How to Handle Ecommerce Fraud on Shopify

E-commerce fraud has become a big issue for merchants on Shopify. The more popular e-commerce shopping becomes, the more fraud we encounter.

An e-commerce fraud horror story

I recently received a phone call from a store owner who was excited about a $10,000 order that came through his Shopify website.

The website was selling products with an average order value of about $250.

Then all of a sudden a $10k order came in.

That person asked to pick up the order that same day.

The store owner checked the email address and called the person to verify.

Everything looked good.

A few hours later, a courier truck picked up the order.

The next day, the store owner started having a bad feeling about it.

So, he called his customer and found out that the phone number was disconnected.

He called the courier driver, who said that it was the strangest delivery he ever did because he was asked to leave the order in the middle of a street somewhere.

At this point I received another phone call from the store owner.

“What do I do? I think I was scammed”, he said.

Frankly, I was not familiar with this situation, so I didn’t know what to say… except to ask:

What to do when you have a fraudulent order in your Shopify store?

Shopify Help Center offers some tips on how to verify orders to prevent fraud. Plus, inside the order details, Shopify’s system provides some fraud analysis as well.

(Side note: Fraud Analysis features are different on each Shopify plan.)

In addition, Shopify suggests to install Third Party Fraud Apps to help with fraud prevention.

But – what to do when you already processed and fulfilled the fraudulent order?

Shopify Help Center offers some information about “chargebacks” and how to handle them.

The chargeback is marked as Fraudulent if the cardholder didn’t authorize the charge. This is the most common reason for a chargeback and can happen if the card was stolen.

Shopify Help Center

The only information that Shopify provides is really not helpful in this case because when “professional fraud” happens – the “customer” cannot be contacted.

To deal with a fraudulent charge, you can try to contact the customer who placed the order. The customer might have forgotten about the purchase, or the purchase might have been made by a spouse, friend, or family member.

If the customer agrees that the charge was justified, then you should tell them to contact their bank and say that they want to drop the chargeback. You should still submit evidence to the credit card company, including the statement where the customer said they would drop the charge.

Shopify Help Center

There is no information about what to do if a ‘stolen card’ was used to place an order.

The big questions about credit card fraud on ecommerce websites:

  • Who is responsible for the loss – the store owner, the card holder, the payment processor, or the credit card company?
  • Does the store owner have any protection when using Shopify Payments?

The Bad News

The hard truth is that the store owner does not have any insurance against credit card fraud. At least that is the result of my research on this topic.

Once the fraudulent order has been shipped, the seller becomes responsible for returning the money to the credit card company.

Within 30-90 days from the day of the fraud order, you will get a ‘chargeback’ on your account.

Shopify will attempt to debit your bank account for the chargeback amount. If the money is not available in the bank, the chargeback amount will remain as amount owing until it is paid.

The Good News

  1. Learn a lesson. If this is the first time you got a fraud order on your Shopify store, then this is the price of learning a new lesson.
  2. Verify every order. Going forward, it’s a good process to check each order for fraud. You can do so manually, or use a third-party fraud prevention app.
  3. Add a Loss factor. If you have high volume of orders, then you can ‘expect’ a certain amount of orders to be fraudulent each year.

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