What You Need to Know About Shopify Fraud Prevention and Chargebacks Protection

April 18, 2023

What You Need to Know About Shopify Fraud Prevention and Chargebacks Protection

With the rise of online shopping and business opportunities, there has also been a rise in fraudulent activities that are causing businesses to lose a lot of money.

In fact,  payments frauds have tripled globally from $9.84 billion in 2011 to $32.39 billion in 2020. By 2027, this number is expected to reach $40.62 billion - 25% higher than in 2020!

If you are an online business owner, then there is no time to waste.

Fraudulent activity can quickly jump from a minor annoyance to a major problem. It's often easier to prevent fraud in the first place than it is to recover from it later. If you have decided to be an online retailer, take the steps necessary to protect yourself and your business now.

And fraud doesn't just cost businesses money, it can also ruin reputations.


Like all other eCommerce platforms, Shopify is not immune from this problem. Fraudsters will make their way to the best-selling products and leave spam comments to trick customers into giving out their credit card details. So you must protect yourself as a shop owner.

To help you understand how your business could be affected and how to be proactive against fraud, we've put together this guide.

What is eCommerce fraud?

Fraud is a criminal act or deceptive act committed for personal gain.

eCommerce fraud is the intentional act of defrauding a merchant through a website. It can be perpetrated by the merchant, a customer, or a third party.

The definition of "fraud" varies from one jurisdiction to another, but it typically involves some form of deception and/or concealment of relevant facts, where the deceiver is motivated to obtain a benefit by taking action to hide the truth.

The purpose of fraud may be a monetary gain (e.g., the value of goods or services) or other benefits, which could include receiving free products or services as part of a fraud scheme.

It can occur in the eCommerce checkout or during the purchase process. It can be carried out by individuals or organized groups, and usually involves some type of deception and/or identity theft.

Fraud can take many forms -

  • Orders placed with stolen credit cards
  • Orders placed by bots or automated software
  • Fake orders used to boost metrics
  • Fraudulent ratings and reviews
  • Inappropriate product returns
  • Customers who make multiple accounts to purchase the same product several times in a row

Most common types of eCommerce fraud

On average, eCommerce retailers deal with an average of 206,000 web attacks per month.

It's important to be aware of the most common types of eCommerce fraud. This will help you better understand what to look out for when you're selling online and help you prevent fraud from happening in your store.

1. Friendly fraud

This occurs when a customer receives their package and claims they didn't get it. Sometimes they'll file a chargeback with their bank or credit card company, and sometimes they'll contact your store directly to get a refund. Friendly fraud can be difficult to stop because the person who made the purchase is just trying to get something for free.

Friendly fraud is the most common type of fraud (40% and 80%) which occurs when a legitimate customer makes a fraudulent purchase.

2. Card testing fraud

20.33% of cases of identity theft are linked to Credit card fraud.

Card testing fraud is a type of credit card fraud in which an attacker places small orders with stolen credit card information, checks the delivery address, and then orders larger amounts of goods using the same stolen information when they know it's still valid.

3. Refund abuse

When customers request refunds for products that were never shipped, do not exist, or were already refunded by another source.
Refund abuse happens when a buyer returns an item purchased from your store and requests a refund, but then never sends back the item or even receives it in the first place. This type of fraud can be hard to spot because there's no way to catch the buyer red-handed.

4. Online payment fraud

This is one of the most common types of Shopify fraud, and it's on the rise. It involves criminals stealing credit card details and using them to make unauthorized purchases or sell them on the dark web for a profit.

And if the order is placed via channels like PayPal, where it becomes difficult for a merchant to update an order tracking in real-time, there are more chargebacks.

5. Account takeover fraud

Account takeover fraud is when a criminal takes over an existing customer account, typically by obtaining the password or other authentication information. The criminal then uses the account to make purchases.

Account takeovers typically occur when criminals gain access to legitimate accounts, either by guessing or brute-forcing passwords or by obtaining login credentials through phishing attacks and other methods. The attackers then use the stolen accounts to make unauthorized purchases.


6. Promo, affiliate, or loyalty abuse

This is when someone uses a promo code or other offer without actually having any intention of buying anything from your store. They could be using it as a way to get something for free or to test out products without paying for them.

It's also common for people to sign up for an account with your company just to get access to freebies and discounts.

This type of fraud is difficult to detect, but it can be prevented by setting up a rule that requires customers to spend more than a certain amount before they can apply a coupon code.

7. ​​Triangulation fraud

Triangulation fraud is a type of eCommerce fraud where the customer orders from a marketplace like Amazon and receives a fake or no product at all. Here a scammer acts as a middleman between the brand and the customer and pockets the money.

Usually, the customers are not aware of this and it can adversely affect the reputation of a brand.

How to detect ecommerce frauds

Shopify fraud prevention is a process of identifying, investigating, and preventing fraudulent orders from being processed. Shopify fraud prevention is an essential part of the e-commerce operation, as it can save you time and money.

Over 40% of businesses say fraud slows their business expansion and innovation. However, only 34% of retailers are actively investing in fraud prevention and mitigation.
Shopify fraud prevention is something that must be considered when your online store has been set up. You should have a clear idea of how much money you are willing to lose in case of fraud so that you can calculate the right spending limits on different areas of your business.

1. Inconsistencies in transaction data

Sometimes there are simple clues that you pick up to detect an eCommerce fraud. For instance, the zip code might not be from the state mentioned, or the IP address is different from what the email says.

2. Suspicious order placement and delivery locations

If someone places an order from a location that is not commonly used by customers then it could be considered suspicious activity. If you have enough data from past orders to compare them to the new ones, then you can build a machine learning model that can predict which orders are likely to be fraudulent and block them before they're confirmed by your customer.

3. Multiple orders in a short period OR several declined orders in a row

If you see a customer ordering multiple times, or has several declined orders in a row, it could indicate that the order is fraudulent. This is one of the most common tricks used by scammers who want to get their hands on as much merchandise as possible without paying for it. They open several accounts at once and place multiple orders at once — then they cancel them all after receiving the items they wanted.

4. Inconsistency between shipping and billing address or orders with several credit cards

If the billing and shipping addresses don't match, that's an immediate red flag for fraud. The same goes for orders made with multiple credit cards. If someone pays for their order with one card and then tries to get a refund using another card, it's probably a scam.

5. Substantial transactions or multiple orders from a new country

If an order comes in with a very high value or if there are multiple orders from a new country where you don’t usually ship, this can be a sign that something is wrong.

Best practices to ensure Shopify fraud prevention

Fraud is a major concern for every eCommerce business. Fraudulent transactions cost retailers billions of dollars each year. If you're spending time and money on customer service, chargebacks, or damage control, it's time to take action.

1. Sync order tracking

Most online purchases get made through payment wallets and channels like PayPal; you can prevent chargebacks with order tracking sync in real-time. And with advanced tools like TrackiPal, you can:

  • Instantly and automatically sync shipped order tracking info to your PayPal account with no manual intervention.
  • See live sync status, order details, and your PayPal disputes from the clean, yet powerful dashboard.
  • Get your PayPal funds 10X faster.

2. Ensure security protocols are in place

To ensure that your site is well secured from outside threats, build an efficient fraud-proof system that is backed by existing security protocols. These include SSL certificates, PCI-DSS compliance, and paying attention to the smallest plugins integrated into your Shopify store.

3. Use Address Verification Service (AVS) at checkout

Shopify recommends that you use Address Verification Service (AVS) at checkout. AVS compares the billing address entered by the customer with the billing information on file with the credit card issuing bank. The service can also be used to verify email addresses and phone numbers entered by customers at checkout. The result is a higher percentage of sales with valid shipping addresses, which reduces your risk of chargebacks, refunds, and other losses related to fraud.


4. Limit the number and/or value of orders

Fraudsters often try to place a large number of small orders to avoid detection. The best way to combat this is to limit the number of orders that can be placed in a single day and/or per order amount (e.g., $200). This is a great way to prevent fraudulent orders from being placed on your site.

Did you know that over 85% of users claim they would agree for transactions to take longer to complete if extra steps for authentication meant their information was better protected?

5. Evaluate the customer’s IP address

The IP address of your customer is a key piece of information that can help you determine whether or not they are fraudulent. If the IP address doesn’t match the data the user has given you, then this may be an indication that there is something fishy going on.


While fraud can happen in any industry or market, eCommerce fraud is particularly challenging because of the nature of the transaction. Unlike brick-and-mortar stores, which have a physical presence and employees on-site to watch for suspicious activity, eCommerce businesses rely on third-party payment processors and shipping companies to handle transactions.

It's up to you as an online merchant to protect yourself against fraud by taking steps to ensure that your customers are who they say they are and that their orders are legitimate. If you don't take measures to prevent fraudulent orders from being placed with your business, you could end up losing money — and losing customers who might not return after having their credit card numbers stolen by criminals, for instance.

If you’re an eCommerce store owner, you need to be proactive from day one and ensure the right Shopify fraud prevention and chargeback protection practices are in place.

The very first step is to secure your order through payment channels like PayPal.

Install the TrackiPal app today.