Why Shopify’s Refund Fee Policy Hurts Small Businesses

(and Why It’s Time for a Fairer System)

If you run an online store, you know refunds happen. Sometimes customers change their minds, sometimes products get damaged in transit, sometimes a size or color isn’t quite right. Refunds are part of doing business — but here’s the kicker: even when you send the customer their money back, Shopify keeps 100% of the original credit card processing fee you paid when you made the sale.

For a Sunchill order, that’s $20-25 gone for good. (Amex charges 3.5% per transaction and Visa/Mastercard charge 2.5% per transaction). It adds up fast and all for what? 

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The Story Shopify Doesn’t Tell You

When you take a payment through Shopify, part of the fee — called the interchange fee — goes directly to the customer’s card-issuing bank (think Chase, Amex, Citi). Another sliver goes to Visa or Mastercard. These are real costs and they can’t be recovered when you refund the payment.

But here’s the important part:

• Not all of the original fee is “non-refundable.”
• Card networks do allow processors to pass back part of the fee to merchants when a refund is issued.
• Shopify has chosen not to pass anything back.

This means when you refund a customer, Shopify is not only covering their unavoidable interchange cost — they’re also keeping their own margin on a sale that no longer exists.

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Before 2022: A Better Way

Before late 2022, Shopify actually refunded processing fees to merchants when refunds happened. Then, Visa and Mastercard changed some rules around interchange refunds. Shopify could still pass back part of the fee — but instead, they decided to keep 100% of it. The result? Merchants pay for a sale that never happened, and Shopify pockets the profit each time.

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Why This Matters

For big corporations, the is all negotiated away based on their big volumes and becomes a nothing-burger. But for small and growing businesses — the ones Shopify claims to champion — this adds up quickly. It also discourages generous return policies that build customer trust. Every refund you issue is now a double loss:

1. Lost revenue from the returned item.
2. Lost credit card fees you can’t get back.

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What Merchants Can Do

Until Shopify changes its policy, here are a few strategies to protect your margins:

• Encourage exchanges over refunds (keeps the sale alive).
• Offer store credit instead of refunds where reasonable.
• Highlight product details and sizing guides to minimize returns.
• Track your refund costs so you know exactly how much this policy is costing you.

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Final Thought: Shopify has built an empire on the success of small businesses. It’s time they stop profiting from sales that never happened. Be creative, sell us new amazing features and benefits. Don't go the easy route where you update terms & conditions just to vacuum away unearned money.