraudulent transaction. So the bank initiates a chargeback and literally forces you to give back the money because it was a fraudulent order.

That’s just one example of how fraudulent orders can happen.

Another friend of mine once got an order for $7,000 on his store. It was his best day ever and as you can imagine he was very happy.

However, he ignored the fact that the order was placed by someone in Pakistan and he was too indulged in his small fortune to be sober enough to see something was shady with the order. So he then transferred all the money to his bank, where he thought it was safe, and even started spending some of it to buy stuff for his business.

A few weeks later he got a chargeback and the bank of the credit card holder who’s credit hard had been stolen initiated a chargeback and forced by friend to pay back the entire $7,000 plus extra fees.

As you can imagine it was a nightmare since my friend had already spent parts of his new $7,000 but still had to pay back the whole sum.

Also you have to understand that most payment gateways have a maximum allowed percentage of chargebacks. On Stripe, if you get more than 1% chargebacks it’s against their terms and conditions. They might terminate your account because you’re too risky.

So how can you identify frauds?

First of all, Shopify has it’s own early warning system to detect risky orders and frauds. Plus most payment gateways have that built in as well. So you want to pay close attention to those warning systems.

Also, if you get an order that’s a lot bigger than usually, that might be a sign as well. When in doubt, it’s best to reach out to the customer and talk to them. If anything is fishy, or you get no response, it’s better to initiate a refund. Refunds are a lot less worse than chargebacks, and generally more tolerated by payment gateways and processors.

So if you suspect an order is fraudulent, let go of the money and initiate a refund early on to prevent a chargeback from happening.