How to Win Stripe Disputes As a Merchant

I like to prepare for any situation with my online store. Chargebacks are one of those scenarios. That led me to research how to deal with disputes with Stripe.

I’ll first discuss chargebacks and their workings. If you already know this, skip to the section on collecting evidence. This is your key to winning chargebacks.

Let’s win a chargeback.

Key Takeaways

• Merchants win an average of 30% of chargebacks.
• Don’t fight chargebacks that’ll cost you more to fight.
• The dispute process typically takes up to 3 months.
• Customer’s card issuer determines the results of the dispute, not Stripe.
• Stripe charges a $15 dispute fee that’s non-refundable if you win.
  • Unless you’re a business in Mexico, then Stripe refunds for won and withdrawn disputes.

What Is a Chargeback? Are They the Same as Disputes?

When a buyer uses their card to buy something but thinks there's a problem, they can ask their bank to get their money back. This is called a chargeback.

Claiming issues like:

• Fraud
• Unauthorized use
• Goods/services not received

Technically, chargebacks are the same as disputes.

The cardholder starts the process by disagreeing with a purchase. Their bank looks into it. If the claim is valid, the bank sends money back. This is called a chargeback and it resolves the issue.

Card issuers often interchange the terms "dispute" and "chargeback" because they're 2 sides of the same coin. A dispute is the initial action by the cardholder, while a chargeback is the outcome if the dispute is found in their favor.

That sounds an awful lot like a refund…

Summary: Chargebacks are forced fund reversals initiated by cardholder disputes.

Chargebacks vs. Refunds

The store starts refunds. Usually, this happens when a customer wants to return something or if the store wants to make the customer happy.

The customer starts chargebacks. They contact their bank if there's a problem, like if someone stole their card or if they're not happy with something they bought.

Merchants handle refunds. They choose the amount and when to issue the refund.

Issuing banks and card networks handle chargebacks. Merchants can't do much to change a chargeback decision.

Refunds give back the item's price and the payment processing fee.

Chargebacks cost the merchant more. The merchant must pay chargeback fees to payment processors and card networks.

Refunds are a normal part of business, with no negative consequences for merchants.

However, chargebacks can harm a merchant's reputation and, if excessive, even lead to account closure.

Customers and merchants work together directly to solve refund issues.

Chargebacks are different. They involve a dispute among these parties: the customer's bank, the merchant's bank, and the card networks. This process takes a long time, often weeks or even months.

Summary: Refunds are merchant-controlled. Chargebacks are bank-enforced.

How the Stripe Dispute Process Works

• How Long It Takes: 2 – 3 months
• Who’s Involved:
  • Customer
  • Cardholder’s issuer (bank or card network)
  • Merchant
  • Stripe (Acquirer)

The chargeback process varies depending on the card issuer, and Stripe doesn't have a dispute resolution process. Instead, they follow the procedures set by card providers like:

• Visa
• Mastercard
• Discover
• American Express

Here's a general outline of the chargeback process:

1. Merchants may receive early fraud warnings (EFWs) to address potential fraud before it escalates.
2. Cardholder reports the disputed transaction to their card issuer.
3. Issuer notifies Stripe, which then notifies the merchant.
   1. Seller may receive the following depending on issuer policy:
      1. Chargeback (immediate reversal of funds)
      2. Inquiry (request for more information)
4. Business decides whether to fight it.
5. If you fight it, gather evidence and submit it through Stripe to the issuer.
6. Issuer reviews the evidence and decides in favor of:
   1. The merchant: Chargeback reversed.
   2. Cardholder: Chargeback stands.

If an inquiry is issued, and the issuer sides with the cardholder, an irreversible chargeback is issued. Some networks allow merchants to arbitrate this decision.

In some cases, if the cardholder loses the initial dispute, they may be able to initiate a second chargeback with new evidence.

Here’s a visual of how disputes typically work:

(Source: Stripe) 

How to Win a Stripe Dispute as a Merchant

• Chargeback Fee: $15 per dispute.
• Number of Days to Respond:
  • Discover: 5 days
    • Retrieval requests: 20 days
  • American Express: 20 days for inquiries and chargebacks
  • Mastercard: 45 days
    • Second chargeback: 30 days
  • Visa: 20 days

The actual amount of time you’ll have to respond will vary by reason code.

To “win” a chargeback, you must do everything by the book. If you don't, you will lose automatically. First, answer within the time frames. If you don't, the issuer will side with the customer.

You’ll receive a chargeback email from Stripe and can see the dispute in your Stripe dashboard.

It’ll look like this:

Before we proceed, Stripe charges $15 for all chargeback disputes. This is to cover the network dispute fees that issuers charge Stripe. While it seems like a lot, it’s cheaper than what most payment processors charge.

Is it refundable?

If you’re a business outside of Mexico, Stripe won’t refund the fee if you win a dispute. Or if it’s withdrawn.

But winning is still important because that’ll result in a reversal of the chargeback. And a reversal of a chargeback doesn’t contribute to your chargeback rate.

Understand Stripe’s Chargeback Threshold, First

Stripe doesn't publicly define a "high chargeback rate," but exceeding 1% might trigger a reserve on your account. This reserve is a portion of your funds held temporarily by Stripe to cover potential disputes and refunds.

The size and duration of the reserve depend on factors like your chargeback rate, transaction volume, and account history. Higher rates, larger volumes, and newer accounts often require more stringent reserve requirements.

Here's how the reserve mechanism works:

• A percentage of each transaction is held back in reserve.
• These funds are typically released after 30 to 90 days if no chargebacks or refunds exist.
• If a chargeback occurs, the reserved funds cover the disputed amount.

If you have a lot of chargebacks, Stripe might hold back some of your money. This is called a reserve. If this happens to you, talk to Stripe's support team. They can explain why this happened and help you fix the problem.

Summary: Stripe doesn’t have a chargeback threshold. Aim to keep your chargeback rate under 1%, though.

Should You Even Fight a Dispute?

Some chargebacks may cost you more to fight than to accept. Thus, you shouldn’t fight every dispute that comes up. Now, we’ll need to decide whether it’s worth fighting one.

When receiving a dispute alert, you’ll see these buttons in Stripe’s dashboard:

Which one do you press?

It depends.

Here are scenarios when you should accept disputes:

• Insufficient evidence to dispute the claim.
• High probability of losing the dispute.
• Cost of fighting exceeds the transaction amount.
• Customer error but resolution is unlikely.

How will you know when your cost of losing a dispute is high? We’ll go over that in the next section.

If fighting a dispute will cost more than accepting it, then there’s no reason to fight it. Fighting and winning do eliminate the contribution it has to your chargeback rate. But if you don’t have enough evidence to fight it, then you likely won’t win.

No matter what, you’ll need to pay Stripe’s chargeback fee. But accepting the loss will eliminate the other costs of chargebacks. For instance, you won’t need to dedicate staff to dealing with the issue.

Here’s when you should counter disputes:

• Customer received the goods/services.
• Transaction was authorized.
• Sufficient evidence proves delivery/service.
• Fraudulent claims by the cardholder.
• Duplicate processing of the transaction.
• Friendly fraud (buyer's remorse).
• Chargeback filed after refund was issued.

If, for instance, you have shipping insurance and can prove that your product reached the customer, you’ll have compelling evidence. Sometimes customers will claim they didn’t receive an item when they really did. This is friendly fraud.

And merchants tend to win more of these disputes. I’ll provide numbers in the next section.

Summary: Accept chargebacks if you don’t have sufficient evidence to fight a dispute. Otherwise, you may waste time and resources fighting a dispute.

Your Chances of Winning

Most merchants will win an average of 30% of chargebacks across all industries.

Those numbers change when we look into different industries, price points, and chargeback types.

Sellers have a 9% chance of winning third-party fraud chargebacks [1]. Meanwhile, they have almost a 44% chance of winning friendly fraud disputes. Why? Because it’s more difficult to claim a transaction was legitimate when it was fraudulent.

That’s why small-scale merchants spend 6% of their annual revenue on fraud protection [2]. And medium-sized ones spend 11%.

Surveyed consumer electronics businesses won only around 16% of chargebacks. Compare that to folks who sell apparel and win almost 36% of chargebacks. Such a low win rate for electronics likely comes from reliability, shipping, and advertising issues.

The places where I found these numbers didn’t specify why they had “X” percent win rates.

And price points.

Purchases under $29.99 have almost a 47% win rate for merchants. And purchases over $300 have a 27% win rate. Likely because more fraudulent transactions happen with higher-cost items. And we know how those go.

Using tools like Stripe Radar can estimate your chances of winning a dispute. It’ll use machine learning to estimate how likely you are to win. Radar will only show you your chances of winning if the payment was made with a credit card. And if the dispute wasn’t an inquiry.

Summary: Merchants win around 30% of chargeback disputes in general. This number rises or falls depending on the industry, dispute type, and price point.

Gather Your Evidence (The Key to Winning)

Now that you know your chances of winning and that you want to fight the dispute, you’ll proceed to this page:

You must adhere to Visa’s Compelling Evidence 3.0 policy if the dispute is for a Visa card. This requires you to give them at least 1 piece of compelling evidence.

As the image shows, these are customer communication logs and/or their signature.

Stripe suggests that you keep your explanations for your dispute concise. Describe why the claim is unreasonable. Then, explain how your evidence proves that.

They also suggest using a professional and neutral tone.

Here’s an example:

On [Date], John Smith purchased [Product] from our store using a [Card Type] card. The order was shipped on [Date] and delivered on [Date], as confirmed by the attached tracking information. We believe this dispute is unwarranted as the product was delivered as agreed.

Issuers review many dispute cases daily. Adding more unnecessary explanations won’t help your case. Because they’ve likely seen what you intend to add a million times.

Then there’s the evidence. Ensure your evidence is relevant to the reason code and purchase.

We’ll dive into specific examples in a second.

However. Stripe brings up an excellent tip that I thought would help you. They explain not to submit your entire cancellation policy if a customer doesn’t comply. You’d instead send Stripe the relevant part of the contract that they violated.

And link back to your policies in case they want to read the entire pages. From there, highlight the text that they violated.

Smaller files are easier to manage. Plus, you won't risk overwhelming the reviewer with too much information. If they have to sift through a mountain of evidence, they might miss something important that could help your case.

You’ll also always need to include proof of cardholder authorization.

Such information includes:

• IP addresses that match the cardholder’s address.
• Signed contracts or receipts
• CVV confirmation
• AVS (Address Verification System) matches
• 3DS authentication

When dealing with disputes through Stripe, they’ll automatically include the IP, CVV, and AVS. If you’re signed up for their 3DS, they’ll include that as well.

Stripe has specifics on file best practices in their docs.

They go into this more in one of their videos:

You’re likely tired of seeing information that’s not relevant to evidence. We’ll get to that now. The evidence you’ll provide varies by reason code. And these vary by the following providers:

• Visa
• Mastercard
• Discover / JCB
• American Express

In general, here are the pieces of evidence you’ll want to submit for different types of disputes.

Here are some pieces I’d recommend for merchant error chargebacks:

• Proof of refund or credit issued to customer.
• Communication records showing issue resolution.
• Documentation of product replacement/reshipment.
• Evidence of service fulfillment (e.g., work completion).
• Screenshots of correct product descriptions/pricing.

Third-party (AKA true fraud) chargebacks:

• Fraud scoring tool results showing a low-risk transaction.
• Proof of shipping to a verified address.

And friendly fraud disputes:

• Delivery confirmation with tracking details.
• Proof of customer communication and satisfaction.
• Screenshots of product descriptions/customer reviews.
• Proof of digital product delivery (e.g., download links).
• Evidence of prior purchases by the same customer.
• Any relevant terms and conditions agreements.
• Detailed explanation of refund/return policies.

Your goal is to prove that the cardholder was the purchaser in fraud cases. Otherwise, you must prove they understood the Terms of Service or other policies during their purchase.

If you can’t, then you shouldn’t fight the chargeback.

Summary: Provide evidence that’s relevant to your chargeback. When describing your situation, keep it concise.

How to Prevent Stripe Disputes as a Merchant

Different chargeback reason codes require different prevention strategies.

Let's explore effective measures for each type:

Merchant error chargebacks.

Shop owners sometimes have trouble winning these chargebacks. This is because it's hard to prove the purchase was real if a mistake happens.

Focus on transparency, setting clear expectations, and reducing errors:

• Double-check order details before processing.
• Clearly display refund and return policies.
• Provide accurate product descriptions and images.
• Respond promptly to customer inquiries.
• Train staff on proper order fulfillment procedures.
• Ensure accurate billing descriptors on customer statements.
• Monitor inventory levels to prevent overselling.

Friendly fraud chargebacks.

Merchants win over 40% of these disputes. The key is to have solid proof of the transaction's legitimacy:

• Require signature on delivery for high-value items.
• Implement clear and recognizable billing descriptors.
• Utilize fraud detection tools to identify suspicious orders.
• Send order confirmation and tracking information promptly.
• Maintain detailed records of customer interactions.
• Offer excellent customer service and dispute resolution.
• Consider 3D Secure for added security.

True fraud chargebacks.

Fraudulent chargebacks are hard to fight without proper prevention measures.

Invest in security to safeguard your business:

• Use AVS (Address Verification System) and CVV checks.
• Implement 3D Secure authentication for online transactions.
• Utilize fraud detection tools to identify high-risk orders.
• Monitor for unusual transaction patterns or amounts.
• Require strong passwords and two-factor authentication for accounts.
• Keep software and security systems updated.
• Educate customers about phishing and online scams.

Additional prevention tools.

Use tools like chargeback alerts. These warn you before a transaction becomes a chargeback. And they work with platforms like Stripe. This allows you to address issues before they escalate.

Stripe also offers Radar (fraud flagging) and 3D secure for an extra fee. Radar will flag suspicious transactions and give you a chance to cancel them.

Preventing them from resulting in fraudulent orders. 3D secure creates an extra barrier that requires further authentication from customers.

To prove it’s really them making the order.

Summary: Prevent chargebacks by being transparent, proving legitimacy, and investing in security.

Wrapping Up

There’s no secret weapon to winning Stripe chargebacks. The best way to “win” is to prevent them altogether. And that’s what chargeback alerts do.

They let merchants know when a transaction has an issue, giving them a chance to fix it before it escalates to a dispute. We’ve partnered with major providers like RDR, Ethoca, and CDRN to provide these alerts.

Learn how we’ve helped some merchants reduce their chargebacks by 91%.

Sources

• [1] Chargeflow, 2024. Navigating Ecommerce Resilience
• [2] Snappt. Fraud Cost