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Stripe Chargeback Policy for Merchants

This guide will simplify Stripe’s chargeback process and what to expect as a merchant. Keep reading to learn more.
Author
Theodore Sterling
Category
General
Date posted
August 5, 2024
Time to read
16
minutes

More than 4 million businesses use Stripe as a payment processor [1]. Thus, I was curious about whether I should use it for my business. Part of my decision would come down to how they deal with chargebacks.

Thus, I’ll explain how Stripe deals with chargebacks, their fees, the process, how to prevent them, and more.

Let’s dive in.

Key Takeaways

  • Chargeback process varies by card provider.
  • Stripe has no specific time limit.
  • $15 chargeback fee.
  • Chargeback fee is refundable for businesses inside Mexico that win disputes.
  • You’ll have account limits if you have too many chargebacks (possibly more than 1%).

How Are Stripe Chargebacks Different?

Stripe doesn’t have its own chargeback process. Only difference between it and other payment processors is the payment platform you’ll deal with through it. It’s just done through Stripe’s dashboard.

You will need to pay a $15 chargeback fee, which is cheaper than what many platforms offer. It’s non-refundable if you’re a business outside of Mexico. Otherwise, it’s one of the few platforms that will refund dispute fees for won chargebacks (if you’re a business in Mexico).

It also offers Chargeback Protection, Stripe Radar, and its own iteration of 3D Secure. I’ll talk about these later.

Summary: The chargeback process on Stripe will vary by card processor. Fees and the disputes dashboard are the only differences.

How Stripe Handles Currency Conversion With Disputes

Stripe recognizes the original transaction was in the buyer’s currency. For instance, it will convert the disputed USD amount back into EUR using the current exchange rate at the time of the chargeback.

Here’s a scenario to illustrate this point:

  • A customer in Europe buys a product from a US merchant. They pay in Euros (EUR).
  • Stripe changes the money from Euros to US Dollars. US Dollars are the money the seller usually uses. The seller gets this money in their Stripe account.
  • The customer initiates a chargeback with their bank, disputing the original EUR charge.

Exchange rates change a lot. The amount in Euros the buyers get back might be a bit more or less than what they first paid.

Customers sometimes dispute multiple transactions. These transactions may have different original currencies. Stripe converts each disputed transaction back to its original currency. This process happens for every transaction separately.

As a result, merchants find it hard to predict the total chargeback amount. The final sum can vary due to these currency conversions.

Summary: Stripe will reimburse the customer for the converted currency’s value at the time of the dispute. Not at the time of purchase.

Stripe Chargeback Protection

Stripe's chargeback protection program helps merchants like you fight unfair chargebacks. It covers eligible charges up to a set amount. When a customer disputes a charge, Stripe steps in to handle the process for you.

It’s a feature in Stripe Radar.

This program saves you time and stress. You won't need to gather evidence or respond to each dispute. Stripe takes care of these tasks on your behalf.

It also protects your revenue. If Stripe can't win the dispute, they'll cover the cost of the chargeback. This means you keep the money from the sale.

To use this service, you'll pay a small fee on each transaction. Though, many sellers find this fee worthwhile for the peace of mind it provides.

Stripe also uses Stripe Radar to reduce chargebacks. I’ll talk more about this later.

Keep in mind that not all charges qualify for protection. Stripe has specific rules about eligible transactions. You'll need to follow their guidelines to ensure coverage.

Chargeback Fee

Stripe will charge a $15 fee per disputed transaction. This same cost extends to cards created via Stripe Issuing. Costs for businesses outside the US will vary by currency. Refer to their pricing page for more information.

Whether you win or lose the chargeback, they’ll charge the fee. And how about withdrawn disputes? They’ll charge you for that, too. Because withdrawn chargebacks still count as “won” disputes.

Stripe will, however, refund businesses in Mexico for disputes if they’re won or disputed [2].

Many sites say that Stripe will reimburse you if a merchant wins, but that information is outdated. Stripe changed their policy in 2023. We talk about their reasoning in a separate guide.

None of their documentation mentions their fees for arbitrating chargebacks.

Time Limits for Sellers & Cardholders

Let’s first go over the time limit for merchants:

Stripe doesn’t have specific time limits. The time you have to respond to chargebacks will vary by card network.

These limits are how long you have to respond to dispute requests or inquiries. There are other time limits for other tasks. For instance, arbitrating a transaction. But that would be too much to include in this guide. This information is the most important to know.

You’ll also want to know how long customers have to file disputes:

  • Visa: 120 days
  • Discover: 120 days
  • American Express: 120 days
  • Mastercard: 90 – 120 days

Why should you care how long cardholders have to file chargebacks? Because this helps you know how long to keep transaction data. If you don’t have this information available during a chargeback, you’ll lose since you can’t prove the purchase was legitimate.

Chase recommends that you keep documents for the following durations to ensure you’re prepared for chargebacks:

  • Visa: Minimum 13 months
  • Mastercard: Minimum 13 months
  • Discover: Minimum 36 months

Discover has such a long period because cardholders can file chargebacks years later if they suspect fraud.

Stripe Chargeback Process

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

Before a chargeback, you may receive a pre-dispute notification like early fraud warnings (EFWs). These let you know when a payment might be fraudulent. And if they are, you’ll have a chance to refund the cardholder before they notice the unauthorized transaction.

These notifications may happen after the chargeback is filed, though.

What happens will vary by card provider.

We cover the specific processes of all major card providers in separate guides:

If you don’t have time to read through all those guides, let’s break down the general process.

The customer will report the transaction dispute to their card issuer (known as issuer). These can be banks or card networks. From there, the bank will notify Stripe (acquirer).

After notifying you of the dispute, you’ll receive one of the following:

  1. Chargeback: Payment processor reverses funds for transaction.
  2. Inquiry (AKA retrieval request): Request for more information on the transaction.

Whether each happens depends on the card network. Visa, for instance, will do an immediate chargeback. American Express will do an Inquiry first. Unless they enroll you in their fraud or chargeback programs. You’re placed in these if you exceed a chargeback or fraud threshold.

From there, the following will happen:

  1. You decide whether to fight the chargeback.
  2. If you fight it, gather your evidence and give it to Stripe.
  3. Stripe will give the evidence to the issuer.
  4. The issuer will review the evidence and make one of these decisions:
    1. Merchant wins: Chargeback is reversed.
    2. Buyer wins: Chargeback stands.

(Source: Stripe) 

If you go through a retrieval request and the issuer favors the customer, you’ll receive a chargeback that’s irreversible.

Some card networks allow the merchants to arbitrate (fight) the issuer’s results. In this case, you’d submit more evidence. Then, their decision would be final.

This process is formal and includes the card network as a final decider. It’s costly and often not worth fighting. As 10% of chargebacks reach this stage.

Can the consumer do another chargeback if they lose the first one?

In many cases, yeah. Networks will label this as re-dispute, second chargeback, or pre-arbitration. The customer would have to submit new evidence. Then, everyone would go through the chargeback process again.

Many card networks will limit the number of times customers can dispute a transaction. For instance, AMEX allows customers 2 chargebacks per transaction.

Inquiries & Retrievals

Card providers use inquiries to get information from merchants. This process differs from chargebacks. With an inquiry, the provider asks the merchant for details. They don't take money back right away.

This step helps providers gather facts before deciding on a chargeback.

This process usually goes as follows:

  • Customer files complaint with issuer.
  • The issuer notifies Stripe.
  • Stripe emails the merchant and requests evidence.
  • The merchant submits evidence
  • The issuer reviews the evidence and makes a decision:
    • Merchant wins: No chargeback.
    • Buyer wins: Chargeback issued.

The purpose of this process is to review evidence from both parties before issuing a chargeback. This is ideal because you have a chance to refund a customer without having to pay a dispute fee. And if you reimburse the customer, there’s no chargeback.

This process is identical to the chargeback process but without immediately reversing the funds.

Dispute Withdrawals

Customers sometimes start chargebacks but then change their minds. They often do this when they realize the transaction was actually valid. They then contact their bank to cancel the chargeback.

We call this a dispute withdrawal.

But with Stripe, a withdrawn dispute doesn't automatically end in the merchant's favor. The dispute process goes on.

Merchants must still prove the transaction was real.

This evidence can include many things. Merchants can show proof of purchase or delivery confirmation. They can also share records of talks with the customer.

Any document that proves the charge was valid can help. If merchants don't send good evidence, they might still lose the dispute. This can happen even if the customer withdrew it.

Stripe Chargeback Ratio & Threshold

Stripe does not specify what they consider as a “high chargeback rate.” Many payment processors consider a rate that’s above 1% in the previous rate to be too high.

If a merchant account has a high chargeback rate, Stripe might implement a reserve. This ensures that there are enough funds available to cover potential disputes and refunds. 

A Stripe reserve is a portion of a merchant's funds that Stripe holds back temporarily. Payment processors do this all the time. It's normal.

The size of the reserve and the duration for which it is held can vary depending on several factors, including:

  • A higher chargeback rate.
  • Sellers with higher transaction volumes.
  • Newer accounts or those with a history of chargebacks.

Here’s how the reserves work:

  • Funds held back: When a customer pays a merchant using Stripe, a percentage of the transaction amount is held in reserve.
  • Funds released: The reserved funds are typically released to the merchant after a certain period, often 30 to 90 days.
    • Provided there are no chargebacks or refunds associated with those transactions.
  • Covering disputes: If a chargeback occurs, the reserved funds are used to cover the disputed amount.

(Source: Stripe)

If you are a merchant facing a Stripe reserve due to high chargeback rates, you can contact Stripe support to discuss your options. They may be able to provide guidance on how to improve your chargeback rate and potentially reduce or remove the reserve.

Stripe Chargeback Reason Codes

Stripe doesn’t have its own chargeback reason codes. The code a merchant receives will depend on the card issuer.

We provide reason codes for every card network in separate guides:

JCB transactions done using USD as the currency follow Discover’s reason codes.

So, What Are Chargebacks?

A chargeback in general is when a card issuer forces a reversal of funds for a disputed purchase. It’s also the name for the process that leads to and results in chargebacks. The definition varies by card network, payment processor, and bank.

This process happens when a customer disputes a purchase that they feel wasn’t legitimate.

Isn’t that a refund, though?

Summary: Stripe chargebacks are customer payment disputes, potentially costing merchants money and reputation.

How’s This Any Different From a Refund?

Refunds are initiated by the merchant. Usually due to customer dissatisfaction or errors. They are a reversal of the transaction, with funds returned to the customer and no additional fees incurred.

Customers start chargebacks. They do this through their bank or the company that gave them their card.

Chargebacks happen when customers formally complain about a purchase. They might say the purchase wasn't allowed, was a scam, or wasn't what they expected. If this happens, the seller has to pay extra fees and might get a bad reputation with the companies that handle payments.

Summary: Refunds are merchant-initiated. Chargebacks are customer-initiated disputes with fees.

Tips I Recommend to Prevent Stripe Chargebacks

The way to prevent chargebacks will vary by reason code. I can help you prevent disputes for each chargeback type, though.

Let’s start with preventing merchant error chargebacks:

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

These tips help you be honest with customers. You can also use them to manage what customers expect. Plus, these tips help you make fewer mistakes. If you make a mistake, it's hard to prove a sale was okay. This makes these chargebacks hard for sellers to win.

For instance, if you actually charged a customer twice for the same purchase, there’s no way to prove that it was legitimate.

Moving onto friendly fraud:

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

Buyers will often claim to not have received an item or that a transaction was fraudulent — though it was legitimate. Merchants win more than 40% of these chargebacks. You can do so, too.

Ensure that you have proof the transaction was legitimate and you’re golden.

Lastly, there’s true fraud (AKA third-party fraud):

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

Many mid-sized companies will spend 11% of their annual revenue on fraud prevention. Small ones spend around 6% [3]. Fraudulent chargebacks are hard to prove as legitimate if you don’t have fraud prevention software or measures.

This brings us to third-party tools. Another great way to add to your preventative measures.

Aside from fraud prevention tools, there are chargeback alerts.

These allow you to receive dispute alerts before a transaction turns into a chargeback. We offer such services and it connects to Stripe. Allowing you to refund transactions to nip the issue before it escalates.

You should consider us for chargeback alerts. We're easier than using individual alert providers like Visa RDR. We integrate multiple providers for you. Want to learn more? We're happy to help.

Circling back to fraud prevention.

Stripe offers built-in fraud flagging and 3D Secure software for an additional fee. We’ll cover these now.

Summary: Put a lot of effort into stopping fraud. Make sure your customer accounts are safe. Teach your team how to avoid chargebacks.

Stripe 3D Secure

  • Price: $0.03 per attempt + Transaction Fee
    • Transaction Fee: 2.9% + $0.30 per successful charge

3D Secure (3DS) makes online card payments safer. It adds an extra step where customers must prove who they are to their bank. Usually, this means entering a password, a special code they receive, or using a fingerprint/face scan.

Stripe integrates with 3DS protocols, so when a customer pays, they're redirected to their bank's authentication page. Once verified, the payment proceeds.

Here’s how it works:

  1. When the customer pays with Stripe, their bank checks if it's really them.
  2. The bank's page will ask them to confirm.
  3. Stripe takes their payment.

This is what a 3D Secure authentication page will look like:

(Source: Stripe)

Yes, it adds costs per transaction.

However.

Here’s why it’s beneficial for merchants:

  • This makes it tough for fraudsters to use stolen cards.
  • Liability for fraudulent chargebacks shifts from the merchant to the card issuer.
    • If a purchase, checked with 3DS, turns out to be a scam, the store doesn't lose money.
  • Customer Confidence: Displaying 3DS logos can reassure customers that their payment is secure.

Sources suggest that using 3D Secure has reduced fraud by up to 40% for some merchants [4].

Stripe Radar

  • Price: $0.05 per screened transaction + Transaction Fee
    • Transaction Fee: 2.9% + $0.30 per successful charge

Stripe Radar is a fraud prevention tool built into Stripe. It uses machine learning to identify and block fraudulent payments in real time.

Radar checks information from millions of businesses worldwide. It then uses this info to give each payment a risk score.

This data includes:

  • Checkout flows: Patterns of buyer behavior on a website.
  • Rich payment data: Customer details and billing addresses.
  • Card network and bank information: Comes from Visa, Mastercard, etc.
  • Financial partners: Data like TC40s and SAFE reports 
  • Device fingerprints: Unique identifiers for a device.
  • Historical snapshots: Recurring patterns of fraud.
  • Proxy detection: Identifies users who are hiding their IP address.

Let’s say Radar spots a strange purchase. It then asks the store to choose: review, decline, or accept. If the purchase is bad, stop it. Done.

However…

Watch out for false positives.

False positives block real transactions. This leads to less money for your business. It also makes customers unhappy. Because of this, your company's reputation might suffer too. And these problems can cost more than actual fraud. So, you need to find the right balance. Don't block too much or too little.

It also offers the following tools to help prevent false positives:

  • Customizable block rules: Sellers can choose what to block. For example, they might block based on the IP address. 
  • Reviewing blocked transactions: Look at the deals Radar stopped. See if Radar made mistakes.

As of 2023, Stripe Radar has prevented more than 16.7 million attempts at fraud [5].

Summary: Stripe Radar stops thieves from using stolen credit cards. It does this by using machine learning that learns to spot fake payments.

Early Fraud Warnings

Early fraud warnings (EFWs) are notifications sent by credit card issuers (like Visa or Mastercard) to merchants. These flag potentially fraudulent payments before they escalate into chargebacks.

Here's the basic flow:

  • A cardholder reports a transaction as unauthorized or fraudulent to their bank.
  • Card issuer sends an EFW to the merchant through their Stripe.
  • Seller looks at the details of the transaction and the reason for the suspicion.
  • Merchant has a few options:
    • Refund the payment to avoid a potential chargeback.
    • Gather more information about the transaction before deciding.
    • Do nothing and see if the EFW escalates into a chargeback.

Before you do nothing, understand what 80% of EFWs will convert into a fraudulent dispute.

Your best bet is to receive more information before automatically refunding it. Otherwise, you may refund the 20% of transactions that could not have become disputes.

EFWs are free and are automatically done through card network providers.

Summary: Early fraud warnings let you know when a transaction is potentially fraudulent before it escalates to a dispute.

How Do I Fight & Win Stripe Chargebacks?

You’ll know you have a chargeback when you receive a dispute notification email from Stripe and a “Need Response” dispute in your dashboard.

To find this, you’d log into your Stripe account and navigate to Disputes.

You should see this dashboard:

If it’s your first dispute, a popup will appear that guides you through what to do.

First, they’ll explain whether you should counter or accept the dispute.

I recommend countering chargebacks in these situations:

  • If you have proof the purchase was real and the buyer got what they paid for.
  • If a customer claims that a transaction was unauthorized, but you have proof that it was authorized.
  • If the chargeback is due to a technical error on the customer's side.

And here’s when you shouldn’t fight a chargeback:

  • If you lack sufficient evidence to prove the transaction's validity.
  • The cost of fighting the chargeback outweighs the potential benefit.
  • If the chargeback is due to a mistake on your part, such as shipping the wrong item.
  • If it was a fraudulent transaction and you can’t prove it was authorized.
    • Sellers only win 9% of third-party fraud chargebacks.

The rest of the popups just talk about the chargeback process length.

Stripe, and I, recommend that you first try emailing the customer to see if you can resolve the issue. Your goal is to convince the customer (professionally) to withdraw their dispute. If they agree, follow this guide.

If not, you’ll select the Accept or Counter dispute button.

If you counter, you’ll see this form:

Fill out this information, and then you’ll need to submit your evidence:

For the sake of making this screenshot not too big, I didn’t include Customer details or Product or services details. The latter requires you to include information such as logs to prove that the customer accessed a digital product (e.g., IP addresses).

Visa’s Compelling Evidence 3.0 requires a signature and/or communication. It’s meant to make the chargeback process easier. Otherwise, you’d drag your supporting evidence here.

What evidence would you need?

In our example, the Visa chargeback code was 83. This legacy code means "Other Fraud - Card Absent Environment". The person with the card says they didn't allow a purchase made without the card present. Think of things like online orders or purchases made over the phone.

Here are examples of evidence you’d need for this reason code:

  • AVS (Address Verification System) match: Checks if the buyer’s billing address is the same as the one their bank has.
  • CVV (Card Verification Value) match: This verifies the 3-digit code on the back of the card was entered correctly.
  • IP address and geolocation data: Can help trace the origin of the transaction and link it to the cardholder.
  • Order confirmation email: Provides further confirmation of the purchase.
  • Fraud screening tools: Did you check the transaction for fraud? If so, show them what your fraud tools found.

The above (aside from fraud screening tools) will help you for most chargebacks. But the actual evidence you’d need will depend on the reason code.

We have guides for all card networks' reason codes on what evidence you should submit. And Stripe does as well.

Once you have your evidence, upload it from your computer, submit it, and wait for the issuing bank’s response.

There’s no “trick” to winning chargebacks. The best you can do is submit enough evidence to prove without a doubt that the transaction was legitimate.

In general, merchants have a 30% chance of winning chargebacks. This rate increases to more than 40% if it's friendly fraud. And it’ll lower to 9% if it’s true fraud. These rates also fluctuate depending on the industry, product category, and price point.

We go over the details in a separate guide.

Summary: Manage disputes through Stripe’s dispute dashboard, submit evidence, and wait for the results.

When Should I Use Chargeback Insurance?

Some payment companies and insurers offer chargeback insurance. This service protects businesses from money losses. It helps when customers demand refunds through their banks. Chargeback insurance covers the costs of these disputed transactions.

Here’s what it does:

  • Covers fraudulent transactions.
  • Reimburses the business for the disputed amount, often including chargeback fees.
  • Fraud detection systems and alerts for suspicious transactions.

Consider chargeback insurance if your business sells online to lower the risk of financial loss from fraud. As fraudsters are more likely to purchase high-value items (e.g., luxury handbags) to make more profit.

If you sell similar items or are in an industry with higher chargeback rates, chargeback insurance will help merchants save a lot of money.

Stripe offers its own version of chargeback protection called Stripe Chargeback Protection. It covers eligible fraudulent transactions. It also eliminates the need for merchants to submit evidence to dispute a chargeback.

However…

Stripe Chargeback Protection is currently only available for businesses in the US and Europe. Live somewhere else? There are other companies that sell chargeback insurance. You can look into those options.

Summary: Chargeback insurance protects businesses from financial losses caused by fraudulent chargebacks.

FAQs

How Do You File a Dispute With Stripe (As a Customer)?

Customers will need to file chargeback disputes with their bank or card network. Not with Stripe.

Wrapping Up

How chargebacks work with Stripe depends on the card network. Fees, dispute tools, and how you manage chargebacks can be different depending on the network.

Think about using tools like chargeback alerts. These give you a heads-up before a sale turns into a chargeback. 

We can also help protect you from chargebacks. Our tools work with most card networks and are easy to set up. Let us tell you more about how we can help.

Sources

Theodore Sterling
Educator
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