Essential Fraud Prevention Tips to Protect Your Shopify Store

Fraud can devastate a Shopify store, but there are strategies to minimize risks. Learn the key steps to prevent fraud and safeguard your business.

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By Arjel Vajvoda
Photo of Danell Theron
Edited by Danéll Theron

Updated January 30, 2025.

a woman sitting at a desk with a laptop in front of her and a floating security lock above her head

Fraud can cause serious financial and reputational damage to your Shopify store. Whether it’s chargeback fraud, payment fraud, or account takeovers, it's crucial to have robust fraud prevention measures in place.

This article covers essential tips and best practices for protecting your business from fraud. From using the right security tools to staying vigilant during checkout, these steps can help reduce the risks. Let’s look at the most effective fraud prevention tips for Shopify store owners.

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a diagram of different types of fraud


1. Chargeback Fraud

Chargeback fraud is when customers buy something, receive it, and then dispute the charge with their bank to get a refund while keeping the product. It’s a huge headache for Shopify merchants, especially those selling high-ticket items like electronics or designer clothes.

Example: I once worked with a Shopify store selling premium watches, and they had a customer who claimed the watch never arrived even though the tracking showed it was delivered. Turns out, the customer just wanted a freebie.

According to a report by Chargebacks911, 17% of merchants say chargeback fraud is their top concern. 

2. Friendly Fraud

Friendly fraud is when customers dispute a charge, not because they’re trying to scam you, but because they forgot they made the purchase or didn’t recognize the charge on their statement. It’s super common in subscription-based businesses.

Example: A Shopify store selling monthly snack boxes kept getting chargebacks because customers forgot they had signed up for recurring payments.

3. Payment Fraud

Payment fraud happens when someone uses a stolen credit card or fake payment details to buy something. It’s a big problem for Shopify stores selling luxury items or high-demand products.

Example: A friend who runs a Shopify store selling limited-edition sneakers once had an order for 10 pairs using a stolen card. By the time he realized it was fraud, the shoes were already shipped.

This report shows that 36% of e-commerce businesses lose revenue due to payment fraud.

4. Account Takeover

Account takeover is when hackers break into a customer’s account and make unauthorized purchases. It’s becoming more common, especially in regions where people reuse passwords.

Example: A Shopify store selling fitness gear had a customer whose account was hacked because they used the same password everywhere. Before the store caught on, the hacker ordered $1,000 worth of equipment.

According to the Ponemon Institute, 67% of businesses have seen an increase in ATO attacks.

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How Fraud Differs by Store Size, Product Category, and Region

Store Size

  • Smaller Shopify stores often struggle more because they might not have advanced fraud detection tools. I’ve seen small Shopify stores lose thousands because they couldn’t spot fraudulent orders in time.
  • Larger stores deal with more sophisticated attacks, like account takeovers, because they handle so many transactions.

Product Category

  • High-value items like electronics or luxury goods are prime targets for payment fraud.
  • For example, a Shopify store selling designer handbags might see more fraudulent orders compared to one selling $10 phone cases.

» Discover what types of products are best sellers on Shopify

Geographic Region

  • Fraud trends vary by location. In North America, friendly fraud is more common because customers are quick to dispute charges.
  • In regions like Southeast Asia, payment fraud is a bigger issue due to weaker card security. I worked with a Shopify merchant in Indonesia who had to cancel 20% of their orders because they were flagged as fraudulent.


3 Key Red Flags to Look out for in Customer Transactions

1. Unusual Shipping Addresses

Keep an eye on orders going to unexpected or suspicious locations like warehouses, P.O. boxes, or high-risk countries. If a customer’s billing and shipping addresses don’t match, that’s another warning sign. It could indicate fraudulent activity, especially if it’s a first-time buyer. Always verify before shipping, and use address verification tools to stay safe.

2. Mismatched payment details

When the name on the payment method doesn’t match the customer’s name, or there are multiple failed payment attempts before a successful one, it’s a red flag. Fraudsters often use stolen cards and try random billing info. Look out for these inconsistencies and consider adding extra verification steps during checkout.

3. High-Volume or Rush Orders

Large orders, especially for high-value items, made out of nowhere by a first-time customer, are suspicious. Add a red flag if they request overnight shipping. Scammers often want to receive goods before chargebacks happen. If it feels too good to be true, double-check their details before processing.

» Learn how you can add checkout disclaimers to your Shopify store


infographic of the six fraud prevention strategies


Enable Shopify’s Fraud Analysis Tools

Activate Shopify’s built-in fraud analysis to monitor suspicious activities like mismatched addresses, multiple payment attempts, or high-risk IP addresses. This targets payment fraud and chargeback fraud by flagging risky transactions for manual review, giving you an extra layer of security.

Shopify’s native fraud detection integrates seamlessly with your orders dashboard. It provides actionable insights, like a risk assessment score, helping you identify and mitigate fraud risks without needing a third-party app.

Steps to Implement:

  1. Go to the Shopify admin dashboard and click on Orders
  2. a screenshot of Shopify admin dashboard
    
  3. Select an order to review its fraud analysis details, including AVS and CVV checks.
  4. a screenshot showing fraud analysis details
    
    a screenshot showing the fraud analysis, marked high
    
  5. Use order tagging to flag potential fraud and streamline manual reviews.
  6. screenshot showing how to use order tagging to flag fraud
    

Take Note: The fraud analysis doesn’t block fraudulent orders automatically. Overcome this by combining it with apps that automate order blocking based on your settings or reviewing flagged orders promptly.



Implement Two-Factor Authentication

You should enable two-factor authentication (2FA) for both your Shopify admin and customer accounts to enhance security. This added layer of protection helps prevent account takeovers by requiring more than just a password.

Shopify supports 2FA for store admins, which protects sensitive data like payment settings or customer information. It’s also a simple yet effective measure against unauthorized access to your store.

Steps to Implement:

  1. From the top right corner click on the Account Name or Email.
  2. Then click the Manage Account option.
  3. a screenshot of a dropdown showing to select manage account
    
  4. You will be redirected to a new page. On that page, you will be able to see 2 options i.e. General and Security. Click on the Security option.
  5. a screenshot, showing two option in the left upper corner, click security
    
  6. Scroll down and find the section with the title “Two-step authentication”. Click on the Turn on two-step button.
  7. a screenshot with a button in the right bottom corner that says turn on 2 step
    
  8. A popup will be displayed to you with options as shown below. Select the “Authentication app”.
  9. a computer screen with a qr code on it
    
  10. Read the instructions to scan the QR code. You will need the newly downloaded authenticator to scan the QR code. After scanning you will need to enter the 6-digit number generated and hit the Turn on button. Once you have turned on the Shopify 2FA you can save your recovery codes. Download these codes and save these codes somewhere safely.
  11. a screenshot, with a red rectangle in the bottom right corner showing to select download codes
    

Tip: Some customers may find 2FA inconvenient. Offer guidance on how to set it up and emphasize its benefits, like protecting their personal and payment details.



Use Shopify Flow to Automate Fraud Prevention

Shopify Flow lets you automate workflows like canceling high-risk orders, flagging suspicious activities, or sending alerts for manual review. This combats payment fraud and friendly fraud by ensuring quick action.

Take Note: Flow is only available for Shopify Plus, making it a premium tool designed to work seamlessly within the platform. It eliminates the need for constant monitoring by automating fraud detection and response.

Steps to Implement:

  1. Navigate to Apps in your Shopify admin and install Shopify Flow.
  2. a screen shot of a website page with a video
    
  3. Create workflows like “If order risk is high, then cancel order and send an email alert.”
  4. a screenshot showing a flow diagram
    
  5. Set up notifications to inform your team about flagged orders in real time.
  6. Combine Flow with Egnition’s tools to enhance your workflows, like customizing triggers for specific fraud scenarios.

» Apart from fraud prevention strategies, learn about other essential strategies to make your Shopify store even better



Use Geolocation Blocking for High-Risk Regions

This feature block transactions from high-risk regions known for fraudulent activities. This helps reduce chargeback fraud and payment fraud by preventing suspicious traffic from even accessing your store.

Shopify supports geolocation apps that integrate directly with your store, allowing you to block specific regions or redirect traffic based on location.

Steps to Implement:

  1. Install a geolocation app from the Shopify App Store.
  2. a screenshot showing a button in left hand corner to install app
    
  3. Set rules to block or redirect visitors based on IP addresses linked to high-risk regions.
  4. a screenshot of shopify dashboard, titled block and re-director
    
    Screenshot showing to set rules based on IP Address
    
  5. Customize error messages to explain restrictions politely.
  6. Pair this with Shopify’s fraud analysis to fine-tune blocking rules over time.

» Learn how to install and uninstall Shopify Apps



Track fraud trends to identify patterns like frequent disputes for “item not received” claims. This helps address friendly fraud and chargeback fraud by improving processes that minimize disputes.

Shopify’s analytics dashboard provides detailed fraud data, helping you spot recurring issues and adjust your policies or fraud prevention strategies accordingly.

Steps to Implement:

  1. Go to Analytics > Reports in your Shopify admin.
  2. Screenshot of shopify dashboard, showing different reports
    
  3. Review fraud trends by acceptance rate, risk rate, or canceled orders.
  4. Screenshot with different types of frauds
    
  5. Identify root causes like unclear policies or delivery delays.

Take Note: Shopify’s analytics require manual interpretation. Use third-party apps or export data for advanced analysis if trends are hard to spot.



Offer Fraud Education to Your Team

Train your team to recognize fraud indicators like mismatched details or unusual purchasing behavior. This strengthens all fraud prevention efforts by ensuring everyone is equipped to act fast.

Shopify’s admin interface makes it easy to share flagged orders and fraud analysis with team members, streamlining collaboration and training.

Steps to Implement:

  1. Create a shared document outlining fraud red flags using Shopify’s fraud analysis as a guide.
  2. Schedule regular team reviews of flagged orders and discuss patterns.
  3. Use Egnition’s tools to send automated updates on fraud prevention best practices to your team.

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Learn how Egnition’s apps can streamline your Shopify store, automating key processes to save time, reduce errors, and improve efficiency.



» Now that you're aware of fraud prevention, check out these strategies to ensure your ideal customers keep coming back to your Shopify store



Best Practices to Reduce False Positives

  • Fine-tune your fraud settings: Start by adjusting your fraud settings to better align with your store’s needs. Use Shopify’s fraud analysis tools, but don't rely solely on strict filters.

  • Set thresholds for suspicious behavior: For example, set limits for mismatched addresses or other red flags, but review flagged orders manually before declining them.

  • Reach out to customers: Contact customers via email or phone to verify any suspicious order details before taking further action.

  • Review past flagged orders: Analyzing previous flagged orders helps you fine-tune your fraud settings and find the right balance between security and customer experience.

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Steps Shopify Merchants Should Take When Fraud Occurs

  1. Start by contacting your payment processor to report the fraud and check if you can dispute the charge or recover funds. Time is crucial, so act fast. 

  2. Document all details, including the order, customer communication, and any suspicious activity. This will support investigations and chargeback disputes.

  3. Notify your shipping carrier to stop delivery if possible. If the order has already been shipped, share your fraud report with them for assistance.

  4. Strengthen your fraud prevention tools like Address Verification Systems and tighten checkout security. 

  5. Evaluate your current processes to identify gaps that allowed the fraud to occur. Train your staff to recognize and prevent fraud, ensuring better security and enhancing the overall customer experience.

» Here's everything you need to know to improve your customer's experience



Protecting Your Shopify Store

Implementing strong fraud prevention strategies is vital for protecting your Shopify store. By staying proactive, using the right tools, and training your staff, you can significantly reduce the chances of fraud. Regularly review and adjust your security measures to stay ahead of potential threats.

The more layers of protection you implement, the safer your business will be. Focus on securing your store and delivering excellent service to your customers.

» Take control of your Shopify store through automation

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