E-commerce fraud is growing faster than online sales. In 2025, the average e-commerce store loses between 0.5% and 1.5% of its revenue to fraud and chargebacks. For a store generating $100,000 in monthly sales, that's $500-1,500 in preventable losses every single month.
The worst part? These losses extend far beyond the stolen amount. When a customer charges back a transaction, you lose the product, the revenue, shipping costs, and a $15-30 chargeback fee imposed by your payment processor. A $500 stolen order can cost you $800-1,000 in total losses.
This guide covers everything Shopify store owners need to know about fraud prevention—from the most common fraud types to the specific tools and systems that prevent 50-80% of fraud attempts without slowing down checkout or damaging customer experience.
Common E-Commerce Fraud Types Targeting Shopify Stores
Understanding the fraud you face is the foundation of effective defense. Different fraud types require different prevention strategies. Here are the patterns that plague e-commerce merchants:
Friendly Fraud (Return Fraud)
Friendly fraud accounts for 40-70% of chargebacks in e-commerce. A customer places a legitimate order, receives the product, and then claims they never received it or that the item never arrived. They request a chargeback from their credit card company, who reverses the transaction without investigating deeply.
Friendly fraud is called "friendly" because it often involves customers who claim innocent mistakes rather than intentional criminal activity. A customer might genuinely forget they authorized a purchase, or they might intentionally commit fraud. Your payment processor often sides with the customer, especially if you have no compelling evidence of delivery.
Prevention strategies include:
- Obtaining clear signature confirmation on all deliveries
- Sending immediate shipping confirmation with tracking numbers
- Following up with customers after delivery with product photos
- Keeping detailed communication logs with timestamps
- Using address verification systems to flag high-risk delivery addresses
Account Takeover Fraud
Fraudsters gain access to legitimate customer accounts and place orders using stored payment information. Unlike card fraud, account takeover looks completely legitimate—the order comes from a known customer account with saved payment methods.
Account takeover becomes visible only when the legitimate account holder receives unexpected shipments and initiates chargebacks.
Prevention requires:
- Implementing two-factor authentication on customer accounts
- Monitoring for unusual login patterns (multiple logins from different locations, rapid sequential logins)
- Flagging orders with unusual shipping addresses (customer logins from New York but shipping to California)
- Monitoring for unusual ordering patterns from established accounts
- Using tools like Okta or Auth0 to enhance login security
Card-Not-Present Fraud
Fraudsters use stolen credit card information to test transactions on your store, knowing there's no physical card verification. They often start with low-value orders to avoid detection, then escalate to higher values.
This fraud type is particularly common targeting smaller stores without sophisticated fraud detection. Large retailers have advanced systems, so fraudsters move to easier targets.
Prevention strategies include:
- Implementing 3D Secure authentication on all transactions
- Using velocity checks to flag multiple rapid transactions from the same card or IP
- Analyzing shipping addresses against billing addresses (major mismatches are fraud signals)
- Monitoring for patterns like multiple transactions from the same card to different addresses
- Blocking known fraud ring patterns (fraudsters often test stolen cards in specific geographic regions)
Refund Fraud
A customer purchases an item, receives it, returns an empty box or a clearly used item, and requests a refund. Some customers systematically return expensive items, receiving refunds while keeping merchandise.
Refund fraud is particularly common in clothing, electronics, and high-ticket categories. It's technically not fraud requiring payment processor involvement, but it destroys profitability.
Prevention requires:
- Implementing clear return policies with restocking fees for opened items
- Requiring photo evidence of returned items before processing refunds
- Using return management platforms like Loop that verify item condition
- Flagging customers with unusually high return rates for review
- Implementing restocking fees for returns initiated soon after purchase
Velocity Fraud
Fraudsters rapidly test multiple stolen credit cards or account variations to find valid credentials. They place numerous small orders in short periods, knowing most will be declined but some will process.
Velocity fraud is identifiable by patterns—multiple transactions from the same IP address, multiple transactions with the same shipping address, or multiple transactions from the same email domain within short timeframes.
Prevention strategies include:
- Implementing velocity checks that flag multiple transactions from the same IP within 24 hours
- Blocking multiple transactions to the same shipping address with different payment methods
- Monitoring for email variations (john.smith@, j.smith@, jsmith@ from the same IP)
- Rate limiting on login attempts and account creation
- Using geographic analysis to flag purchases from impossible locations (order placed in New York, next order in Tokyo 30 minutes later)
Shopify's Built-In Fraud Analysis Tools
Shopify includes fraud prevention functionality in every plan. These built-in tools provide a strong foundation without requiring third-party apps or integration complexity.
Shopify's Fraud Analysis Dashboard
Shopify's fraud analysis system automatically evaluates every transaction and assigns a risk level: Low, Medium, or High. The system analyzes numerous signals:
- Address verification: Does the billing address match the shipping address? Does the address look legitimate?
- IP reputation: Is the IP address associated with a country or region where fraud is more common?
- Email reputation: Is the email address newly created? Is it on known spam lists?
- Card patterns: Is the card number format legitimate? Does the card type match the transaction pattern?
- Velocity checks: Are multiple transactions coming from the same IP or card within short periods?
- Device fingerprinting: Is the device used to place the order new or frequently associated with fraud?
You can view fraud risk assessments in your Shopify admin dashboard for each order. This information helps you make decisions about fulfillment—low-risk orders proceed immediately, while high-risk orders might require verification before shipping.
Customizable Fraud Rules
Beyond the automated analysis, Shopify allows you to create custom rules that automatically flag or block orders based on your specific risk tolerance. For example:
- Block all orders shipping to specific countries known for high chargeback rates
- Block orders where the billing country doesn't match the shipping country
- Block orders with shipping addresses that don't match historical customer patterns
- Automatically flag orders over a certain value for manual review
- Block orders using prepaid cards or gift cards (higher fraud risk)
Custom rules should be configured carefully—overly restrictive rules block legitimate international customers, while rules that are too lenient allow fraud through.
Payment Provider Features
Shopify's payment processors—including Shopify Payments and third-party processors like Stripe and Square—provide additional fraud prevention features:
Shopify Payments includes fraud detection powered by machine learning. It's automatically applied to all transactions and integrated directly into your Shopify admin.
Stripe provides radar fraud detection with machine learning algorithms trained on billions of transactions. It assigns risk scores to every transaction and can automatically block high-risk orders.
Square includes fraud prevention that analyzes card data, transaction patterns, and historical purchase behavior.
These tools are particularly valuable because they operate on transactional data across millions of stores, giving them sophisticated understanding of fraud patterns. A pattern that's new to your store has likely been seen by the payment processor thousands of times already.
Third-Party Fraud Prevention Apps for Shopify
While Shopify's built-in tools provide solid baseline protection, specialized third-party tools offer more sophisticated analysis and can prevent 50-80% of fraud attempts that slip through basic systems.
Signifyd
Signifyd is one of the most widely used fraud prevention platforms for e-commerce. It combines machine learning algorithms, large-scale data analysis, and expert human review to evaluate transaction risk.
Key features include:
- Sophisticated risk scoring based on behavioral data, purchase patterns, and historical trends
- Chargeback protection (Signifyd guarantees reimbursement if a transaction passes their approval but results in a chargeback)
- Integration with order fulfillment—you can set rules to automatically hold high-risk orders pending Signifyd review
- Detailed reporting on fraud prevention performance
Signifyd's pricing typically starts at $50-100 per month for smaller stores and scales with your transaction volume. The chargeback guarantee is particularly valuable—it means you can approve higher-risk transactions knowing you're protected if something goes wrong.
Sift Science
Sift Science uses machine learning to analyze behavior patterns across your store and identifies fraud before payment processing. It evaluates hundreds of signals including device fingerprinting, email validation, velocity patterns, and user behavior.
Sift's strengths include:
- Real-time decision APIs that provide fraud scores instantly during checkout
- Account protection features that prevent account takeover and account abuse
- Integration with platforms beyond e-commerce (it works well for subscription services and digital goods)
- Detailed customer journey analysis
Sift typically costs $100-300+ monthly depending on your transaction volume and requirements. It's well-suited for stores that process high transaction volumes or those with sophisticated fraud patterns.
Fraud Filter
Fraud Filter is a simpler, more affordable fraud prevention solution designed specifically for Shopify stores. It's particularly good for smaller merchants and those just starting with fraud prevention.
Key features include:
- Rule-based fraud detection that flags suspicious patterns
- IP and geographic blocking capabilities
- Email validation and velocity checking
- Automated responses (hold order, block order, proceed)
- Simple dashboard for monitoring
Fraud Filter costs $10-50 per month and provides good value for stores not yet ready for enterprise solutions.
Fortress
Fortress (formerly known as Kount) provides fraud prevention with machine learning and device fingerprinting. It's particularly effective for preventing account takeover and card-not-present fraud.
Features include:
- Device fingerprinting that identifies known fraudsters even across different cards/accounts
- Real-time decision APIs for checkout integration
- International fraud monitoring
- Chargeback insight tools
Fortress is a good option for stores looking for sophisticated fraud prevention without the enterprise complexity of Signifyd or Sift.
ReputationDefender
ReputationDefender offers fraud prevention as part of a broader online reputation management service. Its fraud tools focus on protecting brand reputation and customer experience.
When to consider ReputationDefender:
- You're concerned about chargeback fraud impacting your processing account
- You want fraud prevention integrated with customer communication tools
- You operate multiple brands and need centralized reputation monitoring
Chargeback Management and Prevention
Chargebacks are the most expensive form of fraud because you lose the merchandise, the revenue, and pay additional fees. Even if you win a chargeback dispute, the time and resources spent fighting it are significant.
Understanding Chargeback Dispute Categories
Chargebacks fall into specific categories based on the reason the customer disputes the transaction:
Fraudulent Transaction (Unauthorized Use): Customer claims they didn't authorize the purchase. This is the category that generates the most chargebacks. Your defense requires proof of authorization—card security codes, IP logging, device identification, or customer communication.
Billing Error: Customer claims they were charged incorrectly—wrong amount, duplicate charge, or currency confusion. These chargebacks are often resolved with documentation showing the correct charge.
Merchandise Not Received: Customer claims they never received the shipment. Your defense is shipping tracking information, signature confirmation, and delivery records. This is the single most common chargeback claim.
Merchandise Not As Described: Customer received the product but claims it doesn't match the description. Defense is product photos, detailed product descriptions, and customer communication. This category is subjective and harder to win.
Consumer Disputes: Customer disputes the quality of service, processing issues, or general dissatisfaction. This is the broadest category and often the hardest to fight.
Building a Strong Chargeback Defense
When a chargeback is initiated, your payment processor contacts you with a chargeback reason code and asks for evidence. You have 5-7 days to respond with documentation that counters the customer's claim.
Documentation that strengthens your defense:
- Shipping proof: Tracking number, delivery signature, photo evidence of delivery. This is critical for "merchandise not received" chargebacks.
- Customer communication: Email exchanges, order confirmation messages, shipping notifications with tracking. This shows the customer was aware of the order and its status.
- Product evidence: Photos of the product, descriptions from your listing showing what the customer ordered, comparison to their claim.
- Authorization evidence: Card security code match, IP address matching their historical patterns, device identification, password protection on their account.
- Return/refund documentation: If you already refunded the customer, evidence of that refund shows the claim is false.
The strongest defense is irrefutable proof of delivery—signature confirmation and photo evidence. This combination wins "merchandise not received" chargebacks 80%+ of the time.
Reducing Chargeback Rates
The best chargeback defense is prevention. Strategies to reduce chargebacks before they occur:
Improve Product Descriptions and Images: Most "merchandise not as described" chargebacks result from inaccurate or unclear product descriptions. Detailed descriptions, multiple photos, and customer reviews reduce disputes.
Send Proactive Communication: Immediately after purchase, send order confirmation with clear details. After shipment, send tracking information and estimated delivery date. After delivery, follow up confirming receipt. This communication trail demonstrates the customer knew about the order.
Implement Address Verification: Mismatched billing and shipping addresses are fraud signals, but some legitimate orders have differences (gifts, business addresses). Use address verification with a flexible fraud threshold rather than rigid blocking.
Use Clear Return/Refund Policies: Display your return policy prominently at checkout and in order confirmation. Make refund processes easy for legitimate returns. Customers who know they can easily get a refund through normal channels are less likely to chargeback.
Monitor for Repeat Chargebacks: Some customers repeatedly chargeback orders and then keep the merchandise. Identify these patterns and block them after 1-2 chargebacks. Most payment processors can flag these accounts.
Request Signature Confirmation: For orders over a certain threshold, require signature confirmation at delivery. This eliminates "merchandise not received" claims completely.
Building a Comprehensive Fraud Prevention System
Effective fraud prevention is layered. No single tool catches 100% of fraud, but multiple tools working together catch 80-95%.
The Fraud Prevention Stack
A comprehensive system includes:
1. Payment Processor Fraud Detection (Built-in) Your Shopify payment processor provides baseline fraud detection at no additional cost. Shopify Payments includes machine learning fraud detection. Stripe includes Radar. Square includes fraud prevention. These tools should be your foundation.
Configuration steps:
- Ensure fraud detection is enabled in your payment processor settings
- Review and optimize fraud detection sensitivity (find the balance between blocking fraud and allowing legitimate transactions)
- Set up alerts for high-risk transactions
- Review chargeback history monthly to understand patterns
2. Shopify's Custom Fraud Rules (Free) Use Shopify's custom rules to implement business-specific fraud prevention policies. Examples:
- Block orders shipping to countries with high chargeback rates
- Require address verification on orders over $500
- Flag (but don't block) orders from new customers spending above a certain amount
- Block orders with obviously fake names or addresses
- Block prepaid card transactions if your business is particularly vulnerable to that fraud type
3. Third-Party Fraud Prevention App ($50-300/month) Add a dedicated fraud prevention tool that catches patterns Shopify's system misses. Signifyd, Sift, or Fraud Filter all work well depending on your sophistication needs and budget.
4. Email Validation and Account Security Implement email verification on signup, enable two-factor authentication for customer accounts, and use password requirements. These simple steps prevent account takeover fraud.
5. Address and Shipping Verification Use address verification on checkout. For high-value orders, require signature confirmation at delivery. These steps provide concrete evidence defending chargebacks.
6. Returns and Refund Management Implement a clear returns process with photo evidence of returned items. Use apps like Loop or Returnly to manage return quality and prevent refund fraud.
Implementing Fraud Prevention Without Damaging Conversion
The biggest concern when implementing fraud prevention is that additional friction kills conversions. However, modern fraud prevention tools are designed to be invisible to legitimate customers.
Best practices for maintaining conversion rates:
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Use passive risk scoring: Most fraud assessment happens invisibly in the background based on IP reputation, device fingerprinting, and behavioral analysis. Most customers never see friction.
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Reserve verification for high-risk transactions: Only show additional verification (one-time password, SMS confirmation, 3D Secure) when fraud risk is genuinely high.
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Be transparent about requirements: When friction is needed, explain why clearly. "We need to verify this address" is less frustrating than mysterious verification requirements.
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Make verification quick: One-time passwords, SMS codes, and biometric authentication should take 10-20 seconds.
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Trust returning customers: Reduce verification requirements for customers with order history. Their historical purchasing patterns prove they're legitimate.
Studies show that properly implemented fraud prevention increases checkout friction only 1-3% for legitimate customers while preventing 50-80% of fraud attempts. This is a highly positive ROI trade-off.
Tools and Strategies to Strengthen Your Shopify Store Protection
Beyond dedicated fraud prevention apps, several complementary tools strengthen your overall fraud protection:
Address Verification and Shipping Security
Apps like Easypost, Shippo, and Flexport provide shipping integration with address verification, real-time tracking, and signature confirmation. These tools prevent "merchandise not received" fraud by providing irrefutable proof of delivery.
ShipBob and Fulfillment by Amazon (FBA) provide third-party fulfillment with documented shipping and storage. While primarily fulfillment solutions, they prevent fraud by providing objective evidence of shipment and handling.
Customer Identity Verification
Apps like Veriff or Jumio provide identity verification for high-risk customers or orders above certain thresholds. They verify customer identity through government-issued ID, adding an additional layer of security.
Chargeback Management Platforms
ChargebackHero or Chargeback911 specialize in fighting chargebacks on behalf of merchants. They gather evidence, prepare responses, and represent you in chargeback disputes. Services typically cost $25-50 per chargeback fought.
When to consider these services:
- Your chargeback rate is above 0.8% (high risk territory)
- You regularly win disputes but spend significant time preparing responses
- You operate high-ticket items with sophisticated fraud patterns
Inventory and Product Authentication
For high-value or luxury items, counterfeit products pose risks. Consider tools like:
- Entrupy for luxury goods authentication
- Blockchain-based verification for high-value items
- Serial number tracking for electronics and luxury brands
These tools prove product authenticity, preventing "merchandise not as described" chargebacks related to counterfeit concerns.
Implementing Fraud Prevention with Shopify Integration
If you're running on Shopify, the integration process for fraud prevention tools is straightforward. Most apps integrate directly through the Shopify app store.
Implementation steps:
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Install fraud prevention app from Shopify app store (Signifyd, Sift, or Fraud Filter)
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Connect payment processor - Your app connects to your payment processor (Shopify Payments, Stripe, or other)
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Configure rules and sensitivity - Set up custom rules matching your business (countries to block, address verification thresholds, etc.)
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Test with sample transactions - Many platforms provide sandbox mode for testing before going live
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Monitor and optimize - Review fraud prevention reports weekly. Adjust rules based on results (are you catching fraud effectively? Are legitimate transactions being blocked?).
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Train your team - Ensure your fulfillment team understands what high-risk orders mean and how to respond
Most Shopify merchants see measurable fraud reduction within 2-4 weeks of implementing a dedicated fraud prevention system.
Recommended Configuration for Different Store Types
Different businesses face different fraud patterns. Here's how to configure fraud prevention based on your store type:
High-Ticket Luxury (>$500 avg order value):
- Implement 3D Secure on all transactions
- Require signature confirmation on all shipments
- Use address verification with strict standards
- Consider identity verification for orders over $1,000
- Implement Signifyd or Sift with aggressive risk scoring
Apparel and Fashion:
- Focus on refund fraud prevention with return management systems
- Use generous address verification (customers gift items frequently)
- Implement return photo requirements to prevent return fraud
- Monitor for account takeover patterns (bulk purchases of trending items)
Electronics and High-Value Items:
- Implement signature confirmation on all orders over $300
- Use device fingerprinting to prevent velocity fraud
- Block prepaid cards and gift cards (higher fraud risk in electronics)
- Consider authentication services for luxury electronics
Subscription and Recurring Revenue:
- Focus on account takeover prevention (compromised accounts = ongoing fraud)
- Implement two-factor authentication on customer accounts
- Monitor for unusual usage patterns (account login from new location, then purchase)
- Use email validation to prevent bot accounts
Smaller Stores and Just Starting Out:
- Start with Shopify's built-in fraud analysis (free)
- Implement custom Shopify fraud rules (free)
- Add Fraud Filter or similar basic tool ($10-20/month)
- Focus on addressing your specific fraud patterns (have you seen chargebacks? What type?)
This layered approach provides real protection without overwhelming your team.
When to Escalate Fraud Prevention
As your store grows, your fraud prevention sophistication should evolve:
Stage 1 - Under $10,000/month revenue:
- Use Shopify's built-in tools only
- Implement basic custom rules
- Cost: Free
Stage 2 - $10,000-50,000/month revenue:
- Add one third-party tool (Fraud Filter or basic Signifyd)
- Implement custom Shopify rules specific to your business
- Cost: $50-100/month
Stage 3 - $50,000-500,000/month revenue:
- Implement Signifyd or Sift with full features
- Use address verification and signature confirmation tools
- Implement returns management platform
- Cost: $200-500/month
Stage 4 - $500,000+/month revenue:
- Enterprise fraud prevention platform (Signifyd, Sift)
- Third-party fulfillment with fraud protections
- Dedicated fraud investigation team
- Chargeback defense services
- Cost: $1,000-5,000+/month
The ROI at each stage is positive—the fraud you prevent far exceeds the cost of prevention tools.
Legal and Compliance Considerations
Fraud prevention intersects with data privacy and compliance regulations:
PCI Compliance: If you store or process payment card information, you must comply with PCI Data Security Standards. Most Shopify stores use Shopify Payments or compliant processors, which handle PCI requirements for you.
GDPR and Privacy Laws: Fraud prevention tools store customer data (IP addresses, device information, behavioral patterns). Ensure your privacy policy explains this data collection and that your tools comply with GDPR if you serve European customers.
Fair Credit Reporting Act (FCRA): In the US, fraud detection platforms are sometimes considered "consumer reporting agencies" under FCRA, which has specific requirements around data usage and customer rights. Your fraud prevention vendor should address FCRA compliance in their documentation.
Know Your Customer (KYC) Requirements: For high-value items or financial products, KYC verification may be required. Identity verification tools like Veriff handle these requirements.
Most reputable fraud prevention platforms (Signifyd, Sift, Shopify Payments) handle legal compliance as part of their service. Review their compliance documentation before implementation.
Measuring Fraud Prevention Effectiveness
How do you know if your fraud prevention system is actually working? Track these metrics:
Fraud Prevention Metrics:
- Fraud catch rate: What percentage of fraud attempts does your system block? Target: 50-80%
- False positive rate: What percentage of legitimate transactions are incorrectly flagged? Target: <1%
- Chargeback rate: Chargebacks as a percentage of transactions. Target: <0.1%
- Cost of fraud: Total losses from fraud as a percentage of revenue. Target: <0.5%
- Tool ROI: Fraud prevented vs. tool cost. Target: >5x (prevent $500 in fraud for every $100 in tool cost)
Most merchants measure these metrics monthly. Track before and after implementing fraud prevention to quantify improvement.
Recommended Resources and Next Steps
Protecting your Shopify store from fraud requires ongoing attention, but the investment pays immediate dividends. Here's what to do next:
Immediate actions (This week):
- Review your Shopify fraud analysis dashboard to understand current fraud patterns
- Set up at least one custom Shopify fraud rule matching your business
- Implement signature confirmation on orders over $500
Short-term (Next 30 days):
- Install a fraud prevention app (start with Fraud Filter if budget is tight)
- Implement email verification and two-factor authentication for customer accounts
- Review your returns and refund policy; tighten if you see refund fraud patterns
Medium-term (Next 90 days):
- Review chargeback history; identify patterns in which orders became disputes
- Implement address verification or signature confirmation based on these patterns
- Document your fraud prevention system for your team
Long-term:
- Review fraud metrics quarterly and adjust rules based on results
- Evolve your fraud prevention system as your store grows
- Stay informed about emerging fraud patterns in your industry
Protect Your Revenue and Your Customers
Fraud prevention isn't just about protecting your bottom line—it's about protecting your legitimate customers. High fraud rates drive payment processors to increase their fees, tighten approvals, and potentially deny merchants altogether. Effective fraud prevention creates a safer environment for everyone.
If you're running a Shopify store and aren't sure if your fraud prevention is adequate, we recommend a free security audit. Our team can review your current setup, identify gaps, and recommend a customized fraud prevention strategy based on your specific business.
Get your free fraud prevention audit today
Or if you want to discuss your specific fraud concerns with our e-commerce specialists:
Additional Fraud Prevention Resources
Industry Statistics:
- Javelin Strategy & Research reports e-commerce fraud rising 18% annually
- Digital Fraud Barometer tracks fraud patterns across industries
- Payments industry reports fraud comprises 0.5-1.5% of e-commerce revenue
Tools Mentioned:
- Shopify - Platform with built-in fraud tools
- Signifyd - Enterprise fraud prevention with chargeback guarantee
- Sift Science - Machine learning fraud detection
- Fraud Filter - Affordable fraud prevention for Shopify
- Loop - Returns management to prevent refund fraud
- Veriff - Identity verification service
Further Reading:
- Shopify Fraud and Chargebacks guide (Shopify documentation)
- "The State of Ecommerce Fraud" (Statista)
- PCI Compliance resources (PCI Security Standards Council)