Hey friends,

Last week I was reviewing a brand's P&L and found something that made me sick. Their chargeback rate had quietly crept up to 2.4%.

For a brand doing $12M in sales, that's $288K in pure lost revenue. But here's the worst part, the actual cost was closer to $600K when you factor in fees, inventory loss, and operational overhead of the team’s time dealing with this crap.

Chargebacks and fraud are one of the worst parts of running a brand. Everyone I know has experienced it and I think it’s the hidden tax that’s quietly destroying your bottom line.

So I wanted to write today’s email about why this is such a big problem and how you can stop it before it kills

your profits in Q4. This is especially important as we all prepare for BFCM and the EOY holiday sale season. The issues I’m going to talk about with chargebacks and return abuse only get worse in Q4 so you’re going to want to take this one seriously. Just give me 3 minutes and I’ll explain.

The New Face of Fraud & Why It’s Hard To Mitigate:

Remember when fraud meant stolen credit cards and sketchy international orders coming from Russia? It was rare but it was super easy to spot. Unfortunately, today's fraud cases are more subtle and harder to catch. A lot of these bad actors are people you’d never expect. They're living in the US, ordering from their couch, using their real card, real address, real everything and then 60 days later, boom, you get a message like "I never received this" or "My kid ordered this, not me" or “I already spoke to AMEX and disputed this charge because the product was defective or it wasn’t what I expected.”

So much of this is just BS and it’s what people call digital shoplifting. A lot of them are literally stealing your products and initiating chargebacks after they have used your product or just decided they didn’t like what you sold them.

According to some reports I read, merchants lose over $103 billion dollars per year to this which is crazy to me. And the worst part? Traditional fraud tools aren’t built to catch these people. Most fraud tools I know of look for stolen cards while the actual criminals are customers in your own country who appear legit but are actively trying to scam your brand.

Why Your Current Setup Is Failing:

Most brands I’ve seen have the same setup which is basic fraud detection (usually just payment processor defaults), manual review for anything "suspicious," and a hope and pray approach to chargebacks where they just automatically forecast 0.5-1% of annual revenue being lost to this every year. It’s a negative cycle that needs to stop.

Here's what actually happens if your fraud and chargeback tools aren’t best in class:

First, you decline legitimate customers and lose out on real revenue opportunities and second, you approve fraudulent orders with chargebacks incoming while you waste hours manually reviewing edge cases only to still get hit with disputes you never saw coming weeks after the fact. The real problem in all of this is that you're judging faceless transactions, not actual people.

The Identity-First Approach:

The brands winning at fraud prevention and mitigating return abuse have shifted their thinking on this. Instead of asking "Is this transaction legitimate?" they're asking "Is this person legitimate?"

To achieve this, you have to look at historical behavior patterns, cross-merchant intelligence, post-purchase actions, and identity consistency over time that is linked to an individual’s card behavior. When you have a tool that can analyze people instead of payments, everything becomes a lot clearer.

The best solution I’ve seen for this is Chargeflow’s new Prevent product which is the first solution that’s actually built to stop digital shoplifting and what they call “friendly fraud,” while protecting merchants from chargebacks and other abuse.

What Prevent Delivers:

Chargeflow Prevent is a software app that you install on your Shopify site (it takes 60 seconds) that monitors all of your transactions in real time.

What makes it different is the identity-based approach. Rather than judging individual transactions, Prevent analyzes people using billions of data points from past transactions, refunds, and chargebacks. It's powered by a network of over 15,000 merchants, so every fraud decision gets smarter through their collective intelligence which means when a fraudster hits one store, the entire network learns and stops them from taking advantage of your brand next!

The best part of their tech is the post-transaction protection. You don't decline any transactions upfront, which keeps your authorization rates high and customers happy. Instead, Prevent screens orders after approval, giving you the option to review, verify, or cancel before shipping.

The whole thing runs hands-free, built directly into your existing workflows without adding any manual work to your team.

I’ve been quietly testing Prevent and it’s been a great experience so far.

The brand we’re testing it on is seeing higher approval rates with zero unnecessary declines, which means more legitimate customers are getting through while actual fraud cases are getting caught before the item gets shipped.

It’s saving the company both time and money and it’s becoming the 360 degree shield that protects their brand from getting scammed by these people.

And the beautiful thing is, its software which means it scales infinitely as your brand grows so it’s something you can install once and then you can immediately have peace of mind whether you are doing 200 orders per month or 20,000 orders per month.

If you want to try it, you can have Chargeflow Prevent analyze your first 1,000 transactions for free. Then get

50% off all transactions after that up until December 31st of this year. It’s insanely easy to set up and you can try it here.

Fraud prevention is a super subtle but super valuable hidden lever to help you crush the bad actors before they damage your revenue and brand.

When you reduce false declines, you increase revenue. When you catch fraud early, you protect more of your margins. When you automate the entire process with software, you can sleep at night knowing every order is being watched without you having to do manual reviews.

I think that the brands that do this will save a ton of money and headache over time. The ones that don't will just keep paying the hidden tax I talked about every single year. It’s why partnering up with Chargeflow to talk about this was a no brainer heading into BFCM.

Also, if you have any questions about how this all works or why it’s important, just send me a reply. I’m happy to connect you to someone on the Chargeflow team or I can talk about it in more detail in a future episode of Limited Supply.

That’s all for now. I’ll see you on Sunday.

Thanks for reading.

Nik