Post-Holiday Chargebacks on Shopify: Stop Fraud and Save Money the Easy Way

Post-holiday chargebacks often take the joy away from the revenue influx during the season. Have you armed yourself with the right tools to stop post-holiday chargebacks effectively?

According to a recent Mastercard Spending Pulse report, online sales made up 20.9 percent of retail sales in 2021. To put that in perspective: in 2019, a year before the pandemic, online sales made up for just 14.6 percent of all retail sales.

There’s more. Data from Adobe Analytics indicates that holiday e-commerce sales in the U.S. reached a record $207 billion between November and December 2021. That represents a 10 percent increase over 2020 sales.

Globally, holiday e-commerce sales are estimated to be around $910 billion, an 11 percent year-over-year increase.

But that’s not the whole story. Even as the holiday season spurred a tremendous spike in e-commerce transactions, post-holiday sales chargebacks are also taking an upward clip.

This article reviews how you can effectively mediate post-holiday chargeback for your Shopify store.

Why do Shopify chargebacks happen?

Before we answer that question, it’s valuable to note that Shopify is one of the leading essential internet infrastructure providers for commerce. Shopify makes it easy for merchants to start, grow, market, and manage their e-commerce business of any size.

Shopify engineered its platform for reliability, as seen in its market adoption and customer success boom.

Case in point, Shopify announced a record-setting Black Friday/Cyber Monday weekend with global sales of $6.3 billion, which is a 23% increase in sales from 2020.

With more than 1.7 million businesses in over 175 countries under their belt, Shopify is the e-commerce merchant’s partner in the digital economy.

Yet the platform is not exempt from chargebacks. Their data shows that chargebacks cost Shopify merchants 0.47% of their total revenue each year.

Chargeback Reasons—why customers file disputes.

Generally speaking, cardholders file chargebacks on Shopify for different reasons.

It might be that (a) someone used a stolen card to make a transaction, (b) there are significant issues with the order fulfillment or return processes, or (c) the customer couldn’t get the help they needed on time.

Some chargebacks are also a result of merchant errors such as double billing.

Those are for legitimate chargebacks. However, cardholders also try to game the chargeback process with friendly fraud and return fraud in many instances.

Industry analysis shows that about 80% of all chargebacks are fraudulent. More so, one researcher estimated the value of returned items in 2020 to be $57 billion. Another study of 1,542 shoppers found that 22% of customers buy items to use and return them.

Deal with post-holiday Shopify chargebacks like a pro.

If your Shopify store is already besieged with post-holiday chargebacks, take heart. The following best practices and hacks will help you level up and fight back.

We’ll walk you through simple processes to help you deal with the different chargeback reason codes.

#1: How to deal with fraudulent chargeback reason code

“Fraudulent chargeback” is the leading chargeback reason code. The cardholder claims that they didn’t authorize the payment in this instance. And to overturn a meritless fraudulent chargeback, you must provide compelling evidence that the cardholder or their relative initiated the transaction.

Below are crucial pieces of documentation you need in your representment.

1. Customer Communication: Proof of your communication with the cardholder. Include only the parts where the customer admits to paying, accepting terms and conditions.
2. Shipping Documentation and Address: Include all relevant shipping and tracking PDFs [from shipment website] indicating the address to which you shipped the goods, matching the address the customer provided at check out point.
3. Previous non-disputed payments: Add any last non-disputed order data and tracking numbers from the customer. Upload that documentation at the Additional Information section with details on their last orders.
4. IP Address: If you sold a digital product, including the customer’s IP address and timestamps showing they accessed the product.

#2: How to deal with Subscription Canceled chargeback reason code

Subscription-based businesses tend to get a higher rate of chargebacks than other verticals. In most cases, cardholders file subscription chargebacks because they claim you bill them after they cancel. To overturn the chargeback, you must prove that the subscription was still active and that the customer was aware of it and did not opt out.

Below are crucial pieces of documentation you need in your representment.

1. Your cancellation policy: Include your subscription cancellation policy.
2. Cancellation policy disclosure: Include a document showing how and where your customers see the cancellation policy.
3. Cancellation Rebuttal: If the customer indeed attempted to cancel, but you denied such an attempt, justify why they are not qualified for cancellation. Example: First Three Months Offer [payment required the fourth month]. The cardholder requested a cancellation after the freemium period.
4. Customer Communication: Add your email notice of the impending bill at least three days before the charge date. Suppose that you shared a text message with the customer on Messenger informing them of the bill, or they agreed to a discount and later disputed the charge. In that case, you should also add that vital piece of evidence.  
5. Sales Receipt: Add your sales receipt and order summary, as the case may be.
6. Add any other relevant information that shows the customer received an email notice days before the bill and provide evidence of shipment or access to the goods/service.

#3: How to deal with Credit Not Processed chargeback reason code

This chargeback reason code indicates the customer returned a purchased product or canceled a transaction, but you have not provided a refund or credit.

To overturn the dispute and reclaim your money, you must demonstrate that you have refunded the cardholder. Or that they’re not entitled to a refund.

But first, you must do some standard due diligence. If they have a legitimate case, request that they withdraw the dispute from their side (and after that, you can refund them).

Even when they agree to withdraw the case, you still need to provide that evidence and communication with the customer in your response.

Below are crucial pieces of documentation you need in your representment.

1. Refund Policy: Add your order refund policy.
2. Refund policy disclosure: Include details of when and where you showed the customer your order refund policy.
3. Description of why the customer has not received a refund: Include precise details of your policies and why the customer isn't entitled to a refund, according to your terms and conditions and order refund policy.
4. Customer Communication: Add all relevant customer communication, such as when you informed them of your payment policy and explained why they are not entitled to a refund.

#4: How to deal with Product Not Received chargeback reason code

As the name implies, customers file this chargeback category when they claim they did not receive the products or services purchased.

You must prove that the customer received a physical product or offline service to overturn the chargeback. Or that they used a digital product or online service. You must establish they received or used their purchase before the date they filed the dispute.

Below are crucial pieces of documentation you need in your representment.

1. Customer Communication: Add proof of communications with the cardholder. Make it brief and highlight the parts where the customer admits to receiving and using the product (even if they complained about it).
2. Shipping Documentation and Address: Include all relevant shipping and tracking PDFs [from shipment website] indicating the address to which you shipped the goods, matching the address the customer provided at check out point.
3. Previous non-disputed payments: Add any last non-disputed order data and tracking numbers from the customer. Upload that documentation at the Additional Information section with details on their last orders.

#5: How to deal with General chargeback reason code

The General chargeback reason code refers to any chargeback that does not fall into the above brackets. For this uncategorized dispute, you need to search for every relevant conversation with the customer that could help you figure out their reason for the dispute.

If you don’t find helpful information in that regard, it’ll be wise to reach out to the cardholder and try to hatch things out. But suppose they didn’t respond or choose to work it out with you. In that case, use the following compelling evidence to fight the dispute.

1. Customer Communication: Every piece of customer communication will be crucial in overturning the dispute. Include any email, text, or transcript where they stated they had received the product or used it.
2. Previous non-disputed payments: Add any last non-disputed order data and tracking numbers from the customer. Add documentation on each of the earlier orders. Upload that documentation at the Additional Information section with details on their last orders.
3. Add all available documentation on order.

General best practice for an effective chargeback response

• Respond within the chargeback response time limit
• Provide clear and accurate evidence
• Customize your compelling evidence to each chargeback reason code
• Make your answer concise and straight to the point.

Why do you need chargeback automation?

For starters, you should know that up to 40% of chargebacks stem from internal issues that you can prevent.

But without adequate frameworks to effectively track, monitor, and address the root causes of chargebacks, you will keep flying blind.

More so, chargeback automation with products such as Chargeflow helps you to:

• Stop suspicious transactions before they turn into chargebacks. The blacklist functionality gives you a valuable database of customers who have filed a chargeback dispute. Synchronizing that with your customer relationship management tool can help you isolate and stop suspicious transactions.
• Recover disputes without lifting a finger. Chargeback automation helps you manage end-to-end chargeback processes automatically while improving user experience. Automated chargeback management gives you over 45% more ROI than manual processes.
• Enhance business processes. With chargeback automation, you can readily see user transaction behaviors, close loopholes, forecast transactions that could result in chargebacks in the future, and better align your strategies with changing dynamics.

In conclusion, it’s vital to note that chargeback is a consumer protection mechanism that’s given online shoplifters a convenient tool to commit fraud and get away with it. So you can do all the nice things and still fall short of winning the dispute.

Is your Shopify store ready for the uptick in post-holiday chargeback?

If you haven’t automated your chargebacks, the chances are that your store isn’t prepared. But you can level up today.