With over 1.75 million merchants in 175 different countries selling on Shopify, the ecommerce platform has grown exponentially since its IPO in 2015, which raised a total of $1.27 billion.
Yet, as the platform continues to grow in stature, so does the risk of cybercriminals attacking merchants with unauthorized transactions that often result in a chargeback request. Unfortunately, Shopify fraud is rampant.
Today, we’ll look into the different types of Shopify fraud of concern to merchants and the different tools available to help your business.
List of Top Shopify Fraud Apps
- SEON – Complete End-to-End Prevention Via API
- Signifyd – Chargeback Guarantee and AI
- ClearSale – Automated Decision Making
- Kount – Shopping Trend Analysis and Chargeback Guarantee
- Riskified – Blackbox AI and Shared Blacklists
- Sift – Automatic Transaction Review
- NoFraud – High-Volume Chargeback Guarantee
- FraudLabs Pro – SMS Verification and Custom Rulesets
What Is Shopify Fraud?
Shopify merchants face many types of fraud that target any typical ecommerce business, the core components being a risk of use of stolen card details, account takeovers (ATO), and the ever-dreaded issue of chargebacks.
A chargeback takes place whenever a customer disputes a transaction directly with their issuing bank. The issuing bank will then work with any evidence before reassigning the chargeback expense to the merchant via the card network.
Chargebacks cost ecommerce businesses upwards of $40bn a year and their typical reasons include the below:
- the item was not received by the customer
- incorrect amount charged
- unrecognized purchases
- customer dissatisfaction with the item(s)
- malicious fraud (ATO, stolen goods)
- friendly fraud
Merchants that use Shopify Payments might see the chargeback amounts subtracted from their next payout instead of being debited from merchant account funds, in addition to the loss of inventory.
It’s worth noting that Shopify is Level 1 PCI DSS compliant, which means the company already follows a level of protection through standards that include:
- maintaining a vulnerability management program
- actively finding and patching any vulnerabilities
- monitoring and testing its network regularly
- strong access control measures
- an information security policy
- protecting cardholder data
The opportunity for fraud also extends from merchant to customer, as fake stores on the platform are not an uncommon sight.
In 2021, using a research pool of 124,044 stores, Fakespot estimated that almost 21% of Shopify stores are in some form fraudulent or dangerous for consumers, according to Business Insider.
8 Shopify Fraud Protection App Reviews
As mentioned, there is the opportunity for Shopify merchants to add easy-to-use free upgrades as well as enterprise-grade fraud prevention products to their arsenal, to maximize revenue.
Below are some of the best options available on the market today.
October 2021 saw the launch of SEON’s own Shopify fraud detection app, which uses all of our best features to help merchants fortify their business with enterprise-grade software.
The robust scoring engine helps spot potential bad orders automatically as well as uncover fraud patterns through flexible rules. Machine learning algorithms will continue to offer recommendations to improve these rulesets, based on your business requirements.
SEON also scans over 50 digital and social signals in real-time to help verify that the person placing the order is in fact who they say they are.
- Enterprise-grade solution redesigned for Shopify merchants that automatically approves transactions and increases your conversion rate.
- Live email lookup acts as further verification on top of the machine learning engine to create better profiles of your customers.
- Ability to auto-cancel and refund transactions without any input needed.
- No chargeback guarantee model, enabling merchants to accept more transactions deemed “risky” by other providers.
- Tiered system ranging from free to $99 for 1500 checks per month and $299 for 5,000 checks per month. Free trial available as well no commitment or contract, to provide a more flexible service.
Founded by two former PayPal employees, Signifyd is an ecommerce-centric fraud prevention platform that looks to tackle the majority of the heavy lifting for merchants when it comes to anti-fraud. The firm is heavily focused on ecommerce, working with reputable brands such as Toys R Us, Maplin, and Mango.
The platform focuses heavily on automation – a competitive advantage if your business handles masses of transactions – and offers chargeback guarantees against Shopify fraud on approved orders that turn out to be fraudulent and item-not-received (INR) claims.
- Signifyd automatically reviews the order and informs you whether to ship it or not, with its own manual review process offering more insight to orders, without input from the merchant until necessary approval.
- Signifyd’s machine learning algorithm leverages data from third parties to approve good orders faster than merchants who might typically review manually.
- It takes liability off merchants’ shoulders through chargeback guarantee (although it can be argued this model brings a conflict of interest into the picture and leads to more false positives).
- With a 14-day free trial, the solution costs a total of $1,500/month.
ClearSale helps over 4,000 merchants with managing their risk and fraud levels across 170 countries. The company has offices in Brazil, the US, and Mexico.
ClearSale combines machine learning technology with a large in-house analyst team who will review transactions that have been flagged by the system, without the Shopify merchant’s input.
They offer both a chargeback guarantee and a proprietary protection scheme to balance business KPIs with what they deliver. This means that if targets are not met, your business will receive a discount.
- Chargeback guarantee and protection schemes are both in place to protect merchants against Shopify fraud.
- An in-house team combined with automated decision making lets merchants focus on their core business rather than worrying about risk and fraud.
- ClearSale also offers analysis on aspects beyond fraud such as a Shopify store’s most profitable products, most valued customers, and target market analysis.
- N/A. Contact sales.
Kount is a US-headquartered fraud prevention company with an AI network that is built on risk signals from over 32 billion annual interactions globally. Similar to ClearSale, the company has built its tech with ecommerce merchants in mind.
The Kount Command product is available for Shopify merchants, automating the process of the approval or decline of orders based on the merchant’s requirements.
- Kount allows merchants to customize their ruleset to their requirements, with analysis from both macro trends and individual transactions to help with decision making.
- The company calculates risk through a fraud scoring system based on data from 32 billion annual interactions and in real-time.
- Kount offers a chargeback guarantee to help automate risk decisioning and lift the burden of Shopify fraud from merchants.
- N/A. Contact sales.
As shops began their transition to online, Riskified was formed in 2013 to improve the ecommerce experience for both merchants and consumers.
They have orchestrated their products solely around ecommerce – with features such as Deco, a solution promising to recoup merchants’ revenue lost to card-not-present payment authorization failure, and Policy Protect, which links customer data to show signs of promo abuse.
Having worked with Shopify since 2013, the firm works with some of the most well-established Shopify merchants, including Gymshark and Steve Madden.
- Riskified scans all orders, marking those that are potentially fraudulent with a corresponding explanation that can then be sent to their team to help make a decision.
- This blackbox AI monitors traffic across Riskified’s own network, detecting anomalies and flagging risk with next to no input needed from the merchant.
- Their risk assessment and fraud screening is offered for free, with payment only needed when you submit a transaction for review and Riskified approves it.
- All approved transactions carry a 100% moneyback guarantee in the event of fraud.
- N/A. Contact sales.
Another enterprise-grade fraud detection solution is Sift, which works with companies including Wayfair, StitchFix, Harry’s, and Everlane.
All customer data, from account creation to login and the order itself, is automatically sent to Sift, which then analyzes the data provided with its machine learning technology and insight from its own proprietary global data networks.
With added insights from Sift’s global data network, the company’s machine learning models deliver accurate risk assessments with the aim of enabling Shopify merchants to confidently block and accept orders or route cases to manual review based on their individual business processes and priorities.
- Blackbox machine learning with the availability of custom models to automate transaction reviews. You can also manually review orders if needed.
- Real-time risk scoring based on over 16,000 signals and a global data network of 34,000+ merchants.
- Sift offers a specific Dispute Management module that focuses on the issue of chargebacks specifically. It looks to both prevent and win disputes by automatically selecting evidence based on industry and the chargeback reason code.
- Starting from $500 per month.
NoFraud is a Shopify-centric company that offers a fully automated product that is managed in-house, with no input from the merchants.
Transactions are sent to NoFraud once an order has been placed and then they provide a basic actionable response with no risk score – just a pass or fail metric from NoFraud’s side.
Users are able to manually review orders that are deemed a “failure” but can also automatically cancel the order – which could lead to an increase in false positives.
- Flexible review process including payment method preferences with merchant managed settings, red and green lists.
- NoFraud does offer a chargeback guarantee solution to cover any Shopify fraud costs. However, a minimum volume of 50K in monthly sales is required for eligibility.
- There are no setup fees or long-term contracts.
- Free technical support available.
- 0.49% of revenue with chargeback protection, $0.21/transaction without chargeback protection.
- Two-week free trial availability.
FraudLabs Pro supports merchants in identifying high-risk transactions and reducing chargeback with its free-to-use fraud screening process.
The company automatically flags any orders deemed high risk as well as automatically emails the customer if the order was canceled. This creates a type of due diligence but also gives the customer opportunity to walk away from the business, which is not ideal.
Their fraud prevention module also supports SMS verification add-on to authenticate the purchaser’s identity for the merchants.
- Create your own custom ruleset using more than 50 different metrics based on metrics on IP geolocation, proxy, email validity, credit card data, transaction velocity, and more.
- Manual review available.
- Automate both high-risk order cancellation and notifications to users.
- SMS verification.
- Tiered-based pricing ranges from 500 queries per month for free and up to 25,000 queries per month for $249.95, with higher custom plans available.
What Is the Shopify Fraud Protect App?
Shopify’s Fraud Protect solution looks to automate order screening and chargeback disputes through classing transactions as either “protected” or “not protected”.
They also offer a fraud analysis solution for basic plan merchants that enables you to see certain indicators and plug in third-party tools, some of which are free. Those on a higher plan can also see automated fraud detection recommendations.
For merchants with lower levels of transactions and operating in markets with less fraudulent activity, this product is perfect for your business as it offers a clear insight into your orders as well as provides actionable results; however, adding an extra layer of defense can ultimately help maximize revenue opportunities.
Only Shopify Payments users can access the Fraud Protect solution. Online orders processed through PayPal or another point of sale solution cannot be tracked with this product.
How Does the Shopify Fraud Protect App Work?
The Fraud Protect solution operates similarly to a chargeback guarantee. The merchant pays a fee on each protected order and Shopify covers any costs/reimbursements as well as handles the chargeback process.
It can detect obvious signs of fraud such as proxy usage, large numbers of attempts, and disparities between billing and shipping addresses. However, more complex cases of Shopify fraud can easily be missed due to its lack of specialization.
Those transactions that are deemed “unprotected” and assessed as being somewhat suspicious will have to undergo manual review for inspection, with no real support on why the transaction may be illegitimate.
As well as this, chargeback guarantee models can often harm your revenue because there’s an obvious conflict of interest: They want to keep the levels of risk low but the merchants themselves want to safely sell to as many customers as possible. High false-positive rates can lead to further reputational and customer loyalty issues also.
Shopify Fraud Protect’s chargeback guarantee model is fine for most merchants but involves a much lower risk appetite – meaning what you may save in chargeback costs, you might be losing in revenue lost to good users who were unfairly deemed too risky!
How to Protect Against Chargebacks
In order to protect yourself against chargebacks, there are certain measures that merchants can take even before any intervention from anti-fraud products. These safeguards include:
- strong communication with customers about policies, potential delivery dates/delays
- quick responses to complaints
- suspicious orders investigated before anything is processed
- ensuring photos and descriptions are accurate
- making billing statements clear and easily recognizable
- use of e-receipts
Shopify Fraud Prevention FAQs
Shopify has its own fraud prevention service, which you can download for free in the app store. It offers basic chargeback prevention based on the company’s internal knowledge. However, it offers no flexibility or transparency. You may find some of your orders are blocked with no explanation, which is why third-party fraud prevention tools come highly recommended.
If your business is looking for a secure anti-fraud solution that will remove most cases of fraud, then yes. To maximize profits, it is recommended to look at other options that will minimize the risk of false positives, enabling you to safely sell to more people.
This depends on the choice of solution. Companies offering a chargeback guarantee cover the costs. However, this can entail a conflict of interest as it is in these anti-fraud companies’ interest to play it safer in order to minimize costs. Alternative solutions will look to spot potential fraudsters before the transaction is completed.
Yes, up to a point. You get basic chargeback prevention (where Shopify blocks a payment if it appears suspicious). However, Shopify offers no flexibility or transparency when it comes to understanding why a payment was blocked.
To report a fraudulent order, you meed to locate the order page and click More Actions. Select Cancel, and you will be able to select Fraudulent Order as a reason for cancelation. This does not mean you will get your money back, however.
Sources in this article
- Shopify: Shopify Announces Fourth-Quarter and Full-Year 2020 Financial Results
- Business Insider: About a fifth of Shopify sellers analyzed by Fakespot warrant a ‘caution’ or ‘warning’ label
- Fortune: This is the latest $1 billion tech company to IPO
- Security Magazine: Retail Chargeback Costs Reach $40 Billion Per Year
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Bence is the co-founder and COO of SEON whose vision is to create a safer online environment for merchants in high risk verticals.
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