In 2019, Stripe introduced Chargeback Protection for its Radar fraud prevention product. The feature is designed to automatically protect qualifying charges from fraud chargebacks, making it easier for merchants to win Stripe disputes and prevent lost revenue. In this guide, we’ll explore how Stripe Chargeback Protection works and the benefits and limitations it offers retailers below.
Stripe is a payment service provider (PSP) that was founded in 2010. It is a very popular choice of payment processor for new eCommerce sites thanks to its easy-to-use application programming interfaces (API), which allow developers to rapidly enable payments for websites. However, today some major online merchants use Stripe as well.
To help entrepreneurs and teams at young startups, Stripe also provides on its site useful guides on eCommerce topics
A Stripe chargeback occurs when a cardholder disputes a charge processed by Stripe. Chargebacks are initiated by the cardholder's bank and can be triggered for a variety of reasons, including fraud and merchant error. If a chargeback is filed, Stripe will notify the merchant via email and provide information about the dispute on the Stripe Merchant Dashboard.
Merchants then have the option to accept or dispute the chargeback. If they choose to dispute the chargeback, they must provide evidence to Stripe that the charge is valid. This evidence can include customer communications, return policies, and/or proof of delivery. Stripe will then review the evidence and decide whether to overturn the chargeback in favor of the merchant. If the chargeback is not overturned, the merchant will lose the disputed amount and will be subject to Stripe's $15 standard chargeback fee.
Chargebacks can be costly and time-consuming for merchants to resolve and can have a significant impact on sellers' reputations and bottom lines. As a stand-alone product, Stripe Radar can help identify and prevent fraud before it happens. But with Chargeback Protection, Stripe can automatically protect qualifying charges from fraud chargebacks, minimizing the impact that chargebacks have on a business.
Chargeback Protection is a feature of Radar that automatically disputes chargebacks on behalf of merchants. It uses machine learning and dynamic programming to evaluate each charge and decide whether it should be disputed. If Stripe decides to dispute the chargeback, it will provide evidence to the cardholder's bank that the charge is valid. This evidence can include customer order forms, shipping records, and other supporting documentation that is uncovered by Stripe's software.
Chargeback protection for merchants can save time and money by automating the chargeback dispute process and helping to prevent future fraudulent chargebacks from occurring. With typical chargeback disputes, merchants can be left waiting for three months or more before receiving a decision, tying up valuable capital in the process. With Chargeback Protection, merchants are automatically reimbursed for eligible charges to minimize cash flow disruptions caused by chargeback disputes. In addition, evidence collection is performed by Stripe so merchants don't have to spend time gathering and submitting evidence themselves during Stripe disputes. Stripe will also provide real-time updates on the status of the dispute on the Merchant Dashboard for added peace of mind.
Chargeback Protection also utilizes Stripe Radar which can help merchants prevent future fraud by identifying and flagging high-risk charges. This information can be used to take proactive steps to reduce fraud, such as implementing stronger authentication measures or changing business practices. Over time, Radar's machine learning algorithms continue to evolve, becoming more effective at identifying and preventing fraud.
Chargeback Protection is currently only available to businesses within the U.S. and Europe that utilize Stripe's new optimized payment page, Stripe Checkout. The service is not limited to a specific industry, type of business, transaction size, or currency so any business within the two countries can enjoy its benefits by opting in using the Stripe Merchant Dashboard.
For 0.4 percent per transaction, merchants can enable Protection for all eligible charges. This is in addition to the standard credit card and wallet charge of 2.9 percent + $0.30 per transaction that Stripe charges merchants and the Radar transaction fees, if applicable.
Chargeback Protection only applies to non-repeating transactions that are made using the Stripe Checkout page. Transactions made through the Stripe API or other payment methods are not currently eligible but may be in the future. Only chargebacks for fraud are covered under Chargeback Protection so merchants will still be responsible for any chargebacks that are valid claims of merchant errors or customer dissatisfaction.
There are also annual chargeback protection limits that vary based on a merchant's settlement currency. In the US for example, merchants have a $25,000 limit while retailers accepting euros have a €20,000 limit. During a Stripe dispute, the protected amount and all associated fees, including Stripe's standard dispute fee of $15, counts towards the annual protection limit. Stripe will not protect a dispute that will cause the annual limit to be exceeded, no matter how small the difference may be.
New Stripe users are also subject to a period of probation after opting into Chargeback Protection. The disputed amount and any associated fees are kept in escrow until a merchant's business can be fully vetted by Stripe. This helps to ensure that Chargeback Protection is being used as intended and not abused by bad actors. After a period of time, typically 90 days, the escrowed funds and fees are released to the merchant and they are no longer subject to this probationary period.
Merchants that use Radar and Chargeback Protection may also have to channel high-risk customers through the 3D Secure (3DS) security feature. Available through all PSPs, 3DS requires customers to verify their identity with their issuing bank before authorizing a purchase. Once authorized with 3DS, the liability for processed transactions lies with the issuer and not the merchant.
On Stripe, disputes that are covered by 3DS are handled internally. They do not appear on the merchant’s dashboard and do not result in funds being withdrawn from their account.
Chargeback Protection is a valuable service, now three years old, that can save merchants time and money by automating the chargeback dispute process and helping to prevent future fraudulent charges. By utilizing Stripe Radar, Chargeback Protection can help businesses take proactive steps to reduce fraud and optimize their payment processes. While the added protection can be a great asset for businesses, it's important to remember that a high rate of chargebacks may highlight an underlying issue with a business that Stripe protection feature will not be able to fix.
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The merchant receives a notification through email and dispute details on the Stripe dashboard. If the merchant fights the chargeback and loses, the transaction amount plus a $15 dispute fee is deducted from their account.
On average, cardholders have 120 days. However, specific policies vary depending on the card network. Also, some situations are exempt from the 120-day limit.
Stripe follows card network limits for this. The standard monthly threshold in the Visa Dispute Monitoring Program (VDMP) is a 0.9 percent chargeback ratio and 100 chargebacks. For Mastercard, it’s a 1.5 percent chargeback ratio and 100 chargebacks a month.
Merchants pay a $15 fee for every chargeback. But if they win the chargeback, the transaction amount plus the fee is refunded to their accounts.
It’s something offered by some fraud solution companies that filter transactions before payment is accepted. In return for a fee, these companies will cover losses in the event fraudulent transactions get through.
Stripe Chargeback Protection shields merchants from fraudulent chargebacks. For 0.4 percent per transaction, this feature covers the disputed transaction amount and waives the chargeback fee.
Besides using Stripe Radar for fraud prevention, you can do the following to reduce chargebacks on Stripe:
