PhotoIt may not be a household name for consumers, but online retailers know all about Shopify. The online platform provides backroom operations by acting as a credit card processor, storefront, and webhost for a client list of more than 800,000 merchants. Its share price has climbed 600 percent in the last three years, and its 2018 revenue burst through the $1 billion mark for the first time. However, some merchants say much of that mercurial growth has come at their expense through added fees, interest, and chargeback disputes.

You might say Shopify is becoming a mini-Amazon, but, in fact, there's nothing mini about it; Shopify is expected to surpass eBay and become the second-largest U.S. e-commerce platform behind Amazon in terms of sales volume, according to a recent note published by financial analyst R.W. Baird Co

The Canada-based company is spending $1 billion to set up its own fulfillment network and allowing merchants to store and ship their merchandise through Shopify. It recently announced a lash-up with Splitit, a buy-now-pay-later service that will make it easier for merchants to sell to consumers who don't have credit cards or just don't want to use them.

Unfortunately, any company that grows as rapidly as Shopify is bound to run over a few toes in the process. While consumer complaints about online retailers and their transaction platforms are legion, the truth is that many retailers aren't too happy either. A major sore point is what's known as chargebacks. This is the process by which consumers can contest a charge -- claiming that the charge was fraudulent or that the merchandise was faulty, didn't arrive on time, was priced incorrectly, or simply wasn't satisfactory.

Chargebacks and retailer complaints

Chargebacks are a huge headache for all concerned, and some merchants say that Shopify is too quick to side with consumers when complaints arise and too heavy-handed with charges that take a lot of the fun (and profit) out of doing business online. Worse yet, some merchants say that even when consumers withdraw their challenge, Shopify simply ignores them and continues to keep the money it has clawed back while adding on fees and penalties. In some cases, critics say the company has increased its fee for future charges for merchants who have received a complaint.

"Shopify immediately extracted $242 from my account including $45 in fees for Shopify," said one retailer who wrote two detailed letters to Shopify CEO Tobi Lutke but received no response. In that case, a customer had not recognized the merchant's name and disputed the charge with American Express. When told of his error, the customer called American Express and asked that the vendor be paid. American Express agreed, but Shopify kept the money anyway, the merchant said.

"Shopify is quite punitive regarding chargebacks," the retailer said in her letter to Lutke. "Not only do you assess a fee and keep our money for an extended period of time, you also suspend our accounts and raise our rates."

Angry chimps

It's not just small businesses that are irked with Shopify. Email marketing giant Mailchimp, which sends more than 10 billion emails per month for its clients, had a fairly nasty break-up with Shopify earlier this year.

Just exactly what went wrong isn't clear, and, as in many human break-ups, neither party is being very forthcoming. Mailchimp said the move only happened because of new provisions in the Shopify agreement that could jeopardize consumer privacy.

"As of March 21, we’ve asked Shopify to remove the Mailchimp for Shopify integration for new users from their marketplace. We made this decision because Shopify released updated terms that would negatively impact our business and put our customers at risk.”

The break-up only affects new Mailchimp customers, the companies say, so existing clients can stay put if they choose.

Abrupt account closures

In the Mailchimp-Shopify break-up, it seems to have been Mailchimp that broke it off. But in most cases, it's the small business that is abruptly shown the door.

"My business was in computers. I [sold] four items, three of them to Asia and Shopify notified me that it was high risk. So I canceled and decided to sell only in the US. I sold one laptop and again Shopify sent me an email saying that it was also high risk because the IP address and credit card address were 1,000 miles apart," one former Shopify client told ConsumerAffairs. "So I cancelled the order. In the meantime the buyer chargebacked. Then Shopify closed my online store because they said it is high risk."

The ousted merchant said he got an email that said, in part: "Regrettably for security and privacy reasons we are unable to divulge the results of our reviews and investigations. Unfortunately, once an account has been declined the decision is final. Best of luck with your business going forward."

A merchant named Gregg posted about his problems on Shopify's discussion board about his experience.

"I have done nothing to raise flags but it's absolutely ridiculous to kick people off their store with no recourse or feedback! I started a new store today and after an hour it locked off," Gregg said. "I have spoken and chatted with three Shopify gurus and this issue has not been resolved. Please bear in mind I have paid considerable money for monthly membership and expect at least rudimentary communication from a service provider before they impose draconian security measures of which I know nothing!"

Funds held hostage

At the heart of many of the complaints from small merchants is what they see as Shopify holding their money hostage.

"My payouts have been on hold now for a week pending verification. I was told it would be three days. This is impacting my ability to service customers," said one online merchant who complained to the Better Business Bureau in August. "After two weeks of activity, without an explanation my payouts were frozen and I had to submit a number of items which I did in the same day I was asked."

The merchant said Shopify promised a response within three days, but after a week there was still no response; attempts to contact the company by telephone and email were unsuccessful. The BBB said the complaint was later resolved, but it did not provide details.

An Oklahoma woman who sells clothing for equestrians said the issue comes down to whether Shopify properly represents its customers' interests. Specifically, she questioned why Shopify charges merchants a fee even when a questioned charge has been found to be valid.

"I pay you quite dearly to act as my merchant bank," she said in a letter to Shopify. "In instances where there is a question on a charge, the credit card company is representing the consumer. Why are you not representing my business' interests? Your job should be protecting us, not penalizing us."

The process of contesting a chargeback can take hours and is often not worth it in terms of the dollar amount of the charge. But businesses fear that if they let too many chargebacks go uncontested, Shopify will lower their trust rating, which can result in higher transaction fees.

"My experience with Shopify leads me to wonder if Shopify is purposely making it difficult for your customers to prevail on these chargebacks because it is more profit for you. Your customer service, although extremely polite, are completely useless. It is entirely a waste of time to contact them."

Lawsuit rumors

Unhappy merchants have reported hearing rumors of a pending class action lawsuit, but no pending actions have been publicly reported. In 2017, the law firm Girard Gibbs LLP (now known as Girard Sharp) said it was "investigating claims on behalf of investors of Shopify Inc. regarding possible violations of federal securities laws or other unlawful business practices," but there is no indication that any further action was taken.

Shopify does face at least one lawsuit charging that it is too slow to remove scams and fraudulent businesses from its system. In that case, the founder of mypillow.com charges that Shopify allowed a site called mypillowstore.com to sell what the suit alleges were fraudulently labeled pillows.

Despite receiving 167 complaints from both merchants and consumers in the last three years, the Better Business Bureau gives Shopify an A+ rating but notes that "Customer Reviews are not used in the calculation of the BBB Letter Grade Rating."

"BBB ratings are not a guarantee of a business’s reliability or performance. BBB recommends that consumers consider a business’s BBB rating in addition to all other available information about the business," the bureau explains on its website.

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Update

On November 8, Shopify submitted the following response to this story's publication:

"As a platform, Shopify offers business owners with the tools to sell products online and in-person. While we cannot provide comment on the specific incidents identified in the story, similar to any online commerce platform, we adhere to industry standards including payment network rules from credit and debit card providers/networks as well as additional rules from Shopify Payments processor’s financial services providers that outline the types of businesses we are able to host on our gateway. 

On chargebacks, we are responsible for sharing information to our merchant’s issuing bank which in many cases can result in additional interchange fees. We provide resources guidelines, recommendations and support for our merchants, including the resources available on the Shopify Help Center to ensure that we are supporting our merchants and their customers through these incidents. We know that chargebacks can be extremely cumbersome for merchants so last year, we also rolled out Fraud Protect to our Shopify Payments merchants in the U.S. specifically to address this."

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