If you're one of the 1.2 million people using the Shopify platform, or over 17 million using PayPal for business then you may or may not be aware of these two scams that customers have used to steal products and money from small businesses worldwide. 

I found out about using PayPal e-checks years ago when a customer placed two $1,000 orders simultaneously, and days after the orders were shipped out and delivered PayPal alerted us that their e-check had bounced, and not to fulfill their order.

Unfortunately for us, when it comes to e-commerce customers expect orders to be fulfilled immediately, so we quickly processed and delivered the order to live up to these expectations. What we didn't know then, was that the payment actually came through as an e-check, something we hadn't even heard of. 

What is a Paypal e-check?

They describe it as the following, "It's like writing a check, but you send it electronically. Your payment will show as pending until the e-check clears that bank. It usually takes up to 3-6 business days for an e-check to clear and the money to appear in the recipient's PayPal account."

What happened, was the order came through looking like any other paid transaction from PayPal to Shopify, but had we manually gone into PayPal to check it would have said it was pending. We didn't think to do this as we had never even heard of e-checks, and all orders paid via PayPal in the past had come through approved, not pending. 

But, over the course of a few days PayPal decided that the customer didn't actually have the funds available in the account to cover their purchase, so they sent out an automated email to inform us. Unfortunately for us, the order had already been delivered to the scammer, and all efforts of collecting the funds went unsuccessful.

PayPal, then informed us that because they had sent out an automated email when the transaction failed, they were not liable for the lost funds, and that we had never unchecked a small box that allowed us to accept e-check payments.

How to protect your business from falling victim to PayPal fraud

Here's how to disable e-checks on PayPal:

  1. Log in to your PayPal account
  2. While viewing your profile, you'll see a "selling tools" list. Click "selling preferences"
  3. Click "update" next to "Block payments"
  4. Beside "Block the following payments" Check the box "Pay with e-check or German bank transfer for all website payments except eBay". This will block all future e-check payments. 
  5. Click save

The PayPal lesson was a painful one to learn early on in the fledgling stages of building my business, but it wasn't the last time we were negatively affected by online scammers. Not every "bad guy" is wearing a black hoodie living in their parents basement, many of them are normal day-to-day customers.

As a Shopify business, do you charge a fee before completing returns for refunds? 
Many do in order to cover the original shipping and handling costs and employee wages. What you may not be aware of, is the fact that customers can open a charge back even after their order has been refunded. Yup, if you charge a return fee of any amount, and don't refund the customer in full, Shopify cannot step in to protect you from a customer opening a charge back after already being refunded.

A customer placed an order for final sale items, used a discount code, got a free gift with their order, and chose the free shipping option at checkout. They then, decided to return the order and requested a refund which we happily obliged to. When the order was returned, a $5.99 "Return Fee" was deducted from the amount refunded to the customer, and a month later she opened a chargeback with her bank for the full amount.

My team responded to the claim, including screenshots of the proof of refund, email correspondence, return policies, and so forth and months later the bank decided in favor of the customer. This customer was able to swindle us out of an additional $250 on top of their original refund, thus making it the first time we paid someone simply for wasting our time. When we brought the situation up to Shopify, they informed us they could only cancel a customers chargeback if we had originally refunded them in full, but if we took so much as $1 they could not help us, it was up to the bank to do the right thing. 

How to Avoid Ecommerce Chargebacks 

With Shopify and PayPal having been skyrocketed to the perches they sit so high on by profiting off of the sales of small businesses, you would think that they would take precautionary measures to protect their paying users from being swindled by online scammers. In many cases, they do. However, these areas are sore spots that could use a little fine tuning. 

So, until they get around to resolving these issues, be sure to block e-check payments on Paypal and look into your policies to see how you can best protect yourself from unwarranted Shopify chargebacks. Your wallet will thank you.
 

Published on: Mar 30, 2018
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