Stripe, the payments company, announced Monday (June 2) the launch of Chargeback Protection, a new service that provides customers with machine learning-based fraud protection.
In a press release, Stripe said the new tool is based on Radar, its tool that prevents fraud and protects against future chargebacks. With Chargeback Protection, businesses on Stripe are automatically reimbursed for the cost of a disputed charge and any associated fees. That’s in addition to the safeguards Stripe offers customers against fraudulent charges. A chargeback occurs when a cardholder makes a claim to their bank or credit card company that a payment made on their card was fraudulent. The business is required to repay the full purchase amount, plus a chargeback fee. Chargeback Protection will be available to companies in the U.S. and Europe who have the latest version of Stripe Checkout. Pricing starts at 0.4% per approved transaction, Stripe said in the press release.
“Over the last few years, a top request from Stripe’s users — no surprise — has been for help with fraudulent chargebacks,” said Eeke de Milliano, product manager for Stripe Radar and Chargeback Protection. “Chargebacks beleaguer internet businesses: they’re unpredictable, hard to win, and hurt cash flow since disputes can lock up legitimate funds for months while the process plays out. Stripe Chargeback Protection removes that burden entirely, so companies can focus on everything else they need to do to grow their business.”
According to Stripe, these payment disputes have a material impact on the cash flow of the business as the money is pulled from the account while it is being disputed. That process can take up to three months — which means the business can’t access the funds for a long period of time, impacting cash flow. Stripe said for small and medium-sized businesses (SMBs) and startups, responding to chargebacks can take a lot of time as they have to identify, collect and submit detailed evidence that a payment was not fraud in order to win a dispute. Stripe said chargebacks usually cost companies more than double the original disputed amount.
Stripe said with Chargeback Protection, in addition to getting reimbursed the disputed amount plus chargeback fees, Stripe customers get to skip evidence collection. There's no need to submit any evidence in the event of a dispute. The reimbursement from Stripe comes automatically, it said in the press release.
“Chargebacks are a significant operational and cash flow pain point for internet companies,” said Jordan McKee, research director at 451 Research. “Being hit with an unexpected chargeback for a massive dollar amount (sometimes months after the initial transaction) and then losing access to that revenue as the dispute process proceeds to an uncertain conclusion places a huge burden on the business. Therefore, the ability to offload both the operational overhead and the financial uncertainty associated with chargebacks is a valuable proposition for many businesses. Solutions such as Stripe’s advanced machine learning infrastructure and dynamic checkout purchase flow help businesses minimize the impact of fraud and chargebacks while maximizing legitimate revenue.”