Stripe Chargeback Protection

I don't want to ever fight chargebacks. Because my policy is to never take money from people who don't want to give it to me. I want to automatically refund every chargeback attempt without it affecting my ability to charge credit cards.

One of my businesses targets consumers, who have this amazing ability to "forget to cancel" or to have "cancelled 3 months ago, but for some reason we're still billing them" or to just plain decide that the last six months of charges were fraudulent and that their bank should get them reversed.

All of that is fine with me, and in fact every invoice I send out says as much: We'll happily refund every penny you ever paid us if you simply ask. But lots of people aren't comfortable asking for their money back. They are, however, plenty comfortable asking their bank to ask for their money back.

I just want a way to streamline that process that doesn't involve me having to handle fighting disputes that I'd prefer to lose. And of course to not have those lost "disputes" count against me.

Any ideas on how to do that, Stripe?

I think you are being generous in your interpretation. I don't get many chargebacks but looking at the ones I've had there has been a lot of deceit and fraudulent behaviour.

It sounds like you are selling a near zero marginal cost software business.

I haven't seen any evidence of that second case happening with my users (apart from one incident where card thieves discovered my "update your credit card" workflow and used it to sanitize numbers for a few days before I fixed the loophole). But the first one happens all the time.

It'd be adorable in a way, as I'm sure the people doing it think they're totally getting away with something. If, that is, it didn't jeopardize my ability to continue charging credit cards in the future.

We can also give you access to receiving early fraud warnings from issuers (like Visa TC40s). These are notifications from the issuers that the customer is likely going to dispute a charge. If you're happy proactively refunding customers you could do so without incurring the dispute fee (though TC40s and the MasterCard equivalent can still count towards monitoring programs). Let me know if you're interested (eeke@stripe.com).

This gets you most of what you want. The subtleties:

1) The credit card ecosystem wants to discourage chargebacks as a routine mechanism for canceling, and so there will still be a fee assessed by the networks and hence by us.

2) The credit card networks have thresholds for how many chargebacks a customer can be doing while making responsible use of their rails, and if one routinely exceeds that, they will give a very serious warning to change business practices and, if one’s numbers do not improve, they will terminate one’s access to the rails. We have substantial experience with B2B SaaS businesses and it is _extraordinarily_ unlikely that a B2B SaaS business comes close to those thresholds, even after accounting for unfortunate user behavior.

I would look at Steam's refund flow for inspiration.

But you're absolutely right. If it were physical goods or services, I'd fight those chargebacks for sure. (Though it'd be a lot harder for one of my deadbeat customers to plausibly claim that he'd "forgot that I mowed his lawn").

How would I go about stopping it before it starts, as you seem to imply is possible?

Edit to add: Does it even make a difference if I go in and refund the disputed payments? It sounds like I get dinged either way and the customer gets their money back either way. Should I save myself the effort?

I've had both of these things happen as a consumer. Coschedule kept billing me for six months after I cancelled (and my accounts administrator didn't know we'd cancelled), and I had Experian in the UK continue billing me for six months after they'd disabled my account but hadn't told me. In the former case, they refunded it straight away once I pointed it out, and in the latter I had to escalate a little, and start talking about a small claims court, but they refunded it in the end.

I guess my point is, both of these are valid consumer complaints, and waving them away as being stupid consumers probably isn't that useful for anyone. Further down, in another comment, you imply that this is deceit / fraud.

Why involve the telephone?

Sounds like they're allowing you to automate the dispute process but it'll still be a negative mark on your account.

Side note, are you getting anywhere near the number of disputes for this to matter to you? Seems like you have good refund policies and you'd probably be below the threshold for account termination.

I word my "Why did you open a chargeback" mails the same way, and offer to handle things via a refund (and to please close the dispute because it affects our business). But the people who use their credit card company instead of email or the prominent Cancel button on the website don't tend to ever respond to those mails.

It's frustrating, because so many people have had to deal with health clubs and Comcast that they just assume every business will fight against them if they want to cancel.

For better or worse, the chargeback is the only weapon end-users have anymore.

So, does your reply reach them? Who knows. Now you have to set yourself a reminder to follow up and make sure the request got through.

Alternatively, you hunt down their support email but you still need to follow up.

Then there are the rare times a company fights you on it. Then you have a whole back and forth before they finally capitulate.

I personally go through the hassle but I can understand why OP wouldn't want to.

Your Twiddla Bill for April 4, 2019 to May 4, 2019

Hey, we wanted to let you know that on May 4, 2019 we charged your credit card $14.00 for your monthly Twiddla Pro subscription.

You can find additional information regarding your bill, individual charges, and your account history by logging into your your account at https://www.twiddla.com/ and navigating to your "My Account" page. You can also make changes to your subscription or cancel it altogether from that page.

If you have any questions regarding this charge, or would like to yell at us until we refund it, please contact us at info@twiddla.com.

Thanks for the business!

Jason Kester

info@twiddla.com

https://www.twiddla.com/

I assume Coschedule also believe they keep good records of such things, and indeed when they checked those records, they found I had cancelled when I said I did, but they'd continued to bill me anyway. You are truly exceptional to run a business where mistakes never happen, and when they do, they are always the customer's fault.

Another question: what’s the percentage of false negatives?

It’s one of the reasons that I use Apple whenever possible to handle recurring subscriptions. It takes about 10m to file a dispute with American Express. If figuring out how to cancel a subscription takes longer, I’m cutting my losses at 10m and heading to Amex.com.

Perhaps industry standards around subscription management would help? I think there is a lot of real fraud/unethical behavior exists in this space and legitimate retention management can easily cross the line in the consumers mind as scammy.

1. If you run this scheme enough and your credit card company flags your account for excessive chargebacks, you could very well have that card shut down and take a credit hit along with it. 2. More and more companies implement against (effectively) data brokers who are going to tie your chargeback history into a risk score. This very product from Stripe is absolutely going to score risky behavior in part based on past chargeback history.

What's easier & takes less time now is not a guarantee on something being a net good decision, so other people should think twice before going with a scheme like this.

  But the people who use their credit
  card company instead of email or
  the prominent Cancel button on the
  website don't tend to ever respond
  to those mails.

Presumably such a person wouldn't have the credentials, the e-mail, or the cancel button?

Dealing with refund requests is easy. The problem is customers who request chargebacks from their banks instead of requesting refunds from you.

Payment providers usually contest such chargebacks automatically. This ends up costing you a fee. And if you lose the dispute, or issue a refund as a matter of course, these chargebacks contribute to lowering your account's reputation. If this gets out of hands it can put your ability to receive payments in jeopardy.

What would be much more ideal is that, when the bank signals that one of its customers is contesting a charge, the payment provider would simply refund the charge without questions. And, assuming refunds (and chargebacks) are the exception rather than the rule, without the process lowering your score.

I have had a couple of obvious scammers take advantage, but that’s on them to square with their conscience. Life’s too short to spend it fussing with folks like that.

  Card issuers are often able to detect
  that a transaction is fraudulent before
  it is disputed, and when this happens,
  they will send us a notification.

Can we get webhooks for these? We currently have to manually refund charges when we get the ‘suspicious transaction’ email from stripe, which is a pain.

This was many years ago. At the time, I think it was a beta feature so I'm not sure if it's been rolled out to everyone yet.

I’ll agree that what you want maybe best for some forms of business, but what are you looking for here? A fundamental change to the credit card system?

Stripe isn’t going to make it not count against you, because the card companies are certainly holding it against Stripe.

So unless you convince Visa and MasterCard to change their way of doing business, I’m not sure you’ll get what you want.

Or as my southern grandfather use to say:

Don’t chase after old money or old girlfriends

Your current course of action is probably still best for your business and sanity, though. Hmm...

I assume you send an invoice/receipt email every month by default, to reduce the chance that a user forgot to cancel and to make it easier for those that wish to. (If not, I think Stripe Billing offers this, though I'm not sure...)

(disclaimer, I work at Stripe, though not on Radar or Billing, thoughts my own, etc)

If card issuers are "often able to detect that a transaction is fraudulent before it is disputed" (presumably because of transaction history) then why can't Radar block the transaction from ever taking place? Maybe there's more to it than transaction history? Can you clarify?

Monday: credit card does a transaction at a particular business.

Thursday: user calls bank to report card stolen as of previous Sunday. This kicks off a TC40 on all transactions on or after Sunday.

Friday: bank staff and/or user walk through the transactions which were post-theft, figure out which ones were still authorized (e.g. the recurring Netflix bill), and file disputes on all the other ones.

Since there is no way to send the TC40 back in time to Monday, it can't influence the fraud scoring run at the time of the transaction. But there is, in this stylized example, a window between the TC40 and the dispute for the business to proactively investigate and possibly refund.

This will let you refund and pay less fees at the merchant account level. I've used https://chargeback.com/

After all, if the issuer had been able to figure it out, the payments would have failed preauthorisation.

I'm all for giving customers the benefit of the doubt (and I'm definitely generous in giving refunds too), but doesn't this policy go a bit too far? Even if your costs are near zero, I find it somewhat unethical to say "yes, I have proof that you used my service and received the value I promised to provide... and yet the contract of the sale (implied or explicit) - past or present - is effectively nullified at your request at any time".

While it often doesn't make sense to chase after money from customers who make these kinds of requests, it also feels wrong (to me) to encourage that kind of consumer behavior. The retroactive part seems especially ripe for abuse from customers who decide to switch to a competitor, making their switching cost effectively negative (they're incentivized to leave you).

Yes - on the whole, people are usually honest and respectable. But in my experience, a surprising number of those same people value saving a few bucks over a clean conscience.

I think it's fair to assume that few people will notice a fraudulent charge, and much less bother to dispute it.

If you charge money you don't feel like you need to charge -- then simply don't charge it :)

For a subscription simply ask inactive users to sign-in and confirm that they wish to maintain their subscription.

Unfortunately, I don't think that's possible.

On Stripe, attempting to refund an actually disputed charge results in an error / invalid request.

https://stripe.com/docs/error-codes#charge-disputed

It does work for inquiries but I am not sure how often those happen vs. "proper" declines/chargebacks. I'd assume the majority is of the latter type.

Plenty of people have taken me up on the offer for a refund, and none of them felt the need to "yell", so I think they got the correct vibe. All our site copy and mails have this same casual, friendly tone. People seem to like it.

We've ended up adding additional heuristics to mark the fishy payments and manual checking before shipping out.

Something like Stripe Chargeback protection actually makes sense and I'll ask my team to look into the ratio of chargebacks to see if it makes sense to migrate from Braintree just because of this.

https://stripe.com/docs/disputes#early-fraud-warnings https://stripe.com/docs/api/radar/early_fraud_warnings

As for the percentage of false negatives, it really depends on your business. We definitely recommend looking at your own early fraud warning and disputes history to determine what makes the most sense for you.

Basically, the first is a notification triggered during the chargeback initialization process on the bank, but before the chargeback is actually processed. So when you receive the notification, you can still issue refunds, cancelling out the incoming chargeback.

The second is similar, but is at an even earlier step of the chargeback process where the user simply asks its bank some information about a line on their statement they don't recognize.

(disclaimer: I work on Radar at Stripe)

That is just not how chargebacks work, sorry. I do think there is merrit to urge issuers and card brands to change the chargeback behaviour or rules, i.e. to always give the merchant the opportunity to refund first. Essentially to make the retrievals or inquiries flow mandatory for all disputes. There you are given the opportunity to refund and respond before escalation.

Stripe and others cannot do much here except for lobbying.

Also expense fraud, the buyer purchases on their credit card, makes a claim with their employer then does a chargeback to get a refund.

I also get a lot of people buying a single license and using it on multiple computers but that's really a different issue.

Losing out on a large chunk of a $15k transaction because the buyer thinks the condition of the watch is "not as described" (where in reality, they know this is an easy way to scrape a huge discount on their purchase because the criteria is so subjective and petty) makes life very difficult. Sure, 95% of my customers are great, but that 5% really deals material damage when you are talking about high cost physical goods.

This product offering is interesting, and is worth investigating and weighing its cost against my average annual losses from chargebacks. In your case, you are offering SaaS so your marginal cost must be negligible. Different strokes for different folks I guess.

For instance "product not received" , "product unacceptable", or "subscription canceled" would not be covered.

Winning a dispute on Stripe has always felt impossible to me. I stopped trying after a while, and just let the disputes default to a loss after they time out.

Casual tone is one thing (a good thing), but I posit that an actually angry customer will not respond well to this.

"Oh damn I get this email again... and they are telling me I can cancel, but I think I already cancelled... wth. Hmm, maybe they'll give me a refund."

Now at that point whether the customer is right or wrong they'll read the yell part and think that you are mocking their potential interest in demanding a refund.

Maybe I am totally alone here (with the other guy I guess), but while I wouldn't go dispute a charge myself that wording of yours would not encourage me to write in and get my hopes up you are happy to accomodate me.

IANACFO, but I think your balance sheet for this business is going to be pretty wack. To guarantee this, you need to keep a pool for refunds (edit: and with your specific guarantee, isn't it all revenue ever?). If you don't, that can be a real issue with the business. This happened at Groupon:

https://www.cfo.com/management-accounting/2012/04/groupon-re...

But, I’ve never disputed charges outside of obviously being double charged. Most of the time, I’ll speak with vendor.

After all card companies have a tremendous amount of data at their disposal and are apparently able to detect a large percentage of fraud before a dispute is raised and yet do not pre-emptively block the charges or reverse the transaction.

I've been on the receiving end of these kind of dispute resolution processes and in spite of doing everything by the book we still ate quite a few chargeback fees on charges that to us looked just as legit as every other charge that passed through. (Not with Stripe though.)

There is also a perfect opportunity for the IPSP to flag the transaction and reverse the transaction before it becomes a problem for the merchant.

Our customers have generally been responsive when asked about a chargeback. It seems like in many of the cases there really had been a problem with their card being stolen or the like, but often all subsequent transactions had been disputed by the card issuer, even long-standing recurring charges. It wasn't clear in many of these cases that the customer had requested this, or even knew that it was happening.

Even when customers assured us that they had personally contacted their card issuer to tell them a charge was legitimate, that was no guarantee that the chargeback would be cancelled. Unless we have customers who are spending considerable time writing apologetic emails to us and offering to pay us some other way and yet for some reason lying about that contact, the card issuers aren't keeping up their side of the bargain here.

In 0% of cases was it worth the time we spent putting together comprehensive evidence to dispute a chargeback, even when we won. Like scrollaway, we just don't bother now.

If you have a system where a charge can just be arbitrarily reversed and it's not worth fighting it as the merchant even if you have overwhelming evidence of its legitimacy, that tells you how legitimate the whole system is, doesn't it?

Now, we're generally fairly relaxed about subscriptions. We very much take the view that it's not worth quibbling over the odd month's payment and we'd rather offer good customer service and build a good reputation. For example, maybe someone seems to have made an honest mistake but we believe they really did intend to cancel and they haven't used our services since, and in that sort of situation we tend to just refund them anyway if they ask.

However, cancelling a payment authority or charging a payment back retrospectively is not a substitute for cancelling a legal agreement, and in some cases it also hurts us. If someone deliberately messes us around like that, we are much less sympathetic, and we certainly consider whether to pursue them through legal means to recover what they owed us and any other damages and costs.

Imagine if someone stole your credit card number, ordered $5000 worth of furniture with it, had it delivered, and then you discovered the unauthorized purchases on your account and disputed the charge. The vendor has no choice but to just eat it.

It's unfortunate, but it happens, and the only way to mitigate it is to raise prices to offset this kind of losses.

Word trickery and playing games with buttons is over the line.

I think it is ok to say “Hey, you’re paying $20/mo for the super plan, and don’t use feature X, but can do the middle plan for $12”. I think it’s ok to make sure that people understand that data is deleted if they take the action. But it’s easy to drift into dark patterns.

Cool - thanks for answer Q