Shopify Payments holding funds after first chargeback

I've been running an online clothing boutique on Shopify for two years. Great reviews, steady sales of about $12K/month, and until last week I had zero chargebacks.

A customer filed a chargeback for a $380 order claiming they never received it — even though tracking shows it was delivered. Standard buyer fraud. I submitted my response to the chargeback with all the evidence.

But here's the problem: Shopify Payments has now placed $8,000 of my funds in reserve. That's over 20x the chargeback amount. My payouts page shows a "reserve" line item and my next several payouts are basically zero. For one chargeback in two years. How is this proportional?

This is a known issue with Shopify Payments and it's one of the reasons experienced sellers often switch to a third-party processor like Authorize.net or a direct merchant account once they hit a certain volume.

Shopify Payments is essentially Stripe under the hood, and they use automated risk models that can overreact to a first chargeback, especially if your account doesn't have a long history of chargebacks to establish a baseline. Ironically, having zero chargebacks for so long might have made the algorithm flag the first one as a bigger deal than it is.

I'd contact Shopify support and specifically ask to speak with the Payments risk team. Sometimes a human review can override the automated hold. Emphasize your two-year track record and zero previous chargebacks.

The reserve amount does seem disproportionate, and you should push back on it. From a legal standpoint, Shopify Payments' terms likely give them the contractual right to hold reserves, but there are still some angles worth pursuing:

• Request a formal written explanation of why the reserve amount is $8,000 for a $380 chargeback. If they can't articulate a reasonable basis, that supports an argument that the hold is excessive.
• Check if your state has any consumer protection statutes that address disproportionate fund holds by payment processors.
• In the short term, focus on winning the chargeback. For "item not received" claims where you have delivery confirmation, the win rate is high. Once the chargeback is resolved in your favor, the risk team should release the reserve.

For your chargeback response, make sure you include: the tracking number with delivery confirmation, the delivery address matching the billing address, any signed confirmation if available, and your order confirmation showing the customer's verified payment details. Photos of the shipping label and package are also helpful.

Thanks everyone. I submitted what I think is a strong chargeback response — tracking shows delivered to the correct address, signature was obtained, and the customer's IP address at checkout matches their billing city. I'm cautiously optimistic.

I did manage to get a callback from Shopify's risk team after escalating through chat. They said the reserve is "automated" and will be reviewed in 30 days. Not great, but at least I have a timeline. If this isn't resolved after the chargeback is won, I'm switching to a direct merchant account.

I manage chargebacks for several e-commerce brands and wanted to share a tip: once you win this chargeback, send a follow-up message to Shopify support with the resolution confirmation and formally request the reserve be released. Don't wait for them to do it automatically — sometimes the reserve release is a separate manual process from the chargeback resolution.

Also, going forward, consider adding Route or similar shipping insurance to your checkout. It shifts the "item not received" liability to the insurance company and can help prevent these situations. Doesn't help now, but it's good for the future.