Stripe Chargeback Protection

How Stripe Chargeback Protection Safeguards Merchant Revenue

Stripe is a fully integrated suite of payment products for merchants. It allows even small merchants to have functional eCommerce operations with their own websites and apps, and to have the capability of sending and accepting global payments, both online and via mobile.

That said, any merchant accepting credit cards runs the risk of customer disputes. The Stripe chargeback protection program offers a certain amount of shielding from the fallout of those chargebacks. Is it enough, though?

Let’s take a look at the chargeback protection Stripe offers, and how much it truly safeguards sellers.

What is a Stripe Chargeback?

A chargeback occurs when a customer has an issue with a transaction and contacts their bank to ask for a forced refund. Stripe chargebacks can happen with transactions over the Stripe payment network, as they would with any other processor.

When a customer disputes a transaction, the bank will look at the evidence, then forcibly withdraw the funds from your Stripe account. They will also hit you with an additional chargeback fee.

How Does Stripe Handle Chargebacks?

Stripe chargeback protection is an offshoot of Stripe Radar, the company’s AI-driven fraud detection system. Radar aids in fraud prevention, while Stripe Chargeback Protection safeguards merchants from the fallout of chargebacks.

Stripe fraud protection offered through Radar proactively helps find and block fraud. It uses dynamic algorithms and machine learning that trains on data across millions of global companies.

During eCommerce transactions, the system identifies high-risk buyers. While low-risk buyers go through a fast-tracked checkout process, potentially fraudulent transactions require the customer to submit additional information, and might be declined. Radar is integrated into the Stripe platform and requires no additional setup.

What if some fraudulent activity still slips through, though?

While prevention is almost always the better option, a few chargebacks may still get filed from time to time. Without protection, you’ll need to respond to a Stripe chargeback as you would any other: compile evidence (receipts, copies of your return policies, proof of delivery, etc.) and submit it through the Stripe Dashboard. You’ll be charged a fee of $15 to do this.

How Does Stripe Chargeback Protection Help Merchants?

The situation is very different if you enroll in Stripe Chargeback Protection.

With the Stripe Chargeback Protection plan, the merchant’s sales are protected against fraudulent disputes. Stripe will reimburse you for the amount and waive dispute fees on qualifying transactions.

When a chargeback is filed against a protected charge, Stripe does not require you to compile evidence to prove the transaction was legitimate. Instead, if your account is in good standing and you are below Stripe’s “protection limit,” Stripe will simply cover the costs for you.

In fact, you’re not involved in the dispute process at all. Stripe reimburses you for the disputed transaction, waives any chargeback fees, then decides whether or not to contest the chargeback. You give Stripe the right to challenge fraudulent disputes on your behalf. Beyond that, your participation is not required.

Stripe Chargeback Protection: Costs and Limitations

Stripe Chargeback Protection is available in the US and Europe, for businesses using the new Checkout program. The cost for this service is an additional 0.4% per transaction.

Any business using Stripe can opt for Chargeback Protection. Use of the service is not limited to the type of merchandise sold or size of transaction.

However, the protection only applies to fraud chargebacks on one-time transactions, where a cardholder enters their card details. That means the protection does not apply to recurring payments. Also, if you manually approve a transaction that was flagged by Stripe, that transaction will not be protected.

It’s also important to note that the protection only covers chargebacks for fraud. It does not protect chargebacks initiated because the customer was dissatisfied with the product, or if the buyer claims they didn’t receive the order. Unfortunately, those reasons are commonly used to commit friendly fraud.

You Need to Address Chargeback Sources

Built-in protection against chargebacks may be a great asset for some merchants, but it does come with built-in deficiencies. For example, Stripe’s chargeback protection doesn't address the underlying issue that caused the chargeback. Total reliance on Stripe Chargeback Protection means you’ll continually be fighting the same types of disputes, over and over.

Reducing chargebacks over the long haul requires a proactive prevention strategy that addresses disputes at their true source. If you’re feeling overwhelmed by chargebacks, maybe it’s time to look beyond payment-platform protection.

Chargebacks911® can take card-not-present chargebacks and other dispute issues completely off your plate and up your ROI. Contact us today to learn more.