Shopify Chargebacks

Chargebacks on Shopify are an unavoidable part of doing business, but understanding how they work can help you minimize their impact. This article explains what chargebacks are, how they differ from refunds, and why they happen. It also covers the chargeback process, common reason codes, and the hidden costs that can quietly erode your profits. By learning the fundamentals now, you can protect your store and prepare for smarter chargeback management as your business grows.

If you’re selling on Shopify and you’ve never dealt with a chargeback, count yourself lucky. Sooner or later, every merchant runs into one. And when it happens, it usually comes without warning. One day, you’re reviewing yesterday’s orders. The next, a customer has gone through their bank to reverse the charge entirely.

This article is your foundation. A comprehensive breakdown of what chargebacks are, how they work, and why they happen. No fluff. No scare tactics. Just clear explanations written for motivated proactive Shopify sellers.

Let’s start at square one.

What Is a Chargeback, Exactly?

A chargeback happens when a customer contacts their bank or credit card company and asks to reverse a charge. Instead of requesting a refund directly from the merchant, they go through the card issuer.

Card issuer: The financial institution that provides payment cards, like credit or debit cards, to consumers. This can include banks, credit unions, or other licensed entities that issue cards on behalf of card networks such as Visa or Mastercard. Issuers are responsible for managing the cardholder’s account, authorizing transactions, and handling dispute inquiries.

When that request is approved, the money is forcibly removed from your account and returned to the customer. No heads-up. No email from the buyer. Just gone.

That’s what makes chargebacks different from refunds. With a refund, you stay in control. You decide when and how to process it. With a chargeback, the bank makes that call on the customer’s behalf, and your only option is to fight back.

Sometimes the reason for the chargeback is legitimate. Sometimes it’s not.

Either way, it’s serious.

Disputes vs. Chargebacks

The terms are often used interchangeably, and depending on who you ask, they’re not quite the same. Here are our definitions of each term:

A dispute is the initial process of looking into a questionable transaction. It begins when a cardholder tells their bank something went wrong with a purchase. The merchant may or may not be notified right away.

A chargeback is what happens when the dispute turns into a forced refund. It’s the bank siding with the customer, pulling the money from your account, and placing it in limbo while they investigate further.

So technically, all chargebacks are disputes. But not all disputes become chargebacks. The key difference is that with a chargeback, the money is already out of your hands.

Why Do Chargebacks Happen?

There are many reasons why a chargeback might be filed, but most fall into one of three categories:

Fraud

This is when someone uses a stolen credit card or account without the cardholder’s permission. It’s the most obvious and feared cause. In true fraud cases, the actual cardholder didn’t make the purchase, so they dispute the charge to recover their money.

Merchant Error

Sometimes, the fault lies with the store. Maybe the customer didn’t receive what they ordered. Maybe it arrived late, or damaged, or not at all. Or maybe the return policy was unclear. These situations, while often accidental, can still result in chargebacks if the customer feels ignored, confused, or frustrated.

Friendly Fraud

This is when a customer files a chargeback even though the purchase was legitimate. Maybe they forgot they made the order. Maybe someone else in the household placed it. Maybe they didn’t recognize your store name in their billing statement. Or maybe they’re just trying to get something for free.

The Chargeback Process

Once a chargeback is filed, a lot happens behind the scenes. For the merchant, it can feel confusing and frustrating. Here’s what typically happens:

  • The Customer Initiates Dispute
    They contact their bank and say something went wrong. They may claim fraud, poor service, non-delivery, or some other issue.
  • The Bank Issues a Chargeback
    The bank pulls the money from your account and places it on hold. You’ll be notified through Shopify, your payment processor, or both.
  • You Receive a Notification
    Shopify will usually email you about the chargeback, including the reason code and deadline to respond. Time starts ticking immediately.
  • You Choose to Respond (or Not)
    You have the right to fight the chargeback, a process called representment. This means you submit evidence to prove the charge was valid. If you skip this step, the chargeback is lost by default.
  • The Bank Reviews the Case
    After you submit your documents, the customer’s bank takes over. They review your response, compare it to the customer’s claim, and make a final decision.
  • Final Outcome
    If the bank rules in your favor, the funds are returned to your account. If they side with the customer, the money is gone for good. Either way, it’s rarely a fast process.

What Is Representment?

Representment is your official response to a chargeback. Think of it as your side of the story. You “re-present” the charge to the bank, with supporting documents to prove the transaction was legitimate. That might include:

  • Tracking numbers and delivery confirmation
  • Product descriptions and return policy links
  • Customer communication or support transcripts
  • Screenshots from your Shopify dashboard
  • Signed receipts or order confirmations

But here’s the catch: it’s not always enough. Banks often favor cardholders, especially when evidence is vague or incomplete. That’s why it’s so important to keep good records from the start.

Chargeback Reason Codes

When you receive a chargeback, it usually comes with a reason code. This is a short identifier issued by the credit card company to explain the customer’s claim.

Reason Codes: Standardized codes assigned by card networks that explain why a chargeback was filed. They help merchants understand the cause of the dispute, whether it’s fraud, authorization issues, or another reason, so they can respond appropriately. Check out our reason code tool to quickly identify codes and get guidance on how to handle them.

Common reasons include:

  • Fraudulent transaction
  • Item not received
  • Product not as described
  • Duplicate charge
  • Credit not processed

Understanding Friendly Fraud

Friendly fraud is when a legitimate transaction is disputed under false or mistaken claims. The customer may say they never got the item, even if tracking shows delivery. Or they might say it was unauthorized, even though it was their own account. It’s frustrating. It’s unfair. And unfortunately, it’s common.

How Shopify Handles Chargebacks

Shopify itself doesn’t decide who wins or loses a chargeback. That decision lies with the bank. However, Shopify does notify you when a chargeback is filed and provides a way to respond. If you use Shopify Payments, your chargeback responses are submitted through the admin dashboard. Shopify even auto-fills some of the data to save time. But the responsibility to upload documentation, explain the issue, and meet the deadline? That’s still on you.

Shopify may also charge a dispute fee depending on the payment processor. If you win the case, this fee is often refunded. If not, it sticks.

The Real Cost of Chargebacks

Chargebacks don’t just take away the money from a sale. They ripple outward, quietly draining your time, energy, and profits in ways that catch many merchants off guard. What might look like a $75 chargeback loss can easily end up costing more than double once you tally up the hidden expenses.

Let’s break it down.

  • Refunded Transaction Amount
    When a chargeback is issued, the money from the original purchase is pulled from your account.
  • Chargeback Fees from Your Payment Processor
    Most processors charge a fee for each chargeback, regardless of whether you win or lose.
  • Lost Inventory and Shipping Costs
    If you shipped the product, you may never get it back.
  • Time and Labor for Representment
    Disputing a chargeback often requires digging through order records, pulling together emails, formatting documents, and writing explanations.
  • Higher Processing Fees
    If your store starts racking up chargebacks, your payment processor might raise your transaction fees.
  • Penalties from Card Networks
    Visa and Mastercard both have chargeback monitoring programs.
  • Damage to Your Reputation
    Too many chargebacks can make your store look untrustworthy.
  • Loss of Future Sales
    Sometimes a chargeback is the end of a relationship.

Let’s Do the Math: Imagine a customer places a $100 order… That one chargeback might cost you $180 or more. And that’s a modest estimate.

So, Can Chargebacks Be Prevented?

Not entirely. But they can absolutely be reduced. In future articles, we’ll walk through the most effective ways to protect your Shopify store from unnecessary chargebacks. You’ll learn how clear product descriptions can reduce misunderstandings, how accurate shipping timelines and proactive communication can ease customer concerns, and how a solid return policy can head off issues before they escalate. We’ll also explore how to spot fraudulent orders before they go out the door, and how the right store setup can create a smoother, more defensible customer experience.

The small things matter. Each one chips away at the risk. Taken together, they build real protection.

Next up, Simple Steps to Reduce Chargebacks on Shopify