What is Stripe’s Chargeback Protection & Should You Use it?

I’m an advocate for chargeback insurance but haven’t found the perfect provider yet. I’m curious to see if Stripe could be the solution I need.

In this guide, I’ll cover what Stripe’s chargeback protection offers, its limitations, how to sign up, and more.

Let’s dive in.

Key Takeaways

• Covers fraud-related chargebacks for Stripe Checkout transactions.
• Costs an extra 0.4% per transaction on top of standard fees.
• Stripe reimburses disputed amounts but limits coverage to $25,000 per year.
• Only applies to fraud disputes — not issues like product dissatisfaction.
• New merchants go through an evaluation period before getting reimbursement.
• Businesses must process all transactions through Stripe Checkout to stay eligible.

Stripe’s chargeback protection acts as insurance, not prevention. It won’t reduce your chargeback rate.

Want to prevent disputes before they happen?

Chargeback alerts notify you when a customer is about to file a dispute, giving you a chance to resolve it first.

Learn more about how it works.

What is Stripe’s Chargeback Protection?

Stripe’s Chargeback Protection is an optional service that helps manage the financial risks of chargebacks. It uses advanced machine learning to analyze transactions and detect fraud before it happens.

If a covered transaction results in a chargeback, Stripe reimburses the disputed amount, including fees.

We’ll get into the details soon.

Well, how does It work?

Stripe uses tools like 3D Secure, which asks customers for extra verification on high-risk transactions. If fraud still occurs, Stripe has you covered.

Important: This protection won’t reduce your chargeback-to-transaction ratio. A high ratio can still affect your merchant account status.

Want to lower your chargeback rate?

Check out our guide on chargeback management for more details.

Let’s learn about 3D Secure for now.

Glossary:

• Chargebacks: A forced payment reversal requested by a cardholder through their bank.
• Chargeback ratio: The percentage of chargebacks compared to a merchant’s total transactions.
• 3D Secure (3DS): An authentication protocol that adds an extra verification step for online payments.

Summary: It covers losses from fraud-related chargebacks and fees.

What Is 3D Secure & Should I Use It?

3D Secure is an authentication protocol that adds extra security to online card payments. It helps prevent fraud by verifying the cardholder’s identity before approving a payment.

Here’s how it works:

• Low-risk transactions may go through without extra verification.
• High-risk transactions need identity confirmation before processing.

Stripe’s Chargeback Protection includes Dynamic 3D Secure, which applies 3DS only when necessary. This balances security with a smooth checkout experience.

3D Secure can cut fraud-related chargebacks by up to 70%, it may also slow down checkout. But. 3DS authentication takes 37 seconds, which can lead to higher cart abandonment.

3DS increased conversions by up to 30% for some regions. Though, it reduced it for the United States, China, and Brazil by up to 45% [1].

We have a separate guide that’ll help you determine whether 3D Secure is worth using. I highly recommend reading it (of course).

Are there limits to Stripe’s Chargeback Protection?

Limits

Stripe’s Chargeback Protection comes with an annual coverage limit. Once you reach this limit, Stripe won’t cover any more chargebacks, even if they qualify.

Here are the details:

• Annual Limit: Up to $25,000 USD (or £20,000 / €20,000).
• Adjustments: Stripe can change coverage limits and will notify merchants if they do.
• Exclusions: Protection only applies to Stripe Checkout transactions with manually entered card details.
  
  • Not covered: Recurring payments and manually approved transactions.

To stay protected, track your chargeback activity and watch your coverage usage.

The following sections will delve into eligibility, what it covers, and what new account holders should consider.

Let’s begin.

1. Eligibility: What’s Covered?

Stripe’s Chargeback Protection covers credit card payments processed through Stripe Checkout. Stripe calls these “Protected Charges.”

To qualify, transactions must meet Stripe’s fraud detection standards, including:

• Protected charges: Transactions must pass Stripe's fraud screening.
• Merchant overrides: Approving a flagged transaction makes it ineligible for protection.
• Compliance matters: Providing inaccurate data, violating policies, or using discriminatory routing voids coverage.

If fraud leads to a chargeback on an eligible transaction, Stripe covers:

• The disputed amount.
• Associated fees.
• Fines from card networks like Visa, Mastercard, and Amex — up to your coverage limit.

Stripe may dispute fraud claims for you, but even if they lose, you’re still covered. However. Any recovered funds go to Stripe.

Stripe's Chargeback Protection doesn’t reduce your chargeback ratio. Card networks track this. Exceeding their limits could result in monitoring programs or corrective actions from Stripe.

Here’s a piece on why you should care about this ratio. And an overview of a consequence that Stripe dishes out for high rates (rolling reserves).

Summary: Stripe covers fraud disputes if transactions meet eligibility and compliance requirements.

2. Only Covers Fraud

Stripe’s Chargeback Protection only covers fraud-related disputes. Specifically when a cardholder claims they didn’t authorize a transaction.

It doesn’t cover chargebacks for issues like product dissatisfaction or non-delivery.

How would I know when it’s fraud?

Card networks assign specific reason codes to chargebacks. Stripe uses these codes to determine eligibility for coverage. I also listed all of these reason codes for your convenience.

Here are the fraud-related reason codes that qualify for coverage:

• Visa 10.4: The cardholder denies authorizing an online or phone transaction.
• Mastercard:
  
  • 4837: The cardholder claims they didn’t approve the charge.
  • 4840: Card networks suspect the merchant of processing an unauthorized charge.
• Discover / Diners / JCB UA01: The cardholder reports fraud on an online or phone order.
• American Express:
  
  • FR2: A high-risk fraud case where AmEx holds the merchant responsible.
  • FR4: Similar to FR2, but for merchants under specific agreements with AmEx.
  • F29: The cardholder denies authorizing an online or phone order.
  • 4534: The card member claims the merchant charged them multiple times for the same purchase.
  • 4540: The cardholder denies making an online or phone purchase.

Merchants should review these codes to understand when Stripe will cover fraud disputes and when they remain responsible for chargebacks.

3. Limitations for New Merchants

New Stripe merchants face extra restrictions when signing up for Chargeback Protection. Stripe places them in an Evaluation Period to assess risk and ensure compliance with fraud and credit control policies.

Here’s what new merchants should know:

• Evaluation period: Stripe holds disputed amounts and fees until merchants pass their review.
• Escrowed funds: Stripe keeps these funds in escrow to prevent abuse and gauge risk.
• Duration: The process usually takes 90 days but may extend if needed.
• Termination risk: Merchants who fail the review lose eligibility and forfeit withheld funds.
• No refunds: If merchants cancel their protection during this period, Stripe won’t refund the fees.

Once Stripe approves the merchant, they gain full access to Chargeback Protection. Stripe then releases the withheld funds.

Does this protection sound appealing? Wait til you see the costs.

Summary: New merchants face a probation period before receiving chargeback protection reimbursements.

Fees

Stripe charges an extra 0.4% per transaction for Chargeback Protection, in addition to standard processing fees. They typically charge 2.9% + $0.30 per transaction for standard processing fees.

They call these costs “CPP Fees” and apply only to protected transactions. Stripe automatically deducts them from your processed payments.

If this cost sounds acceptable, here’s how to sign up.

How to Sign Up

Merchants can sign up for Stripe’s Chargeback Protection through their Stripe Dashboard. Or by responding to an email invitation from Stripe.

Here’s how it works:

• Dashboard enrollment: Log into your Stripe account and follow the steps to opt in.
• Email invitation: Some merchants may receive an email with an enrollment link.
• Activation notice: Stripe will notify you once your protection is active.

After enrolling, Stripe will review your account. They'll then give you full access to Chargeback Protection benefits.

Prerequisites

To qualify for Stripe’s Chargeback Protection, merchants must meet the following criteria:

• Use Stripe Checkout: All transactions must be processed through Stripe Checkout to stay eligible.
• Avoid discriminatory routing: Merchants can’t selectively route high-risk transactions to Chargeback Protection.
• Regional availability: Only available to businesses in the US and Europe.
• Flexible enrollment: Any business in these regions can sign up.

How does this compare to other chargeback insurance options?

How Does Stripe’s Chargeback Protection Compare?

Here’s a comparison of Stripe, Shopify, and PayPal’s chargeback protection programs:

Whatever protection you get boils down to what payment processor you use. As every option requires you to use their gateway. For instance, you can’t use PayPal’s protection with Stripe.

What if you’re trying to decide among processors?

Shopify has a lot less flexibility with their protection due to having hyper-specific requirements. You can find them in this overview.

PayPal’s not only for businesses in the US and and EU and offers protection for item-not-received disputes. If you’re dealing with refund or return fraud, this can help a lot with that. But won’t do much good for purchases of digital products.

That’s when you’d want to use Stripe.

P.S. Here’s a guide on PayPal’s Chargeback Protection.

With all that in mind, should you get Stripe’s protection?

Who Should Get It?

Stripe’s Chargeback Protection is a solid choice for businesses at higher risk of fraud-related chargebacks. Especially those selling digital products like online courses, software, or subscriptions.

Fraudsters often target digital goods. Businesses cannot issue refunds and customers can't physically verify them.

Stripe’s protection alone isn’t enough. The program has a $25,000 annual reimbursement limit, and frequent chargebacks can exceed it quickly.

To better protect your revenue, consider adding these fraud prevention tools:

• Chargeback alerts: Get notified of disputes in real-time and issue refunds before they escalate.
• 3D Secure: Adds an extra verification step for high-risk transactions.
• Fraud detection tools: Use machine learning to flag suspicious activity.
• Clear billing descriptions: Help customers recognize your charges to prevent accidental disputes.

You’ll need to prioritize lowering chargeback rates if they’re too high. This guide will help you gauge that. Otherwise, you may end up on a merchant blacklist. Making it harder for you to find a processor.

We also have another guide that describes a myriad of ways to prevent chargebacks.

And that’s a wrap.

Wrapping Up

Stripe’s chargeback protection offers flexibility for merchants who:

• Have low chargeback rates.
• Want to recover lost funds.
• Use Stripe for payments.

But here’s the thing. Relying only on protection isn’t enough. Ignoring prevention could put your merchant account at risk.

That’s where chargeback alerts come in.

As a certified reseller, we’ve helped some customers prevent 9 out of 10 chargebacks. These alerts notify you before a dispute happens, giving you a chance to resolve it first.

Schedule a demo today to see them in action.

Sources

• [1] Impact of 3D Secure on Conversion Rates. Adyen. 1/08/2014.