Chargeback guarantee or chargeback insurance is a service that provides merchants with an extra layer of security on transactions. The guarantee provider reviews the transaction and decides if it’s legitimate or fraudulent. In the event that an approved order turns out to be a fraudulent chargeback, the provider will reimburse the merchant for the cost of the entire order. It’s a very tempting proposition for merchants that essentially ensures a certain order approval rate. Of course there is a cost (usually a fixed % of the transaction amount) to cover the transaction. However, depending on the merchants pre-screening approval rates this may be very cost effective.
Payment Providers Get into the Chargeback Insurance Game
About a month ago Stripe announced that they will offer ecommerce merchants a chargeback guarantee solution on transactions they process. Merchants must first enroll in Stripe’s Radar fraud prevention solution, and there is a 0.4% fee on each insured order. Stripe is the first payments platform to offer this kind of service, but likely not the last. There is a new trend of payment processors moving into what has traditionally been the domain of dedicated ecommerce fraud protection platforms like Signifyd, Riskified, and Forter. For merchants, payment processor based chargeback insurance offers a solid alternative. It does not require any additional investment in integrating a dedicated fraud solution. That removes the need for a process which can be both lengthy and costly.
In the past couple of years we’ve seen other payment processors like Adyen and PayPal roll out dedicated fraud prevention solutions. Adyen introduced RevenueProtect and PayPal introduced Merchant Seller Protection. Although limited in scope compared to Adyen and Stripe’s platforms, these latter options still offer merchants some kind of fraud protection mechanism. Neither Adyen nor PayPal currently offer chargeback insurance.
Given the cut-throat competition in the payments sectors it’s very likely that we will see other payment processors roll out similar functionality to Stripe’s chargeback guarantee in the near future. How will all this impact fraud protection platforms? It’s still too early to determine. But needless to say dedicated fraud and chargeback platforms will need to innovate. In the future, they must expand their own offerings in order to stay competitive with payment providers.