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If you can’t prevent disputes and chargebacks before they happen, you must handle them effectively.
Stripe disputes can lead to chargebacks, costing the merchant up to twice the original transaction amount.
The payment processor market represents billions of transactions annually, potentially tens of trillions of US dollars. Chargebacks account for approximately 1% of total transactions, but even this seemingly small number represents a great deal of money.
Stripe’s nearly 1% chargeback ratio, out of $1 trillion in total payments processed, is around $10 billion. All that chargeback money—plus more—comes from the merchants’ pockets with chargebacks held against them.
Let’s discuss how Stripe handles these disputes and how you can avoid chargebacks before they happen.
Stripe Dispute and Chargeback Fees
Every time a dispute escalates to a chargeback, Stripe assesses fees on top of the withheld revenue. Currently, this fee is $15 per chargeback.
But the merchant pays more than this for each chargeback.
Here’s what else the merchant pays:
Transaction fees: Every transaction—successful, disputed, or charged back—incurs a transaction fee. These fees run between 1.5 to 4%. If the transaction becomes a chargeback, this is money you won’t get back.
Operational costs: Processing a physical order requires a lot of employee costs, typically around 20% of revenue. Digital sales have less overhead but require computer servers, transactional software, and development and maintenance—roughly 4 to 5% per sale. All is wasted if a chargeback occurs.
Marketing and acquisition costs: Marketing and advertising dollar amounts vary widely but cannot be ignored. Merchants often spend 30 to 40% of their revenue on marketing. This money is lost if the transaction results in a chargeback.
Stripe Disputes and Time Limits
Stripe disputes work like this:
Time Limit for Filing a Dispute
A cardholder has up to 110 days to file a dispute after the merchant has captured the transaction.
Dispute Initiation
A customer questions a transaction with their bank.
The bank notifies Stripe of dispute initiation.
Merchant Notification
Stripe alerts the merchant via their Dashboard and email.
Evidence Submission
The merchant gathers relevant documentation.
The merchant submits evidence through the Stripe Dashboard.
Review Process
Stripe reviews and submits evidence to the issuing bank
The bank reviews all the evidence and makes a decision.
Resolution
If resolved in the merchant's favour, disputed funds are returned to the merchant.
If resolved in the customer's favour, the chargeback is completed, and the funds stay with the customer.
Post-Resolution
The merchant reviews and analyses the dispute’s outcome.
The merchant wisely implements preventive measures based on the analysis.
Stripe Radar
Your Stripe account includes a built-in machine-learning tool that uses data from millions of companies to prevent fraudulent transactions and identify dispute trends: Stripe Radar.
The machine-learning tool is retrained daily, so the latest fraud patterns are available for identification.
You use Radar with no code, so no programming is necessary. Radar is accessed from your Stripe dashboard. Its primary functions revolve around analysing transactions in real-time to identify and block fraudulent activities.
Customisable rules can be added to reflect the policies of your transaction handling. You set these rules, and Stripe Radar uses them to set the tolerance of the system’s leniency. This means that you can achieve a balance between blocking fraud and mitigating false positives that can kill legitimate transactions.
Dispute Handling Tools
Stripe also provides evidence-submitting tools for the merchant to respond appropriately to a dispute inquiry. These tools integrate with Stripe Radar to obtain all relevant data.
Links to Monitoring Programs
Adhering to industry-standard rules and regulations is mandatory, as you might guess. Stripe interfaces with the following programs to identify and manage a merchant’s chargeback and dispute ratios:
- Visa's Fraud Monitoring Program (VFMP)
- Visa's Dispute Monitoring Program (VDMP)
- Mastercard's Global Fraud Management Program (GFMP)
- Mastercard's Excessive Chargeback Program (ECP)
A Word of Warning
One thing you want to watch out for is getting on the Mastercard MATCH list. This is seriously bad news. It’s a blacklist for merchants with excessively high risk—such as a high dispute or chargeback ratio.
It’s vital to prevent chargebacks before they happen. If you don’t, you can end up here.
ChargebackStop: Prevention First
Our service, ChargebackStop.com, is a dedicated chargeback prevention platform.
Using ChargebackStop, you can prevent and eliminate 99% of chargebacks.
How? Let me show you.
- Automated Chargeback Prevention: Detects and intervenes in early signs of disputes and chargebacks.
- Real-Time Monitoring: 24/7/365 real-time monitoring of all your transactions. Rapid detection of fraud and chargeback scenarios.
- Alert System: You are alerted as soon as a potential chargeback is detected. Actionable recommendations are offered to prevent the chargeback. You only need to click the appropriate option, and CBStop will perform the task for you.
- Intelligent Solutions: Our platform is designed to prevent up to 99% of chargebacks by identifying and addressing the root causes of disputes, such as fraud, customer dissatisfaction, or processing errors.
- Pre-Emptive Refunds: Giving a refund before a transaction escalates to a chargeback is a cost-effective solution. We automate this process for you, as we do with all our solutions.
Looking Forward
Chargebacks are a fact of life unless you can prevent them. Allowing disputes and chargebacks to accumulate on your record costs you money and, potentially, the ability to accept payments using credit and debit cards. This can kill your business.
You likely have questions at this point. Feel free to contact ChargebackStop.com and inquire about Stripe, disputes, chargebacks, or ChargebackStop. Our friendly customer service people are trained and ready to assist you.
Visit ChargebackStop.com today for a free demo of our intelligent, automated platform.
FAQ: Stripe Disputes
Why do Stripe disputes happen?
Disputes can arise for various reasons, including unauthorised transactions, not recognising a transaction, dissatisfaction with a purchase, or not receiving goods or services as described.
How does Stripe notify me of a dispute?
Stripe notifies merchants of disputes through email and alerts in the Stripe Dashboard, providing details about the disputed transaction.
What is the timeframe for a merchant’s response to a dispute?
Merchants typically have a specified number of days to respond to a dispute with evidence to support their case. The timeframe is usually around 7-21 days, depending on the card network—Visa, Mastercard, etc.
What kind of evidence is effective in disputing a chargeback?
Compelling evidence can include proof of delivery, communication with the customer, transaction records, service agreements, or any documentation that proves the customer authorised and received their purchase.
Can I appeal a dispute decision?
Yes, merchants can appeal a dispute decision by submitting additional evidence or information that may not have been considered in the initial review.