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A Guide to Shopify Payments Chargebacks

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What You Need to Know

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What is Shopify Payments?

Shopify Payments is Shopify payment provider that removes the need for third party cards and integrations. For a longer guide to Shopify Payments, check out this page.

What are Chargebacks?

A chargeback is a payment returned to the original client after they dispute a transaction from your business. These disputes filed as "reason codes" in cards, which help identify why the chargeback was submitted. Across different credit card providers however, there is little consistency with how reason codes are created. Shopify categorizes all reason codes into several categories, listed below.

As there is minimal verification required to set up Shopify Payments, Shopify treats chargebacks very seriously. For more information on chargebacks, read this official Shopify help center document.

Product Unacceptable Chargebacks

Reason codes: Discover 4553, American Express C31, Visa 53, MasterCard 4853

A product unacceptable chargeback is submitted when the client believes their purchase was defective, arrived damaged, or did not match the product description. These chargebacks typically occur on products with poor product descriptions, or misleading photos.

Fraudulent Chargebacks

Reason codes: Discover UA01, American Express 193, Visa 83, MasterCard 4863

Perhaps the most common chargeback, fraudulent chargebacks occur when a client purchases from your store and disputes the payment with their bank upon receiving the product. Luckily, these cases are becoming increasingly simple to handle. Shopify offers Fraud Protect, a system that guarantees each order will be delivered. If an order protected by Fraud Protect is disputed, Shopify will handle the chargeback process for your business and reimburse any fees.

Unrecognized Chargebacks

Reason codes: Discover UA38, American Express F14, Visa 72, MasterCard 4837

Similar to fraudulent chargebacks, this case occurs when a client disputes the transaction with their bank. However, this cardholder does so as they do not recognize the transaction. This usually occurs on businesses with poor bank descriptors.

Credit Not Processed

Reason codes: Discover RN2, American Express C02, Visa 85, MasterCard 4860

You might experience a credit not processed chargeback if the client has returned or cancelled a product or service, yet has not been issued a refund or alternative payment.

Subscription Cancelled Chargebacks

Reason codes: Discover 4541, American Express 4544, Visa 41, MasterCard 4841

Similar to the previous chargeback, this occurs if the client believes they are owed money or credit. This chargeback is filed exclusively when a service subscription has been paid for, and the customer has notified the merchant they would like to cancel the service.

Duplicate

Reason codes: Discover 4534, American Express P08, Visa 12.6, Mastercard 4834

A chargeback is considered duplicate if the client believes you have charged them twice for an order.

Product not Received Chargebacks

Reason codes: Discover 4755, American Express 155, Visa 30, MasterCard 4855

The final chargeback, product not received, occurs when the client does not receive the order. Unlike fraudulent chargebacks where a client can lie about receiving their order, this order has been lost during shipping and never arrived at the shipping address.

If your chargeback does not fall under any of these categories, it is marked as 'General'. Ensure you contact your client for more information on the order and any possible errors.

Disputing a Chargeback

When a cardholder contacts their bank to dispute the charge, the bank will either make a chargeback, or an inquiry. If a chargeback is made, the money will be withdrawn from your next Shopify Payments payout. If an inquiry is made, the bank will hear evidence from both sides before making a decision. In both scenarios, you will likely receive a message from Shopify or the cardholder's bank alerting you of the chargeback or inquiry. Here are some simple methods to resolve a chargeback.

  1. Add additional evidence in your defense

The Shopify Payments system will automatically send available evidence to the credit card company, but you will be able to add more evidence as necessary. The specific information you will need to add depends on the charge. Generally, you should include proof of delivery, store policy, a description of the service provided, any product notes, and customer authorization.

For product unacceptable chargebacks, consider adding images and descriptions of the product as shown on the website as a comparison with the order that was shipped to the client.

For fraudulent chargebacks, consider adding the date and time the order was fulfilled, the shipping and tracking information for the order, and the IP address and country used for the order.

For unrecognized chargebacks, ensure you contact your client. It is possible a family member or someone with access to their bank information made the purchase.

For credit not processed chargebacks, add screenshots of messages with the client, proof of refunds, and images of your return policy.

For subscription cancelled chargebacks, include images of your store policy, any messages with the client, and a possible activity log that shows the client used the product beyond the date it was cancelled.

For duplicate chargebacks, include evidence of a receipt, the order that was placed, and an explanation for the extra charge.

For product not received chargebacks, show billing and tracking information. If the product is digital, try to find an activity log that indicates the client has used the product/service.

  1. Contact the cardholder

Shopify Payments organizes payment information directly in the Shopify dashboard. Through old records, you will be able to find the client who made the claim and privately contact them. If both parties reach an agreement, you should add evidence of your conversation to the chargeback case, and ask the client to drop the chargeback.

  1. Accept the chargeback or inquiry

If you believe the chargeback is fair and your business has made an error, you can accept the chargeback without submitting evidence.

Protecting Yourself from Chargebacks

Disputing a chargeback can be a long and scary process and Shopify offers minimal support in the area.

Unfortunately, there's no method to fully protect your business from chargebacks. To minimize the chances of it occurring however, consider adding some of the following suggestions to your store:

  1. Have a clear store policy

Clearly outlining how your store will react to chargebacks (especially fraudulent ones!) will ensure you have evidence to draw from if the chargeback case is taken to court. This may also discourage people from attempting fraudulent chargebacks on your store.

  1. Offer order tracking and speedy customer service

In a world where same day shipping exists, many people can become impatient when their orders don't arrive quickly. To help clients manage expectations, you can offer order tracking for a fee. In addition, have an email or help line your clients can contact for inquiries about their order.

  1. Have accurate product descriptions

False advertising can be a big part of chargebacks. To avoid falling in this trap, include the materials in the product, any sizes, and product images in good lighting.

Your Rights as a Merchant

Unfortunately, merchants have few formal protections when it comes to chargebacks. Most Shopify merchant rights are focused on minimizing losses rather than preventing chargebacks as a whole. This list covers some of the rights you have. Notably, the chargeback (or all the partial amount chargebacks added together) cannot exceed the original transaction amount.

Most merchant’s rights regarding chargebacks are reactive and are aimed at limiting losses. Here are seven you should be aware of. The most important things to remember are:

  1. Chargebacks only cover the purchase price and can not exceed the original transaction amount. If not received, the chargeback may include any shipping or handling fees.
  2. Chargebacks can not be filed for a cash or cash-back transaction.
  3. Merchants may contest chargebacks through a process called chargeback representment.

Shypyard: your hidden gem in fighting chargebacks

As the e-commerce world expands, it's likely that chargebacks will become a growing issue. However, Shypyard can make the claims process simple and forgettable. With Shypyard, you can first connect your Shopify store to your accounting system, such as Xero, MYOB and Quickbooks. Then, Shypyard automatically pulls in both individual payments and Shopify payouts data. If Shypyard detects a chargeback has been applied to your payouts, Shypyard will quickly alert you, and help you resolve it as fast and easily as possible.

To get started, simply create a free Shypyard account and connect your Shopify store with your accounting system.

This may be particularly useful if you run a high-risk business that consistently experiences chargebacks and inquiries. In addition, using Shypyard's custom workflows, you can create triggers that automatically transfer specific order information from Shopify to an email address. For custom projects or inquiries, contact us or visit our website!

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