Understanding Shopify Payments risk evaluation process for businesses
As a Shopify merchant, it’s important to understand how Shopify Payments evaluates the risk associated with new and existing businesses operating through its platform and using Shopify Payments. This evaluation process is crucial for protecting against potential financial losses resulting from disputes, refunds, and chargebacks. In this article, you can find an overview of how Shopify Payments assesses risk of businesses and the actions that can be taken as a result of the findings.
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Key risk indicators considered by Shopify Payments
Shopify Payments examines a variety of risk indicators to evaluate the risk of both new and existing businesses using Shopify Payments. Your risk level for Shopify Payments is evaluated based on a variety of factors including sales, disputes, customer interactions, the time you’ve been a Shopify platform user, and compliance with Shopify Payments Terms of Service for your country. Risk level is continually evaluated and subject to change.
The following are examples of the factors that are considered when assessing the risk level of your store using Shopify Payments, as well as any other stores associated with your account.
Account and compliance information
Shopify Payments may flag accounts identified with several high-risk scenarios, including, but not limited to:
- Invalid tax information.
- Accounts held by individuals under 18, violating the Shopify Payments Terms of Service.
- Discrepancies between a business's physical address and account operating location (geographical risk).
- Inconsistencies in verifying account ownership or business details.
Preorders, subscriptions, and delayed fulfillment
Businesses that operate with longer billing cycles, such as annual subscriptions, are viewed as more vulnerable to disputes. Customers might discontinue services or change their purchase decisions after a longer time frame.
If you operate in an industry where there is a significant gap between placing an order and fulfillment, such as event organizers and custom-order businesses, then your business is considered higher risk due to the likelihood of delays and disruptions.
Operational issues
Challenges in order fulfillment can result in a higher volume of customer complaints, which contributes to an increased perception of risk. A substantial number of customer complaints may also indicate underlying operational problems, which could impact the evaluation of your business's risk level.
Returns, chargeback, and disputes
A payment dispute occurs when your customers dispute a charge and reach out to the bank that issued their card or credentials to reverse it. Business risk level is determined by factors including the number of chargebacks and disputes within specific periods, and the frequency of returns. Learn more about chargebacks and inquiries and how to manage them.
Sales performance
Your risk level is based on your sales performance on Shopify’s platform. Key factors include, but aren’t limited to, sales volume, the frequency of sales days, the total number of orders, and the number of orders successfully shipped. Shopify Payments also considers your transaction and order history. For example, rapid increases in sales volume may indicate mismanagement or potentially fraudulent activities, thus raising risk levels.
Actions taken based on risk level evaluation
When Shopify Payments identifies an elevated risk for your business, several actions may be implemented to mitigate potential financial losses.
It’s important to stay informed about your account status and promptly address any requests from Shopify to avoid interruptions in your Shopify Payments payout processing. Shopify communicates reserve terms and any holds through the Store Owner registered email address and notifications in your Shopify admin, so be certain to monitor these communications closely. The following are examples of the actions you might experience based on Shopify Payments risk assessment of your store.
Adjusting payout schedules
A custom payout schedule may be imposed for higher-risk businesses. This could result in longer waiting periods before you receive payments, possibly extending to 5 or 20 business days.
Implementing reserves
A reserve is a temporary hold on a portion, in some cases a full amount, of transactions processed through Shopify Payments for a specified period. This could be a fixed amount or a percentage of each transaction, aimed at ensuring funds are available for potential disputes and refunds.
Reserves serve as a protective measure against potential losses that might arise from processing activities, such as chargebacks and refund volumes. Learn more about Reserves in Shopify Payments.
Placing holds on payouts or charges
A temporary hold may be placed on your payouts or even charges while your account undergoes review. This could be due to numerous reasons, such as verification requirements. You will be notified of payout holds in your Shopify admin Merchant Alerts or in the Store Owner registered email address.
Requesting documentation
If specific compliance or verification issues arise, then Shopify may request additional documentation from you to address these concerns.
Review and potential termination of your Shopify Payments account
Accounts that display high-risk behavior or violate Shopify Payments Terms of Service for your country may undergo further review. This review could ultimately lead to the closure of your Shopify Payments account.
Suspending payouts or deactivating charges
In severe circumstances, if risks are not adequately resolved, then your payouts may be suspended or your ability to process charges through Shopify Payments may be deactivated.