Growth

How to Create a 360-Degree Chargeback and Returns Protection for Your Shopify Brand

Skai Lama
June 17, 2024
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During peak seasons, there's a notable increase in returns and chargebacks, because merchants' target higher sales volumes, leaving room for errors. Retailers are constantly sprinting to get products from the factory to the buyer during peak seasons and accept orders they might ordinarily reject due to insufficient oversight of transaction risk profiles.

Also, many shoppers make impulsive purchases during holidays and later decide to return them or even request chargebacks. Some of these buyers intentionally abuse the merchant's return policy to defraud your business by either returning items or seeking chargebacks.

That’s why fraudulent returns and chargebacks repeatedly surge during holiday seasons. But don’t fret. We’re here to give you actionable insights on minimizing such purchases and give you a way to avoid a chargeback in case of fraud.

How Fraudulent Returns and Chargebacks Affect eCommerce Business

Besides the negative impact on retailers' earnings, fraudulent returns and chargebacks also damage reputation, increase scrutiny from payment processors and banks, and cannibalize sales. 

According to the National Retail Federation, return fraud costs retailers $17.8 billion annually. Return fraud is often a precursor to chargebacks – a forced payment reversal by the cardholder's bank. It occurs when a customer returns an item in a different condition than when it was shipped, or when they didn't make the purchase in the first place.

For example, the fraudster can steal an item from a physical store and try to return it for a refund. Scammers then use chargeback threats to strong-arm sellers in issuing refunds and the retailer ultimately bears the brunt of the loss in:

  1. Chargeback processing cost
  2. Bank penalties
  3. And lost revenue

Chargebacks are a consumer protection instrument that redresses transaction issues or unauthorized billing, but scammers now manipulate the chargeback system for personal gain. Industry records show that such pre-meditated disputes account for 40% to 80% of all eCommerce fraud losses.

To mitigate the risk of fraudulent returns and chargebacks, eCommerce leaders need to take proactive measures across multiple fronts to manage exposure and safeguard their businesses. So, let’s look into how you can prevent chargebacks at the checkout stage and how you can manage chargebacks effectively should they still occur.

Pre-Checkout Measures

The pre-checkout stage is critical for fraud prevention since payment hasn't been processed yet. Implementing the right steps at this stage can help detect and prevent fraudulent transactions, saving both money and the complexity of handling chargebacks.

Here's how you can avoid fraud during the checkout stage:

  1. Email Validation: Make sure that the email provided is in the correct format and comes from a legitimate domain. This simple step prevents fraudulent transactions, as scammers often use fake or incorrect email addresses leading to chargebacks.
  2. Mobile Number Validation: Verify that mobile numbers are valid and correctly formatted for their specific regions. Mobile number verification helps confirm the customer's identity, reducing fraud risk.
  3. Address Validation: Confirm that the provided addresses are complete, accurate, and aligned with postal records. Proper address validation helps prevent delivery issues, a common cause of chargebacks and ensures address legitimacy.
  4. Payment Method and Credit Card Verification: Authenticate payment methods, especially credit cards, to prevent fraud. This involves confirming payment details' accuracy and matching credit card information with the provided billing address. These checks help in preventing credit card scams.
  5. Fraud Detection: This is the most effective method to avoid fraud. It involves monitoring transaction patterns, analyzing IP addresses, and other relevant factors.  If any suspicious activity arises, you can double-check or avoid selling to such customers to prevent future chargebacks.
  6. Consumer Profiling - Analyze a customer’s shopping pattern to detect fraud. For example, you can look into the percentage of returned or canceled orders and the customer's chargeback history. For such high-risk customers, consider hiding certain payment methods like credit cards to minimize chargeback risk.

Implementing these automated measures may seem complex, but it's not. You can simply use Checkout Wiz to implement everything. So, optimize your Shopify checkout and never lose unnecessary money even during the holiday season.

Case Study: How a CBD Brand Reduced Chargebacks with a Better Checkout

Our customer, a leading CBD brand faced a significant challenge with chargebacks, mainly due to fraudulent transactions. 

So, they implemented comprehensive validation steps at every stage of their checkout process, thanks to Checkout Wiz:

  1. They started validating email formats and verifying domains. This immediately filtered out many potential scammers as they often use fake email addresses.
  2. They checked mobile numbers for completion and validated them against region codes, confirming their customers' identities.
  3. By integrating an address validation system, they cross-referenced addresses with postal service records, to check if they are accurate and legit.
  4. They started matching customer’s credit card addresses with their billing addresses, significantly reducing credit card fraud.
  5. The brand used advanced fraud detection techniques, monitoring transaction patterns and IP addresses to detect suspicious activity.
  6. They analyzed customer shopping behaviors, identifying patterns like high rates of returns or cancellations. This profiling helped them anticipate chargebacks and prevent them by restricting certain payment methods for high-risk customers.

This holistic approach led to a marked decrease in chargebacks, safeguarding the brand’s revenue and reputation.

Even after taking all the measures, fraud can happen. In such a case, you can automate your chargeback recovery with Chargeflow. Let’s show you the effectiveness of Chargeflow through the example of WordTune.

Post Checkout Measure with Chargeflow

Research shows that while the chargeback rate baseline stays at 0.5% to 0.7% for most verticals, SaaS companies experience up to 5% chargeback rates, with an average win rate below 12%.

WordTune, a fast-rising AI-powered Writing Companion, faced consistent chargeback fraud issues and sought a reliable solution. Their in-house manual chargeback resolution was proving unsustainable and time-consuming.

The Solution

Choosing Chargeflow was an easy decision due to its seamless integration, transparent processes, user-friendly dashboard, and excellent customer service with success-based pricing. This means that Wordtune can make profits regardless of what happens.

Chargeflow proved to be a more practical solution than available options. The results were immediate and definitive, significantly increasing Wordtune's chargeback win rates. As a result, they saved time and could refocus on scaling their business while enjoying complete transparency over the entire process. Chargeflow helped Wordtune recover high-ticket chargebacks previously written off as a cost of doing business.

The Results

In less than six months since automating their chargebacks, Wordtune says they’ve seen:

  • A 4.3x improvement in dispute win rates.
  • Zero hours spent on chargeback mediation.
  • A unified view of all chargeback issues.
  • Management of hundreds of chargebacks per month.
  • Tangible revenue growth and operational efficiency.
  • Positive ROI with thousands of dollars recovered within six months.
  • Improved relationships with regulators such as Mastercard and Visa.

Says Matt Lewis, Product Manager at Wordtune:

"I spent months handling disputes, but my low win rate made it impractical. I needed to scale the business efficiently. Chargeflow's seamless pricing and operations, accessible with a single click, were a game-changer. Working with them is a real partnership; they prioritize what matters to us, especially reducing dispute rates. The user-friendly dashboard is a bonus."

Conclusion: Secure Your eCommerce Store

Protecting your eCommerce store from returns and chargebacks during peak seasons is crucial for your business's success. The success stories of our customers showcase the effectiveness of chargeback management solutions. Safeguarding your business is an ongoing process that requires the right tools. By investing in prevention and resolution, you can confidently navigate peak seasons, preserve your revenue, and bring a positive customer experience.

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Table of Content

toc- heading

During peak seasons, there's a notable increase in returns and chargebacks, because merchants' target higher sales volumes, leaving room for errors. Retailers are constantly sprinting to get products from the factory to the buyer during peak seasons and accept orders they might ordinarily reject due to insufficient oversight of transaction risk profiles.

Also, many shoppers make impulsive purchases during holidays and later decide to return them or even request chargebacks. Some of these buyers intentionally abuse the merchant's return policy to defraud your business by either returning items or seeking chargebacks.

That’s why fraudulent returns and chargebacks repeatedly surge during holiday seasons. But don’t fret. We’re here to give you actionable insights on minimizing such purchases and give you a way to avoid a chargeback in case of fraud.

How Fraudulent Returns and Chargebacks Affect eCommerce Business

Besides the negative impact on retailers' earnings, fraudulent returns and chargebacks also damage reputation, increase scrutiny from payment processors and banks, and cannibalize sales. 

According to the National Retail Federation, return fraud costs retailers $17.8 billion annually. Return fraud is often a precursor to chargebacks – a forced payment reversal by the cardholder's bank. It occurs when a customer returns an item in a different condition than when it was shipped, or when they didn't make the purchase in the first place.

For example, the fraudster can steal an item from a physical store and try to return it for a refund. Scammers then use chargeback threats to strong-arm sellers in issuing refunds and the retailer ultimately bears the brunt of the loss in:

  1. Chargeback processing cost
  2. Bank penalties
  3. And lost revenue

Chargebacks are a consumer protection instrument that redresses transaction issues or unauthorized billing, but scammers now manipulate the chargeback system for personal gain. Industry records show that such pre-meditated disputes account for 40% to 80% of all eCommerce fraud losses.

To mitigate the risk of fraudulent returns and chargebacks, eCommerce leaders need to take proactive measures across multiple fronts to manage exposure and safeguard their businesses. So, let’s look into how you can prevent chargebacks at the checkout stage and how you can manage chargebacks effectively should they still occur.

Pre-Checkout Measures

The pre-checkout stage is critical for fraud prevention since payment hasn't been processed yet. Implementing the right steps at this stage can help detect and prevent fraudulent transactions, saving both money and the complexity of handling chargebacks.

Here's how you can avoid fraud during the checkout stage:

  1. Email Validation: Make sure that the email provided is in the correct format and comes from a legitimate domain. This simple step prevents fraudulent transactions, as scammers often use fake or incorrect email addresses leading to chargebacks.
  2. Mobile Number Validation: Verify that mobile numbers are valid and correctly formatted for their specific regions. Mobile number verification helps confirm the customer's identity, reducing fraud risk.
  3. Address Validation: Confirm that the provided addresses are complete, accurate, and aligned with postal records. Proper address validation helps prevent delivery issues, a common cause of chargebacks and ensures address legitimacy.
  4. Payment Method and Credit Card Verification: Authenticate payment methods, especially credit cards, to prevent fraud. This involves confirming payment details' accuracy and matching credit card information with the provided billing address. These checks help in preventing credit card scams.
  5. Fraud Detection: This is the most effective method to avoid fraud. It involves monitoring transaction patterns, analyzing IP addresses, and other relevant factors.  If any suspicious activity arises, you can double-check or avoid selling to such customers to prevent future chargebacks.
  6. Consumer Profiling - Analyze a customer’s shopping pattern to detect fraud. For example, you can look into the percentage of returned or canceled orders and the customer's chargeback history. For such high-risk customers, consider hiding certain payment methods like credit cards to minimize chargeback risk.

Implementing these automated measures may seem complex, but it's not. You can simply use Checkout Wiz to implement everything. So, optimize your Shopify checkout and never lose unnecessary money even during the holiday season.

Case Study: How a CBD Brand Reduced Chargebacks with a Better Checkout

Our customer, a leading CBD brand faced a significant challenge with chargebacks, mainly due to fraudulent transactions. 

So, they implemented comprehensive validation steps at every stage of their checkout process, thanks to Checkout Wiz:

  1. They started validating email formats and verifying domains. This immediately filtered out many potential scammers as they often use fake email addresses.
  2. They checked mobile numbers for completion and validated them against region codes, confirming their customers' identities.
  3. By integrating an address validation system, they cross-referenced addresses with postal service records, to check if they are accurate and legit.
  4. They started matching customer’s credit card addresses with their billing addresses, significantly reducing credit card fraud.
  5. The brand used advanced fraud detection techniques, monitoring transaction patterns and IP addresses to detect suspicious activity.
  6. They analyzed customer shopping behaviors, identifying patterns like high rates of returns or cancellations. This profiling helped them anticipate chargebacks and prevent them by restricting certain payment methods for high-risk customers.

This holistic approach led to a marked decrease in chargebacks, safeguarding the brand’s revenue and reputation.

Even after taking all the measures, fraud can happen. In such a case, you can automate your chargeback recovery with Chargeflow. Let’s show you the effectiveness of Chargeflow through the example of WordTune.

Post Checkout Measure with Chargeflow

Research shows that while the chargeback rate baseline stays at 0.5% to 0.7% for most verticals, SaaS companies experience up to 5% chargeback rates, with an average win rate below 12%.

WordTune, a fast-rising AI-powered Writing Companion, faced consistent chargeback fraud issues and sought a reliable solution. Their in-house manual chargeback resolution was proving unsustainable and time-consuming.

The Solution

Choosing Chargeflow was an easy decision due to its seamless integration, transparent processes, user-friendly dashboard, and excellent customer service with success-based pricing. This means that Wordtune can make profits regardless of what happens.

Chargeflow proved to be a more practical solution than available options. The results were immediate and definitive, significantly increasing Wordtune's chargeback win rates. As a result, they saved time and could refocus on scaling their business while enjoying complete transparency over the entire process. Chargeflow helped Wordtune recover high-ticket chargebacks previously written off as a cost of doing business.

The Results

In less than six months since automating their chargebacks, Wordtune says they’ve seen:

  • A 4.3x improvement in dispute win rates.
  • Zero hours spent on chargeback mediation.
  • A unified view of all chargeback issues.
  • Management of hundreds of chargebacks per month.
  • Tangible revenue growth and operational efficiency.
  • Positive ROI with thousands of dollars recovered within six months.
  • Improved relationships with regulators such as Mastercard and Visa.

Says Matt Lewis, Product Manager at Wordtune:

"I spent months handling disputes, but my low win rate made it impractical. I needed to scale the business efficiently. Chargeflow's seamless pricing and operations, accessible with a single click, were a game-changer. Working with them is a real partnership; they prioritize what matters to us, especially reducing dispute rates. The user-friendly dashboard is a bonus."

Conclusion: Secure Your eCommerce Store

Protecting your eCommerce store from returns and chargebacks during peak seasons is crucial for your business's success. The success stories of our customers showcase the effectiveness of chargeback management solutions. Safeguarding your business is an ongoing process that requires the right tools. By investing in prevention and resolution, you can confidently navigate peak seasons, preserve your revenue, and bring a positive customer experience.

Share article