Shopify Fraud Prevention: The Complete Guide to Managing Risk

You may have heard about fraud prevention on Shopify. But what is it really? And do you need it? If you run an ecommerce business on Shopify — whether you process 10 transactions a month or thousands — you can experience fraud. Having the right risk management in place can help you avoid headaches, wasted time, and revenue loss.

Why Your Business is Losing Money

Have you ever noticed a low or negative balance on your Shopify store? If so and you’re unsure of what the issue is, fret no more. We’ve broken down the common reasons for revenue loss.

The biggest cause of lost revenue comes from chargebacks — money that’s returned to a customer after a purchase is disputed. And every time you receive a chargeback, you are usually charged a fee — typically $15 on Shopify. There are a few ways chargebacks can happen.

Criminal fraud

Criminal fraud — or payments fraud — happens when a fraudster steals debit and credit card cards (or account information) to make purchases. When a cardholder notices an unauthorized transaction, the purchase is usually disputed with the bank, resulting in a chargeback for your business.

Friendly fraud

Friendly fraud happens when a cardholder uses the chargeback process incorrectly, either as an intentional attempt to get something for free or an innocent misunderstanding. For example, a customer forgets about a purchase or receives an unsatisfactory item. Rather than work with you to get a refund or exchange the item, the cardholder calls the bank to dispute the purchase. Typically, false claims are made by cardholders to get their money back.

Merchant error

We all make mistakes. Unfortunately, those mistakes can sometimes cost us money. If you commit an error — for example you ship out incorrect orders, package items poorly (resulting in damage during shipping), or don’t ship orders on time — customers might go directly to their bank to file disputes instead of working with you to resolve the issue.

To figure out how your business is being impacted by chargebacks, you’ll want to investigate your orders closely — find out why they are disputed and whether or not they were marked as high risk.

What Are High-Risk Orders on Shopify?

High risk orders are purchases that Shopify’s fraud analysis tool has identified as potentially fraudulent — which means the cardholder probably did not authorize the transaction. Fraudulent orders can lead to chargebacks, costing you money and potentially lost inventory.

Not all orders marked as high risk are fraudulent, however. For example, if a customer purchases a couple items intended to be gifts, that customer may use a different shipping address from the billing address — which may look suspicious.

It comes down to whether or not you want to accept the risk. You can manually review high risk orders by checking the order details or reaching out to the customer. But that can take time, especially if you have a high order volume.

On the other hand, outright accepting the order comes with risks that could jeopardize your business. High chargebacks can put you in a chargeback monitoring program. And if fraud-based chargebacks continue to be an issue, you could eventually lose the ability to accept payments.

Managing fraud can take resources away from daily business operations. That’s where fraud prevention software comes into play — a tool that can take your worries away and enable you to focus on growth.

How Does Fraud Prevention Work?

If you’re manually reviewing orders for potential fraud you’re essentially taking your best guess at a decision based on a few order details. If instead, you just decline every high risk order, you can potentially turn away legitimate customers and miss out on future business from them.

Fraud prevention software takes all the guesswork out of the equation. The technology can review orders for you, identify anomalies and threats, and automatically make decisions about suspicious orders.

The benefit of using a tool dedicated to fraud detection and prevention is that decisions will be more accurate and quicker than decisions you make on your own. Plus, you can customize the technology to fit your business needs and risk thresholds.

Shopify Fraud Prevention Tools

Shopify offers a fraud analysis tool to help you identify fraudulent transactions. The level of protection you get varies depending on the Shopify plan you have and whether or not you have Shopify Payments.

There are three things Shopify could potentially provide to help you minimize fraud:

• Indicators: Shopify can alert you to activity or information that seems suspicious. Some example indicators include AVS response codes, CVV response codes, IP address details, and more. Indicators are marked green (good signals), red (suspicious signals), or grey (helpful insights), making it easy to assess risk at a glance.
• Support for third-party apps: Shopify operates an app store that connects businesses to integrated service providers.
• Fraud recommendations: Shopify will inform you if an order has a low, medium, or high risk of fraud. A warning symbol on the Orders page identifies medium and high risk orders.

Features are accessible by the following plan types.

For Shopify protection, you can set rules — such as price limits or location tolerances — or block known fraudsters.

However, these fraud prevention options come with some limitations.

• You need to be familiar with fraud schemes and understand signs of fraudulent behavior so you can set accurate rules.
• Rule types are limited. You can’t set rules across multiple parameters — such as billing and shipping.
• You have to spend time manually reviewing orders — checking IP addresses, calling customers, or verifying billing and shipping addresses match. If you run a small business, this may take a lot of time away from growth and strategy.

On the other hand, you can implement Kount, a third-party fraud app, that provides more robust protection and less manual labor.

Kount Fraud Prevention for Shopify

Any Shopify merchant can take advantage of Kount’s fraud prevention app. With easy integration and advanced machine learning capabilities, both small and large businesses can increase revenue while reducing risks.

How Does Kount’s Fraud Filter App Work?

Large businesses often have fraud teams with the knowledge and expertise to manage complex solutions. But smaller businesses don’t always have those same resources, so they need a tool that is easy to use, accurate and able to secure good revenue.

Kount offers two tiers of protection to serve both audiences: an essentials tier for small and mid-size businesses and an advanced tier for larger businesses with dedicated fraud management teams.

	Image Kount Essentials	Image Kount Advanced
Recommended Business Type	Small and mid-size businesses	Larger businesses with dedicated fraud management teams
Integration	No coding is required for integration — the app installs directly in the Shopify marketplace and works immediately	Integration work is required, but merchants receive dedicated onboarding support from the Kount team
Maintenance	Hands-off fraud protection	Full customization capabilities
Access to data	Results are displayed in Shopify	Results, data, and policies are available in the Kount portal
Recommended Shopify Plans	Starter, Basic, Shopify, and Advanced	Shopify, Advanced, and Shopify Plus

Kount’s goal in offering two tiers of protection is to provide access to leading trust and safety technology for any size business. While anyone can experience fraud, the level of complexity can differ between small and large businesses.

Why Choose Kount’s Shopify Fraud Prevention App?

With so many third-party fraud apps available, how do you go about choosing one that truly meets your needs? It all comes down to the level of maintenance you are willing to put into fraud management, the risks you’re willing to accept, and the accuracy you need to keep your business thriving.

What sets Kount apart from the competition, though? We’re glad you asked.

1. Easy policy setup and maintenance

Our industry-leading machine learning algorithms are tailored to every business so we can deliver accurate decisions in milliseconds. You can choose how often you monitor policies. And no matter what settings you choose, we make sure you get the best results.

2. Transparent decisions

Data transparency is key to making the right decisions for your business. Kount Advanced customers can view decision details in our portal while Kount Essential customers can see how each order is scored directly in Shopify.

3. Fraud made simple

We eliminate barriers to entry by offering different tiers of fraud prevention. Any business can get immediate fraud screening without the hassle of a long integration process or regular maintenance. We make it simple for businesses to choose the protection that makes the most sense.

4. Reduction of false positives

When you run a small business, every penny counts. Rejecting good orders can limit your growth potential and cost you money. Our technology is quick, accurate, and derives decisioning from robust data so that you don’t have to worry about declining legitimate customers.

5. Speed and efficiency

Because Kount is able to process and score an order in milliseconds, we help you provide smooth, uninterrupted customer experiences. Good experiences keep customers coming back and spreading positive reviews — thus helping your business grow. We also stop bad customers so you can avoid the risks that come with expansion.

6. Automatic decisions

We support automatic refunds and order cancels when an order is declined, so you can avoid expensive chargebacks and fees. You have the flexibility to adjust automatic decisions to fit your business needs at any point in time.

7. Chargeback protection

We don’t typically offer a chargeback guarantee because those types of insurance plans come with higher costs and more false positives. We don’t need to hide behind exaggerated promises. Our technology provides the best results possible. Period.

How We Compare to Other Fraud Prevention Apps

	Image Competitor offering	Image Kount offering
Price	Pricey with monthly minimums	Flexible pricing plans
Target audience	Tailored to larger businesses	All business types
Complexity	Can be confusing — focus is on chargeback guarantee instead of fraud	Transparent solutions and easy to understand fraud controls
Maintenance	Requires regular monitoring	Little to no monitoring

Manage Risk Confidently

When it comes down to it, fraud management is a necessary part of business. You can experience problems at any time — from card testing to payments fraud. We also know it can be difficult to find a service provider that truly gets your business and understands what you need.

But with Kount, you have unmatched protection with exceptional support. We’ve spent decades working with businesses like yours. Let us help you find the solution that’s right for you.