What Stripe Chargeback Rate Is Too High?
As a seller switching to Stripe, I wanted to understand its chargeback policies and the risks of having too high of a rate. I’ll explain what I found, including ways to maintain low rates.
Let’s begin with ways Stripe measures chargebacks.
Key Takeaways
- Stripe doesn't define a specific chargeback rate.
- Keep rates under 0.65% to avoid monitoring programs. But lower is better.
- High rates may result in Stripe applying reserves on transactions.
- Lower rates with chargeback alerts and fraud protection.
- Stripe charges a $15 fee per chargeback.
We offer chargeback alerts through a Stripe app, which can reduce chargeback rates by up to 91%.
How Does Stripe Measure Chargebacks?
Stripe measures chargebacks through these methods:
1. Dispute Rate
This shows the percentage of disputed payments based on the charge date.
The purpose of this rate is to help you spot patterns to help prevent future chargebacks. For instance, if you notice more chargebacks during a sale (e.g., Black Friday), you could know what areas to improve on.
Here’s an example of how this would work:
- Payments processed in September: 10,000
- Disputes received in September: 50
From there, you’d divide the 50 disputes by the total payments. Then, multiply the resulting number by 100. Then, you’ll have your chargeback rate.
In this case, it’s 0.5%.
Note that most networks will refer to “disputes” and “chargebacks” interchangeably.
Find the differences between chargebacks and disputes here.
2. Dispute Activity
This calculates the percentage of disputes based on the dispute date.
Card networks will use these rates to determine whether you’re a high-risk seller. From there, they’d throw you in a chargeback monitoring program if it’s too high.
I’ll dive a bit deeper into these programs in a minute.
But here’s an example of how you’d calculate it:
- Orders in September: 1,000
- Disputes received in September: 20
Divide the disputes received by the total number of orders to get your dispute activity. In this case, it’s 2%.
This is the rate that we’ll reference throughout the rest of this guide. As it’s what networks and Stripe will pay attention to.
Does Stripe have a chargeback rate?
What is Stripe’s Chargeback Rate Limit?
Stripe doesn’t have a chargeback rate. Whether you end up in a dispute monitoring program will vary by card provider. They do recommend keeping rates under 0.75%.
Here’s how they’ll vary by card provider:
- Visa Dispute Monitoring Program: 0.90%
- Visa Fraud Monitoring Program 3DS: 0.75%
- Mastercard Excessive Merchant: 1.5%
Learn more about these chargeback monitoring programs here.
These are the minimum rates to enter the above programs. Keep your chargeback rate below those numbers and you’ll be fine.
For the most part.
Wait, what?
Stripe doesn’t have a monitoring program, but has account reserves. If you have too high of chargeback rates, they may deduct a set percentage from each order processed on your account.
From there, they’d use these reserves to cover customers in case of refunds or disputes. To ensure that you have the money to cover them.
Stripe doesn’t specify the chargeback rate that’ll end up in you paying reserves.
With that out of the way, let’s learn what a chargeback rate in general is.
Summary: Stripe doesn’t have a specific chargeback rate.
What is a Chargeback Rate?
A chargeback rate is the percentage of transactions that result in a customer disputing a charge. It's a metric for businesses that accept card payments, as it can affect their processing fees and their ability to continue accepting certain payment methods.
Most networks will divide a number of chargebacks by the total number of orders. But the time period will vary. For instance, Visa will calculate it by the number of orders from the current month by disputes in the previous month.
We have more information on rates in a separate piece. Check it out.
For now, you probably want to lower this rate.
Summary: Tells you the percentage of orders that result as chargebacks.
How to Reduce Your Stripe Chargeback Rate
Some of the easiest ways to reduce Stripe chargeback rates are:
- Use chargeback alerts
- Fraud protection
- Simple return policies
- Accurate product listings
The following sections will expand on these points.
Check out this piece for more ways to prevent chargebacks.
1. Use Chargeback Alerts
Chargeback alerts let you know when there’s a potential chargeback during the pre-dispute state. This means the dispute hasn’t escalated to a chargeback yet. This gives you up to 72 hours to refund the customer, talk to them, or get more information on a transaction.
You can’t receive a chargeback on an order that’s refunded. Right?
More information on these alerts and how they work in this guide.
These are a paid solution and you’ll pay per alert. However, for some merchants, they can prevent up to 91% of chargebacks when combined.
What do I mean with “combined?”
There are 3 chargeback alert types; CDRN, RDR, and Ethoca. All have differences and for the most part, don’t overlap.
It is a pain to get these alerts though, because you must reach out to Ethoca and Verifi’s customer service lines to get access to them.
That’s when you’ll want to consider certified resellers. They offer access to all alerts and typically charge less due to volume pricing.
We make it easy to access all alert providers, have volume pricing, and offer a Stripe app.
These alerts aren’t for all sellers. They’re more effective for folks who have low Average Transaction Values and sell digital products. Think subscription services or SaaS.
Whether you use these alerts, you’ll need to combine them with other chargeback-lowering strategies.
2. Consider Fraud Protection
Consider software that’ll automatically accept or reject orders based on a set of rules. Or you could set the transaction to require a review if it looks suspicious.
Let’s say someone orders 1,001 dog treats at 3 AM and your fraud software picks up on this. It could automatically reject the order or give you a chance to review this. From there, contact the person making said purchase to make sure it’s them.
There’s a caveat:
Merchants typically reject over 10% of orders to protect themselves from fraud [1]. This has resulted in sellers losing more than $443 billion per year from fraud protection.
Then, there are false declines, which also result in lost sales.
It’s ideal to use services that offer a fraud guarantee, which would give you a financial guarantee on all approved orders. Because if you can accept more orders, you’ll make more money. Then, if a chargeback happened, the service would cover it.
That won’t reduce chargeback rates, but it’s a factor to consider.
Signifyd is a decent solution for this. But it’s expensive (more than $1,000 monthly).
You don’t have to always spend money to reduce your chargeback rates.
3. Have Clear Policies
Have a clear return and cancellation policy. Make things as easy as possible for customers to cancel your service or return their products.
Yes, this sounds counterproductive. It’s not, though.
81% of customers find filing chargebacks more convenient than starting a refund. 72% of them don’t know the differences between a chargeback and a refund.
Think about it…
Would you rather deal with a refund that takes maybe a day max, or a chargeback that takes months and comes with chargeback fees?
I can’t tell you how to draft this policy because that will vary by business. But this is food for thought.
4. Ensure Product Descriptions Are Accurate
Spend a bit of extra time and money on photography and product descriptions. Don’t just rely on AI to create your descriptions. If the product customers receive doesn’t match its description or image, they have grounds to dispute the charge.
For instance, if ChatGPT wrote that an item is blue, but the customer receives a red one, they could dispute the charge. In some cases, they might not even need to return the item.
Being upfront about your product features and offering easy returns will help avoid these situations.
This comes down to being honest with your products.
With rate reduction methods out of the way, you should know how Stripe handles disputes.
What Else Should You Know About Stripe Chargebacks?
- How Long It Takes: 2 – 3 months
- Time Limit: Varies by card provider
When a cardholder disputes a charge, Stripe manages the process in stages.
It starts when the customer contacts their bank.
The card network may issue a chargeback or a retrieval request. A retrieval asks the merchant for more information to try and resolve the dispute before it escalates.
If unresolved, it turns into a formal chargeback. Stripe notifies the merchant, who can either accept the chargeback or submit evidence to contest it.
A $15 fee applies per chargeback.
The bank reviews the evidence and decides:
- If the merchant wins, Stripe returns the funds.
- If they lose, the chargeback stands.
Learn more about how Stripe handles chargebacks in this guide.
Are you curious about the fee?
Summary: It works like most chargeback processes. The differences are in fees and possibility for retrieval requests.
Chargeback Fees
Stripe charges $15 for every chargeback. This fee varies by currency, and Stripe doesn’t refund it even if you win the dispute — unless you’re based in Mexico.
Learn more about Stripe’s chargeback fee here.
Otherwise, let’s wrap this up.
Wrapping Up
Stripe doesn’t set a specific chargeback rate, but card networks do. Stripe doesn’t have a monitoring program, but high chargeback rates may lead to reserves on your account. Keep your rate below 0.75% to avoid issues.
In general, keep those rates under 0.75%.
The best way to lower chargeback rates is through chargeback alerts. Some providers offer Stripe-compatible apps to help with this.
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Sources
- [1] Guaranteed fraud protection. Signifyd.
