What is the Stripe Chargeback Fee & Is it Reversible?

As someone who owned an e-commerce store, I’ve considered using Stripe as a payment processor. But first, I wanted to know what the dispute fees would be like.

I'll explain what the dispute fee is and why the company charges it. I'll also cover other chargeback costs and ways to avoid disputes.

Let’s see the impact of Stripe chargebacks.

Key Takeaways

• Stripe’s chargeback fee is $15 per dispute.
• They won’t refund the fee if you win a chargeback.
• Use chargeback alerts, 3D Secure, and fraud scoring software to prevent chargebacks.
• Stripe issues these fees because issuers have chargeback fees for Stripe.

What is the Stripe Chargeback Fee?

When a customer disputes a payment, their bank charges Stripe a fee. Stripe passes this fee on to you as a chargeback fee.

They'll take the fee and the disputed amount out of your Stripe balance. Then this debit will appear in your balance history as a single transaction.

If Stripe didn’t pass these fees onto merchants, they would lose money and have to charge more for their fees. Yeah, the dispute fee is bad. But it potentially helps keep other fees lower. Because like you, Stripe is a business. And they need to be profitable.

Summary: Stripe passes on the customer bank’s dispute fee to merchants.

Cost of a Stripe Chargeback Fee

• Chargeback Fee: $15 per dispute.

Stripe will charge you $15 per dispute the customer initiates.

The dispute fee is the same as disputes done on virtual and physical cards created via Stripe Issuing.

If you're outside the United States, the fee will depend on your currency. Check their pricing page in your region for more information.

Stripe won’t reimburse the chargeback fee if you win a dispute. They also won’t reimburse you if a cardholder withdraws their dispute. A withdrawn chargeback still counts as a chargeback. Because no matter what happens, the card network will charge Stripe.

This is industry standard, as most payment processors also won’t refund chargeback fees.

Payment processors also have employees who will represent you in a chargeback dispute. This adds to their business costs. And the fee partially pays for that cost.

However.

Stripe will refund businesses in Mexico for disputes if they’re won or withdrawn [1].

Stripe Chargeback Protection

Stripe Chargeback Protection automatically fights certain chargebacks on your behalf. It also helps protect your business from disputed charges. When you use this program, Stripe covers the chargeback costs for qualifying purchases.

Since it’s a feature of Stripe Radar, you’ll also have fraud flagging software.

You enroll in the program through your Stripe Dashboard. Once enrolled, you pay 0.40% per transaction.

The protection covers fraudulent disputes. Stripe will reimburse you for the chargeback amount and the dispute fee.

Using Chargeback Protection can improve your cash flow. It reduces unexpected losses from fraud. This allows you to focus on growing your business.

How Does Stripe’s Fee Compare to Other Chargeback Fees?

Here’s how Stripe’s dispute fees compare to other platforms [2, 3, 4]:

• PayPal: $20 per chargeback, but is waivable if the seller has chargeback protection
• Square: $0
• Cash App: Varies by situation
• Ayden: Varies by payment method
• Venmo: $0
• Braintree: $15 per incident
• Amazon Pay: $20 for seller fees. For suppliers, costs will vary
  • Sellers who are eligible for Payment Protection Policy won’t pay chargeback fees
• Apple Pay: $0
• Authorize.net: $25 per incident
• Shopify Payments: $15 per incident
• BigCommerce: $20 per incident

Each payment processor handles fees differently.

For example, signing up for chargeback protection with Amazon adds a cost to each transaction. But, if a transaction qualifies, they won't charge you for disputes. 

Compare each payment processor’s chargeback policies to see which will work best for your business.

Additional Costs of Chargebacks

In addition to fees, here’s what you will pay when a dispute happens:

1. Lost Revenue: The initial transaction amount is reversed, resulting in lost sales and potential profit.

2. Operational Costs: Dealing with disagreements costs money. This affects customer service, accounting, and maybe even lawyers.

Here’s an example of what would happen:

• Customer service representatives spend hours gathering information.
• Accounting staff recalculate finances.
• Legal teams may get involved for complex cases.

This translates to increased payroll expenses and decreased productivity.

3. Inventory and Shipping Costs: Returning disputed items can be expensive. You lose the item's value. You also pay to receive and inspect the item or to restock it.

If the item is damaged or used, it might be a complete loss. You might also bear the return shipping costs. In some cases, the cardholder may have to pay for return shipping, though.

4. Higher Processing Fees: This makes it riskier for payment companies to work with you. They might raise their fees because of this. Thus, you end up paying more for every sale you make from then on.

5. Reputation Damage: Bad reviews and gossip can hurt your brand. Imagine a customer dealing with a difficult refund. They might vent online. This scares away future shoppers.

Plus, your marketing budget goes down the drain. It reaches people who might buy, but bad reviews scare them away.

6. Account Suspension: Excessive chargebacks can raise red flags for payment processors and banks. They might suspend or terminate your account. Disrupting your ability to accept payments.

7. Opportunity Cost: The time and resources spent on managing chargebacks could have been invested in areas like:

• Marketing
• Product development
• Customer acquisition

Hindering your business growth.

Summary: Chargebacks can also demand your team’s resources. Increasing operational expenses while reducing your business’ chance to grow.

What Is a Stripe Dispute?

A Stripe dispute is when a cardholder fights a payment with their card issuer — bank or credit card network. Their goal is for the issuer to force a reversal of the transaction.

Card issuers often use the terms "dispute" and "chargeback" to mean the same thing. And sometimes, platforms create their own processes that work like chargebacks. 

For example, PayPal has rules for disputes and claims. These rules are similar to chargeback rules. Too many chargebacks mean card networks charge you more fees. You might even lose the ability to process payments.

PayPal has a somewhat similar process with their dispute threshold. The consequences of this can result in:

• High Volume Dispute Fees: Higher fees ($16) than regular dispute fees ($8).
• Merchants must submit plans of how they’ll improve their dispute rate.
• Hold funds for up to 21 days: They could hold 10% of your daily transaction volume until you reach a balance of $10,000.

Chargebacks sound an awful lot like refunds. They’re not, though.

Summary: A dispute/chargeback is when a customer questions a payment with their card issuer.

How Are Chargebacks Any Different From Refunds?

In short: Refunds happen voluntarily from the merchant. Card issuers will force sellers to reverse transactions if a business loses a dispute.

With a refund, a buyer will contact your customer service, present their issue, then you issue a refund. This process typically should take a few days and only requires your customer service agent.

You lose money from the payment processing fee and the transaction’s value, but that’s it.

When a cardholder sees an error on their statement, they call their bank. This starts a chargeback. A chargeback can take a long time to fix. It could take 4 months or even longer if it's a fraud chargeback.

Fraud chargebacks might need police help. Thus, this can make the process take more time.

Then chargebacks potentially come with these expenses:

• Financial losses from reversals: Product value and payment processor fee.
• Chargeback fees: Fees for processors to represent you during chargebacks.
  • Or to cover dispute fees charged by issuers to payment processors.
• Arbitration: Additional (huge) fees that come with arbitrating disputes.
• Staff resources: Dedicating staff to dealing with chargebacks.
• Review fees: Fees to lower chargebacks.
• Marketing: Expenses associated with acquiring the customer
• Production: Costs to create or manufacture the product.

I went over all these additional costs for chargebacks earlier. These expenses do help differentiate it from refunds, though.

How Would I Prevent Stripe Chargebacks?

The easiest way to prevent a Stripe chargeback is to issue a full refund on a charge before the dispute happens. Since the charge is already reversed, a customer can’t dispute it. That also means you won’t receive a dispute fee.

Having chargeback alerts will make it so you can address an issue before it escalates. For instance, if a customer has an issue with a Visa card transaction, Rapid Dispute Resolution (RDR) will let the merchant know. Then a seller could issue a refund.

You’ll need to set up multiple alert providers (e.g., RDR and Ethoca) for optimal card network coverage, though. That’ll require a lot of time and be a nuisance. We do all the hard work and make it easy to enroll for each alert provider.

Learn more about how we can help.

Anyway.

The best way to prevent a chargeback is to understand every card provider’s reason code. Then build prevention plans based on such codes.

We laid out all the reason codes (and how to prevent them) for these card networks:

• Visa
• Mastercard
• Discover
• American Express

In general, you will want to take these steps to prevent chargeback disputes:

1. Make detailed and accurate product descriptions.
2. Have an easy-to-understand refund and return policy.
3. Ensure customer service is prompt and helpful.
4. Offer a secure payment gateway with encryption.
5. Send order confirmations and shipping notifications.
6. Use address verification to prevent fraud.
7. Implement fraud detection tools (e.g., fraud scoring).

Ensure you focus on reducing fraud, merchant errors, and being transparent.

The more transparent you are (e.g., clear return policy), the less evidence a customer has during a chargeback. Being clear in your descriptions will also make it less likely that a buyer will initiate a dispute. Because more than 70% of customers find that doing a chargeback is easier than a refund.

Next, there’s fraud prevention. You want to ensure the person making the purchase is the customer.

Use fraud scoring software to see if the transaction has red flags like:

• Addresses at empty lots.
• New accounts making purchases.
• Ordering at odd times of day (e.g., 3:00 AM).

If the software notices something off, it’ll let you know. From there, decide whether you want to proceed. If not, cancel the transaction and return the funds. If it was fraudulent, then the cardholder won’t lose any money.

Stripe offers Stripe Radar, which takes a small fee to judge whether a transaction has red flags.

And fraud chargebacks aren’t the type of chargeback you want to fight. Merchants only win 9% of them. Compare that to the industry-average 30% chargeback win rate.

When I refer to “merchant errors,” I’m talking about ensuring that you don’t double-charge customers, that you ship the right item, etcetera. Train your team on proper shipping and ensure that you use shipping insurance.

Such insurance will also help you in case a customer tries to claim an item didn’t arrive at their home.

This is often the result of friendly fraud, which makes up 75% of chargebacks. Having this insurance will require the customer to sign that they received the package. Having such evidence will prevent you from suffering from “item not received” chargebacks.

Having 3D Secure will also help ensure transactions aren’t fraudulent. Because they require additional authentication from the customer before proceeding with a transaction.

Then, reconsider the way you monetize your products.

Subscription billing is the riskiest model to go with because 36.6% of chargebacks that occurred happened because of them. Most card providers also have specific reason codes dedicated to “canceled recurring charges.”

This means that a customer canceled a subscription, but the merchant kept charging them.

Summary: Refund before dispute, use alerts, understand reason codes, be transparent, and prevent fraud.

Other Stripe Fees

If you’re not using Stripe as processor yet and are considering it, here are fees to keep an eye out for [5]:

These are all of Stripe’s fees. They won’t charge you monthly or setup fees. And Stripe won’t have hidden costs.

FAQs

Will Stripe Reimburse Chargeback Fees if You Win a Chargeback?

Stripe will not reimburse dispute/chargeback fees if you win a dispute. They won’t do this because card networks will charge Stripe in win-and-lose scenarios.

Wrapping Up

Once a customer disputes a transaction, you can do nothing to prevent a Stripe chargeback fee. Even if you win, you’ll still need to pay the $15 fee. That’s part of the cost of doing business with Stripe, though.

You could prevent disputes from happening altogether by addressing issues through chargeback alerts. We’ve partnered with major card providers (e.g., Visa) to offer such alerts to Stripe users. Learn more about how we can reduce your chargeback rate.

Sources

• [1] Stripe. How Disputes Work
• [2] Stripe. Chargebacks 101
• [3] PayPal. Merchant Fees
• [4] Shopify. How to Dispute $15 Chargeback Fees on Multiple Orders
• [5] Stripe. Payment Gateway Fees