2020 Stripe Chargeback Guide
Stripe was founded on the premise of the online economy’s potential. It is a payment platform that allows merchants to collect and customers to send payments online and via mobile. Over the years, Stripe has seen a rise in popularity due to its customizable development tools and straightforward solutions.
While Stripe is preferred by a number of merchants for eliminating financial complexity, merchants still see a fair share of disputes. So what do you need to know to overcome your next Stripe chargeback?
A dispute or a chargeback happens when a customer questions a transaction with their card’s issuing bank. Note that the “customer” may refer to the cardholder themselves or to an individual using their card for transactions, such as a family member or even a cybercriminal. The issuing bank creates a dispute to reverse the payment, which comes in the form of a refund for the customer. The refunded amount is deducted from the merchant’s account, along with Stripe’s $15 dispute fee.
How do Stripe Disputes Work?
There’s no one-size-fits-all approach when it comes to how disputes or chargebacks work. However, they all operate in a similar pattern, involving several key players:
- The customer or cardholder
- The issuing bank
- The merchant
- The acquiring bank
- The credit card network
While Stripe isn’t a deciding party for the dispute’s outcome, it does play a role in the proceedings by submitting your evidence to their financial partners, who in turn pass it on to the issuing bank, provided that the evidence is deemed valid and sufficient. If it fails to meet the criteria set by the review board, then the dispute is closed.
Stripe communicates the issuer’s final decision with its partner merchants via the Stripe Dashboard, webhooks, and API.
How does Stripe define Inquiries and Retrievals?
In the event that credit card issuers opt to investigate a transaction prior to creating a chargeback, they may request further information regarding the transaction in question. This process is called an inquiry under American Express and goes by “retrieval” for most credit card networks.
For merchants, to avoid an inquiry escalating into a full-fledged chargeback, you must submit the required evidence within the given timeframe. You may also opt to do a full refund to mark the inquiry as resolved, which also saves you from having to pay any dispute fee.
Inquiries and retrievals commonly stem from the customer questioning a transaction. While presenting sufficient evidence is usually enough to close the inquiry, there are cases when a cardholder refutes your evidence or instances where the credit card issuer deems your evidence insufficient.
It is imperative that merchants respond promptly to inquiries and retrievals to prevent these from escalating into chargebacks.
What About Stripe Chargebacks?
In the event that the issuer deems your evidence insufficient or does not raise an inquiry or retrieval, a chargeback is created. When chargebacks are created, merchants are given a limited timeframe to respond to with their evidence. Note that credit card networks may have varying timeframes.
If the merchant is unable to present evidence during the given timeframe, the cardholder ultimately wins the dispute, and thus, keeps the refund that has been debited from the merchant’s account.
If the merchant submits evidence, the issuer will also be given a limited amount of time to respond. Stripe updates their partner merchant on the dispute’s progress, while the final decision is ultimately up to the credit card issuer.
What Are Stripe’s Guidelines on Disputed Amounts?
For disputed amounts converted into the merchant account’s default currency, it will be converted back to its original currency. Let’s say that payment was originally made in EUR, was converted into USD, and then deposited to the merchant’s account. In the event of a dispute, the payment will be converted back to EUR. This conversion can mean that the disputed amount may sometimes exceed the original charge amount. This also occurs when multiple charges are bundled into a single chargeback.
How so I respond to Stripe Chargebacks?
Stripe’s partner merchants can find disputes in the Dashboard, which includes pertinent details regarding the disputed payment such as the reason why the cardholder raised the issue with the issuer, when it was disputed, and the date that the merchant should respond by. Merchants who have received a dispute are given the opportunity to respond to the dispute and to submit evidence. Merchants can also opt to accept the dispute.
As a payment platform, Stripe is notified whenever a dispute occurs and sends an email to the merchant concerned.
With regard to inquiries and retrievals, a dispute object can fall under the following categories:
- Needs response – No evidence has been submitted for the dispute.
- Under review – The evidence submitted is under review.
- Closed – The inquiry or retrieval has been settled and did not escalate into a full-fledged dispute.
How do I use the Stripe Dashboard for Dispute Responses?
Stripe encourages its partners to respond within the Dashboard. While disputes are geared toward favoring the customers, Stripe attempts to give merchants a winning chance by giving you a platform that walks you through the submission process step by step. Through the Dashboard submission, Stripe automatically formats the information that merchants provide and asks you to submit compelling evidence. The Dashboard also allows you to upload any necessary files.
Stripe encourages merchants to communicate with the customer first and discuss the details of the transaction in question before responding to the dispute. It may be possible that the customer did not recognize or remember the transaction.
If the customer has provided his email address via Stripe upon payment, you can click the “Email customer” button to enable Stripe to create an email with the details about the dispute.
If you click “Submit evidence,” you begin the response process. Stripe provides assistance and will walk you through the steps you need to take. Note that the response time is limited, the date of which can be found under the “Evidence due by” heading.
You will find the dispute’s updated status in the Dashboard as well. Stripe will send you an email with the information about the dispute’s result.
How do I submit evidence on Stripe’s Dispute Dashboard?
Once you’ve collected compelling evidence, you may submit this to Stripe, which will then submit your evidence to the issuing bank. Stripe will then proceed to notify you of any updates.
Evidence may include, but is not limited to, the following:
- Shipment tracking numbers
- Web logs
- Delivery confirmation
- Screenshots of other relevant documents
Stripe then formats the evidence submitted into a format accepted by the credit card issuer. You can only submit your evidence once. Stripe encourages their partners to provide all relevant evidence and review it thoroughly prior to submission. Stripe’s interface automatically saves your progress, allowing you to go back and make changes or review your documents at a later time.
When facing a dispute, provide only evidence that is relevant, clear, and accurate. If you have any proof of customer authorization, such as an Address Verification System (AVS) or Credit Verification Code (CVC), include this as part of your evidence. Fraudulent transactions are common and make up for numerous disputes. Proving that the customer was aware of the transaction and had authorized it is an important determining factor for your success.
What If I Accept the Stripe Dispute?
Accepting the dispute means that the merchant agrees that the dispute was valid. While this may sometimes be the appropriate response and won’t necessarily affect your business negatively, Stripe advises against using this option to replace a well-thought-out refund or returns policy. A merchant’s dispute activity does not depend on how many disputes they’ve won or lost, but rather on how many disputes they’ve received.
How Do You Deal with Dispute Withdrawals?
Disputes usually arise as a result of the customer questioning a transaction. However, they can be withdrawn by the customer when they realize that the transaction was legitimate. A typical workflow entails the customer contacting the issuer to request for the dispute to be withdrawn.
A withdrawal still entails a lengthy process between banking agencies, and by providing proper evidence, you can help facilitate a more efficient reviewing process. It does not help to simply state that the customer has withdrawn the dispute. Doing this and not submitting evidence relevant to the dispute reason might lead you to lose the case instead.
How Can Disputes Be Measured?
The Stripe Dashboard shows the dispute activity and dispute rates. These are calculations to help you measure your disputes.
They differ in that the former is based on the percentage of disputes on successful payments by dispute date, while the latter is by charge date. While they may seem similar, they each serve a different purpose.
Dispute activity stands as a gauge for dispute and card fraud monitoring programs. If you exceed the limits set by a credit card network, you may be subjected to pay fines. Merchants who have excessive dispute activity may also have difficulty in processing with Stripe or other payment platforms. When navigating Stripe’s Dashboard, you will find the dispute activity for your account under the “Analytics” section.
The dispute rate shows which of the actual payments were disputed and is an accurate representation of the frauds and disputes filed against your business. This can be found under the “Radar for Fraud Teams” section.
When Stripe detects excessive dispute activity, they will reach out to the merchant to see how they can be of assistance.
How Can Disputes and Fraud Be Prevented?
While Stripe is designed to give merchants a fighting chance when it comes to resolving disputes, it’s best for merchants to come up with best practices to prevent chargebacks.
Stripe is equipped with Radar, its very own fraud prevention toolset. Radar is built into the system’s payment flow and is equipped with algorithms that assess the risk levels of every payment processed using Stripe.
Aside from Radar, here are some guidelines to help prevent disputes and fraud:
- Collect as much pertinent information as possible.
If possible, include comprehensive billing information aside from customer name, customer email address, and billing or shipping address. It helps if you also include the CVC number and even a brief description of the purchase. More often than not, disputes are filed when customers are unable to identify a transaction and consider it to be fraudulent.
- Communicate with your customers.
It helps to communicate clearly and effectively with your customers to avoid any potential disputes. You can do this by responding promptly to issues or any queries raised. Make sure that you’re accessible to customers via different platforms (phone, email, social media) and that you’re available 24/7.
- Partner with a carrier that provides an online tracking service.
Pair this with a service that provides delivery confirmation and detailed shipping estimates. Merchants are expected to provide their customers with this information. These pieces of information can also be used by the merchant in the event of a dispute. Delivery confirmation, in particular, can be used as compelling evidence in such cases.
- Provide your customers with easy-to-find terms of service.
Make sure that your terms of service and your policies are easy to find. Have your customers check or agree to the terms prior to checkout and avoid using a checkbox that only contains a link, as credit card issuers can get very specific when it comes to how your policies are presented on your website.
In light of the COVID-19 pandemic, merchants have experienced a rise in credit card disputes. The credit card networks Visa and Mastercard have issued guidelines on how to resolve disputes brought about by cancellations and/or government prohibitions. General guidelines from both networks suggest the following:
- Communicating with customers and attempting to resolve the issue
- Offering customers a voucher or credit, whenever possible
- Emphasizing that cardholders who have been refunded should not file a dispute with their issuing bank
While chargebacks may be a thorn in the side for merchants, they are not a cause for despair. Practicing vigilance and observing standard, stringent payment protocols can help reduce instances of chargebacks and fraud.