Stripe Chargebacks
By Chris Alarie on Jul 12, 2023
Stripe is one among the ever-multiplying panoply of mobile and web-based payments processing options. Like many other such processors, Stripe allows for chargebacks, albeit with its own procedural idiosyncrasies.
What Is Stripe?
Stripe is a payment processor that originally focused on providing APIs for integrated payment processing on websites and mobile applications. It has since expanded to provide a point of sale service named Terminal for in-person payment card transactions. Stripe also has a merchant cash advance program for its merchants named Stripe Capital that allows merchants to request advances on their future merchant account transactions.
Does Stripe Have Chargebacks?
Yes. Stripe processes payments with traditional payment cards such as credit or debit cards. As a result, Stripe payments are subject to the same chargeback laws and policies as any other processor.
For the most part, Stripe processes chargebacks in a similar manner to any other payment processor. They do have their own idiosyncrasies, but maintain the basic chargeback process if a cardholder disputes a charge to their issuing bank and the bank opts to turn that dispute into a chargeback. As with any other chargeback process, the final decision for a disputed chargeback will rest with the card brand.
Stripe’s main role in chargebacks is essentially to facilitate the exchange of information between the various parties. For merchants that use Stripe, that means that they will receive the initial notice of a chargeback from Stripe. In the event that the merchant chooses to fight a chargeback, then the compelling evidence for representment will be submitted to Stripe, who will then pass it on to the issuer. The merchant can also monitor the progress of a chargeback dispute, up to and including the final decision, on their Stripe dashboard.
Stripe charges a $15 fee for each chargeback. This may be levied in addition to fees from card brands and banks. Unlike many other chargeback fees, Stripe returns this fee if the merchant eventually wins a representment effort. Stripe gives merchants between 7 and 21 days to respond to an issuer and allows the issuer between 60 and 75 days to evaluate the merchant’s evidence. This functions as an addendum to any chargeback timelines maintained by the card brands. Stripe also monitors their merchants’ chargeback ratios and may institute penalties for merchants that exceed a 0.9% chargeback ratio, including potential closing a merchant account because of excessive chargebacks.
Does Stripe Have Fraud/Chargeback Prevention Programs?
Stripe sends its merchants Early Fraud Warnings (EFWs) in circumstances in which it expects a fraudulent transaction may have taken place. It creates these EFWs based on data sourced from Visa’s TC40 and Mastercard’s SAFE data records. EFWs give merchants the opportunity to issue a refund before the payment dispute becomes a chargeback. If the merchant does not respond to an EFW, it is likely—but not guaranteed—to become a chargeback, which Stripe estimates occurs with 80% of such EFWs.
Stripe also offers a program known as Stripe Chargeback Protection that merchants can purchase. It uses machine learning to block transactions that it determines are likely fraudulent. It also requires riskier buyers to provide additional identification information through 3-D Secure. If an approved transaction results in a chargeback, Stripe reimburses the merchant for the lost revenue. However, these chargebacks do still count against the merchant for the purpose of calculating chargeback ratios.
Conclusion
Stripe chargebacks, ultimately, are not particularly different from other chargebacks. They occur for the same reasons, carry the same consequences, and are administered through the same processes. Even if merchants opt to purchase Stripe Chargeback Protection, they would be well served to engage in the same sorts of chargeback prevention strategies and use the same sorts of chargeback prevention tools that they would employ if they used a more traditional payment processor.
