8 ms·

Stripe Is Holding 25% of Our Funds, Indefinitely

156 points by smooke 6y ago

davismwfl 6y ago
Your title is a little misleading IMO. They are not holding your money indefinitely they have added a rolling reserve which means yes you have to wait 28 days for the remaining 25% to get paid from each transaction. While I agree they need to protect themselves in reality 25% can amount to more then the margin on many products and so can put a company out of business if the company is struggling already. That said, this is a normal practice in the financial services industry regardless of provider. I have worked with 100's of ecommerce clients over the years and whenever their chargebacks/refunds started going up (for any reason), their credit card processors would always place a reserve on the transactions. It usually ranged from 10%-50%. Many times they could get it removed over time once their chargebacks/refunds dropped again, but you have to fight to do that every month. What you are not explaining is why your chargebacks and refunds are up, Stripe's letter to you specifically mentions this, so they are trying to protect themselves. They also will have contractual obligations with card issuers/gateways etc that require them to do this if your chargeback rate exceeds some value. This isn't just you, this will happen to anyone. Related by slightly different: I worked with a client who started getting dropped every 8 months or so from different major credit card processors. Their had a product & on-going service for senior citizens and their clients would forget they purchased the service (or their kids/grandkids would find it on a statement and get upset) and so then it would be reported as fraud or processed as a chargeback etc. Even though the company had voice recordings and proof the client themselves initiated the transactions the processors would drop them over time because their refund/chargeback rate would exceed 30% over time. This company is well known, not a scam and does a few million dollars every quarter in sales. So the way we helped solve it for them was to break their transactions across many providers and also move them into doing more ACH/bank transfers instead of credit cards. This is a common method to solve these issues.
- graeme 6y ago
  Indeed, Stripe’s rep just commented as follows: > “Edwin from Stripe here. Holding funds is like a buffer for your balance—it makes sure there's enough money to cover any increase in refunds or disputes from customers. If there wasn't, customers may not get their money—and we only hold funds after we review a business and realize that it's at risk of this (like if disputes are growing). Stripe doesn't gain anything or do anything with this buffer. We don't earn interest. It's reserved just for your customers. We regularly re-review the need for the reserve, then remove it at the earliest opportunity. (It's in our interest to! We hate refunds and disputes, which are expensive for us, and would rather see your cashflow to your business grow.)” As for chargebacks, customers really win even if there are voice recordings etc? Or is it just too much hassle to go through the proof process for smaller transactions?
  - WrtCdEvrydy 6y ago
    Right, but nothing in this post indicates they experienced a high chargeback or refund volume, just a sales decrease. I wonder if they had to refund a lot of travel that wouldn't happen in 2020... and that's what triggered it. If I had a partner pull a rug out from under me, I'd focus on replacing them, especially if their reasoning is bullshit.
    - shash7 6y ago
      Also, note the lack of empathy. A good rep with social skills can turn a bad conversation into a good one. Seems like Stripe isn't investing in customer support, just aggressive expansion.
    - graeme 6y ago
      The letter from stripe said there was an increase in chargebacks and refunds on the account. And if sales decline, that means refunds and chargebacks are an even higher proportion of total money in the account.
    - stu2b50 6y ago
      To be fair, I'm pretty sure the author has a vested interest in not mentioning if they have increased chargeback or refund volume. It's not exactly an unbiased source.
- mlthoughts2018 6y ago
  I think your response is very disingenuous in the sense that nobody owes Stripe any protection for this. Their job is to mediate the risk as a payment platform, that’s why you are outsourcing payments to them in the first place. They also market themselves as having advanced fraud detection capabilities and smart dunning capabilities totally meant to encourage customers to rely on and plan around those features. If Stripe needs a buffer to handle increased chargebacks, that needs to come from Stripe’s own revenue, not customers. Imagine if an insurance company suddenly started retaining 25% of benefits owed because there was some event in the world (natural disaster, pandemic) leading to a much higher rate of claims. It’s totally bogus for anyone to say that’s fair just because reality dealt a tough hand to that insurance company. It’s fundamentally their responsibility to remain solvent and fulfill benefits without externalizing higher premiums or holds or anything onto customers.
  - notahacker 6y ago
    Their job is to collect payments, not to insure their clients against chargebacks. A chargeback is, after all, someone - rightly or wrongly - accusing their client of taking a payment illegitimately. And actual insurance companies certainly don't expedite immediate payments when fraud alerts are set off.
    - mlthoughts2018 6y ago
      No, their job is to collect payments as well as detect and prevent fraud and expedite chargebacks and refunds. https://stripe.com/radar https://stripe.com/radar If I’m paying Stripe for Radar, and there are needed chargebacks, it’s Stripe’s issue, not mine.
      - SirensOfTitan 6y ago
        Is there any indication that the poster is paying for Radar? It doesn't seem like it.
- supernova87a 6y ago
  > senior citizens and their clients would forget they purchased the service (or their kids/grandkids would find it on a statement and get upset) You know, I find that many businesses don't do one of the most simple things -- they fail to pay attention to how their transactions appear on the credit card statement line. A simple name and intuitive string + phone number instead of some unfamiliar company name "dba" can reduce the confusion by a lot.
supernova87a 6y ago
Call it whatever you want, it's fairly standard. Credit card companies hold a reserve for travel agencies, airlines, whatever businesses experience a high rate of chargebacks or have fundamental risks to their business (like being solvent for more than 1 year). Take comfort in that you're not alone.
- itsoktocry 6y ago
  >Call it whatever you want, it's fairly standard. I'm seeing this sentiment repeated in this thread. I take no issue with it, but if Stripe moves to "fairly standard" processes, at one point do they become just-another-payment-processor?
  - stu2b50 6y ago
    I mean AFAIK Stripe's selling point is ease of developer use and stuff, not that they have looser risk assessment? It's fundamentally not really something payment processors can solve that if a company goes under with 100k in charge backs due, the payment processor still needs to fork over that 100k of their own money to keep their merchant accounts in good order.
  - Silhouette 6y ago
    I take no issue with it, but if Stripe moves to "fairly standard" processes, at one point do they become just-another-payment-processor? As far as the really big players upstream from them were concerned, I doubt they were ever anything else. They still need a viable business model, and it's not unreasonable to protect themselves against a real risk. The problems here seem to be about how they communicated that and more generally the rather arbitrary and one-sided nature of these reserve arrangements (whether Stripe's or anyone else's) from the merchant's point of view.
rajacombinator 6y ago
Eh what a weasel-y way to deliver that message. “We would like to help you...” Please. Just be straight up with your customers, Stripe. Tell them you’re holding the funds to protect Stripe. Nothing wrong with that, it’s the message delivery.
- dylz 6y ago
  This is helping quite a bit, all things considered. With many other (especially 'traditional') gateways a random increase in chargebacks often leads to just being dropped from processing completely, or nearly all of it being held in reserve, sometimes for 90-180 day rolling periods for chargebacks, even more so if it's a high risk small business that may not be able to have the solvency to fund a chargeback spike.
jacquesm 6y ago
There are two ways to look at this: the first is that Stripe by virtue of their risk management process should be able to figure out ahead of time what the chargeback risk really is, and pay out what they owe you and promptly. The second way to look at it is that 25% sounds extremely generous as a first estimate. Over time it should be adjusted based on the actual risk, and likely this will happen, it is just that during a transition from 'low' to 'intermediate' or even 'high' risk Stripe has to play it safe and assume the future is going to be even worse given the slope that you are currently on. So given the fact that Stripe is in the business of passing money on to you and that they are not seeing any gains from this rolling reserve it is in their interest to keep rolling reserves as high as they need but no higher. Otherwise their reputation would tank quickly. It seems to me that you are not aware of how payment processors work behind the scenes and maybe are a bit overreacting to what makes good sense from Stripe's point of view, and which in the end only serves to protect your customers. Given that it is their - and not your - merchant account at risk they have an obligation to do this to ensure their processing business stays healthy. If you don't like that then of course the alternative is to create your own payment service. You will find that it may even be impossible to get a merchant account with this risk profile so Stripe is doing you a service. All that said, their CS rep could have done a better job at explaining all this to you.
- nordsieck 6y ago
  > they are not seeing any gains from this rolling reserve Is that really true? I don't know - I'm genuinely asking. Warren Buffet made his bones by investing the float from insurance premiums. Conceptually, this isn't that much different.
  - jacquesm 6y ago
    Those were different times. And besides that, assuming Stripe is organized properly, which given the Collison brothers' reputation I would not doubt for a second that money does not flow through their current account but through a third party account meaning they can't touch it unless they (1) disburse it to the merchant or (2) return it to the customer.
- 6y ago
deleted 6y ago
[deleted]
classics2 6y ago
Or they could just terminate your merchant account and put you on the MATCH list for excessive chargebacks. This -is- being nice and empathetic for a payment processor.
- Simulacra 6y ago
  Retaliatory. Nice. That’s always a great way to run a business.
  - stu2b50 6y ago
    I would blame the CC and banks. Charge backs are expensive, and if the merchant can't fulfill them the payment processor is suddenly on the hook for a lot of money out of nowhere. It's a defense mechanism to make sure the customer earning you 1k a month in fees doesn't go under and leave you with a 50k bill. All payment processors do it for that reason.
seanmccann 6y ago
Before Stripe and Braintree, requiring a reserve was common for a lot of merchant accounts to manage risk for new companies with no history. Sometimes they'd require an up-front reserve payment or accrual reserve (like 10% until desired reserve was met). The most reasonable is a rolling reserve (like Stripe is doing) where they hold the money a bit longer in case of chargebacks or other issues.
oliwarner 6y ago
28 days seems pretty definite. If your chargeback rate is that much higher, this is the cost of doing business. Don't like it, use another provider. Many will kick you to the kerb, or hike your rates if you're as bad as Stripe suggest. Get your bank-initiated refund rate down (provide some obvious customer service) and you'll get better terms.
- chrismorgan 6y ago
  > 28 days seems pretty definite. Paraphrasing to give the sense of the original phrase: “until further notice (i.e. indefinitely), as new funds come in we will withhold 25% of them for 28 days (rolling).”
blaung 6y ago
The exact reason your funds are being held is because you have a large amount of chargebacks and that is stated in the notice. This may not be any fault of your own, but your customers for some reason have decided that they want their money back and contacted their credit card issuer to get it back for them. Stripe, and all merchant processors, play in the financial world. They are doing risk mitigation in case your company can no longer fulfill these chargeback obligations as ultimately they would be on the hook. I know you are mad at Stripe and understand why. They make it so easy to take payments, but we are in very interesting and different times right now. My industry has been identified as high risk and we have seen rolling holds like this and/or longer payout schedules. A different merchant processor would act the same if put in the similar situation of high chargebacks. The best you can hope for is finding a merchant processor willing to take on more risk for you.
- jacquesm 6y ago
  Whatever other merchant processor you'd find would likely (1) charge higher fees (2) also implement a rolling reserve (3) kick them off if they have > 1% chargebacks so they don't risk their merchant account. Keep in mind that the processors are not going to be able to take on more risk than the card companies allow them to. You can not easily get around this in ways that are both feasible and legal at the same time. One trick I know of was a company that ran a large number of low risk transactions (gas station payments) right along a much lower number of very high risk transactions. This 'blending' lowered the charge back rate to the point that their traffic was acceptable, but in order to get away with this they were mislabeling those purchases, pretending that the high risk payments were also gas purchases. This is not acceptable to the card companies, they label this transaction laundering and will shut down any merchant account associated with such a scheme.
  - blaung 6y ago
    I'll even add two more to your initial list as these are still somewhat the norm for some merchant processors: 4) Personal guarantee 5) Up-front reserve
  - cutemonster 6y ago
theincredulousk 6y ago
Yes this is risk management, and tbh holding 25% for 28 days isn’t all that unreasonable. If your business’ finances can’t adjust for what amounts to a 1-month billing cycle for 25% of your revenue, look inward.
- Silhouette 6y ago
  If your business’ finances can’t adjust for what amounts to a 1-month billing cycle for 25% of your revenue, look inward. Under normal circumstances, that might be a reasonable suggestion. Under the current very unusual circumstances, even many large, well-established, normally viable businesses are engaging in massive downsizing or simply going under. Imposing that sort of condition on a business that is apparently struggling already due to a sudden change in its situation could easily be enough to break its cash flow and push it under, so it definitely shouldn't be done unless it's justified and proportionate.
  - CaveTech 6y ago
    It’s a risk mitigation measure being applied to what’s clearly a very risky business currently. The sword cuts hard but this exactly what it’s for. The underlying businesses are in trouble and payment processors don’t want to hold the bag while the business run away with premature profits. If the business cannot survive with these provisions in place it’s because they have not accurately priced in the risks and are now upset that their vendors are not interested in acts of capitalist charity.
    - Silhouette 6y ago
      I'm not sure any business on earth has "accurately priced in the risks" of a once-in-a-generation financial apocalypse precipitated by a global pandemic. Again, if the measure is proportionate and justified, it's fair enough to impose it. Stripe has to protect itself too. But the idea that any business in the current unusual situation should be able to just casually take a disruption to 25% of its cash flow and if it can't then it's somehow been badly run doesn't stand up to scrutiny. Lots of otherwise viable and long-running businesses have been hit hard, sometimes terminally, by the virus situation.
seibelj 6y ago
For smaller transactions, cryptocurrency would be much better for the merchant because they are bearer instruments. The business has a reputation, but the customers are fly-by-night and the merchant has no idea who they are. Removing charge back risk would ensure merchants only ship if they actually have the money. Much preferred.
- notahacker 6y ago
  Switching to crypto-only payments would remove chargeback risk mainly by liberating the business from having any paying customers at all...
Simulacra 6y ago
Stripe has been a nightmare for one of the industries I support, primarily in the arbitrary way they cancel accounts, withold funds, and provide zero recourse or even reasonable explanation. We encourage our clients to choose a different pay processor than Stripe, it’s just not worth the hassle. I’ve spent many, many hours on behalf of clients trying to figure out what’s going on at Stripe. Their customer service might just be a notch above Comcast, but not by much.
- edwinwee 6y ago
  I'm sorry about this. Could you share more about the businesses you're supporting? I'd like to help figure out what's going on. My email's edwin@stripe.com.
- victoriasun 6y ago
  What processors do you recommend as a stripe alternative?
  - ldiracdelta 6y ago
    Yes, what are the alternatives?
- hellbanTHIS 6y ago
  That’s the picture I’m getting after doing a little research on them, the number of similar complaints was enough to make me chicken out of using them.
awinder 6y ago
“It seemed to me like Stripe wasn’t doing well financially and THEY were the ones that were hit hard financially due to Covid-19. Perhaps they invest their client's money into investment accounts?” The whole thing really veered off course here.
- Can_Not 6y ago
  Yeah, I stopped reading when he started inventing baseless conspiracy theories of ulterior motives to justify normal chargeback loss mitigation.
egypturnash 6y ago
This is only barely waved at in the article, but this guy’s business is a site that helps you find cheap parking near airports. It’s not surprising that he started having a ton of cancellations and chargebacks as people started cancelling trips they weren’t going to take. I mean if we start seeing other people chiming in that Stripe is making them hold a huge reserve in businesses that are not being made completely impossible by the pandemic then maybe I’ll give some credence to his accusations that this is all Stripe covering their ass for their VC obligations. But “every single travel-related business we serve is having huge jumps in their chargebacks right now and we are making you keep a much larger safety buffer because of that” sounds eminently plausible to me.
eis 6y ago
It seems that the business in question is in the travel industry, specifically helping people find airport parking deals. Due to the Covid-19 situation I'm sure they got hit very hard and a lot of chargebacks or refunds happened as flights got cancelled. Stripe has to make sure that there are enough funds in the account to cover these transaction reversals. So I can understand where they are coming from. Trying to prove that you have enough cash in your bank account is obviously not going to work because that cash could be gone at any time or otherwise already claimed. If you got the cash then what difference does it make to you if it's in your bank or in Stripe for a month? I think this point goes against the business. One would hope that as air travel goes back to normal, the rolling reserve gets smaller. A 28 days rolling reserve should not be the end of the world. That being said I think this could have been handled much better by Stripe. This robotic "we care so much about you which is why we are doing $tough_thing to you" that is all too common nowerdays has to stop. It's a lie. It does not help the business in any way, it is just there to prevent losses for Stripe. Please drop that BS corp speak. Give the guys a call and explain the situation. Give the guys a heads-up and some time to adjust. Don't just drop the hammer like that. Engage in a discussion, try to see what can be done together. At least try it in a human way.
katzgrau 6y ago
This sucks, but plenty of companies don't get paid when they want to. If they hold 25% for 28 days and that's a huge issue, you can either switch providers or get a line of credit to give you some cushion for these events. Credit is is a reasonable and even conservative option if you know your chargebacks are temporary and you're only using it for costs you will be able to eventually cover when the 25% is released. Such is the life of being a business owner, but luckily there are plenty of solutions to these common problems if you ask your peers. This is by no means a crisis for someone who's been in business for a while, just an annoyance.
mchusma 6y ago
The bigger issue here is how expensive credit card processors are for such little value. The Visa MasterCard Amex oligopoly should be broken up. The value we get from having an additional 2-3% sales tax is very low, and only kept in place by anti-competitive behavior. This is what Stripe should be focused on of they really want to help improve global commerce: lowering this enormous tax.
neximo64 6y ago
Why don't you provide a simple way for customers to cancel their parking orders? Obviously with Covid people cannot travel and hence need no need for parking. That way you wouldn't have people calling their banks to cancel, you would have less chargebacks & you wouldn't have this 25% reserve. You would not need to complain and your customers would be happier. What the Stripe email implies is you're actually holding customer funds and refusing to give refunds & taking advantage of the Covid to keep the funds but not actually provide a service (because customers wouldn't use it). If you're providing easy refunds without any bs then Stripe is clearly in the wrong.
some1else 6y ago
It'd be interesting to find out what sort of impact the COVID situation had on chargeback rates. I don't have the data, but it's rational to assume that the numbers grew across the board. Stripe doesn't have any obligation to hedge for that risk, but having a quarter of income staked so they have no downside probably erodes infinite amounts of brand value in the long tail of their customer base. Hope somebody at Stripe is still able to reflect and see this perspective because it seems like their mission was always to make payments accessible to those who can't secure a merchant account. It'd be a shame if this type of approach to payment processing proved radically inferior to the old ways.

156 points by smooke 6y ago

Your title is a little misleading IMO. They are not holding your money indefinitely they have added a rolling reserve which means yes you have to wait 28 days for the remaining 25% to get paid from each transaction. While I agree they need to protect themselves in reality 25% can amount to more then the margin on many products and so can put a company out of business if the company is struggling already. That said, this is a normal practice in the financial services industry regardless of provider. I have worked with 100's of ecommerce clients over the years and whenever their chargebacks/refunds started going up (for any reason), their credit card processors would always place a reserve on the transactions. It usually ranged from 10%-50%. Many times they could get it removed over time once their chargebacks/refunds dropped again, but you have to fight to do that every month. What you are not explaining is why your chargebacks and refunds are up, Stripe's letter to you specifically mentions this, so they are trying to protect themselves. They also will have contractual obligations with card issuers/gateways etc that require them to do this if your chargeback rate exceeds some value. This isn't just you, this will happen to anyone. Related by slightly different: I worked with a client who started getting dropped every 8 months or so from different major credit card processors. Their had a product & on-going service for senior citizens and their clients would forget they purchased the service (or their kids/grandkids would find it on a statement and get upset) and so then it would be reported as fraud or processed as a chargeback etc. Even though the company had voice recordings and proof the client themselves initiated the transactions the processors would drop them over time because their refund/chargeback rate would exceed 30% over time. This company is well known, not a scam and does a few million dollars every quarter in sales. So the way we helped solve it for them was to break their transactions across many providers and also move them into doing more ACH/bank transfers instead of credit cards. This is a common method to solve these issues.

graeme 6y ago
Indeed, Stripe’s rep just commented as follows: > “Edwin from Stripe here. Holding funds is like a buffer for your balance—it makes sure there's enough money to cover any increase in refunds or disputes from customers. If there wasn't, customers may not get their money—and we only hold funds after we review a business and realize that it's at risk of this (like if disputes are growing). Stripe doesn't gain anything or do anything with this buffer. We don't earn interest. It's reserved just for your customers. We regularly re-review the need for the reserve, then remove it at the earliest opportunity. (It's in our interest to! We hate refunds and disputes, which are expensive for us, and would rather see your cashflow to your business grow.)” As for chargebacks, customers really win even if there are voice recordings etc? Or is it just too much hassle to go through the proof process for smaller transactions?
- WrtCdEvrydy 6y ago
  Right, but nothing in this post indicates they experienced a high chargeback or refund volume, just a sales decrease. I wonder if they had to refund a lot of travel that wouldn't happen in 2020... and that's what triggered it. If I had a partner pull a rug out from under me, I'd focus on replacing them, especially if their reasoning is bullshit.
  - shash7 6y ago
    Also, note the lack of empathy. A good rep with social skills can turn a bad conversation into a good one. Seems like Stripe isn't investing in customer support, just aggressive expansion.
  - graeme 6y ago
    The letter from stripe said there was an increase in chargebacks and refunds on the account. And if sales decline, that means refunds and chargebacks are an even higher proportion of total money in the account.
  - stu2b50 6y ago
    To be fair, I'm pretty sure the author has a vested interest in not mentioning if they have increased chargeback or refund volume. It's not exactly an unbiased source.
mlthoughts2018 6y ago
I think your response is very disingenuous in the sense that nobody owes Stripe any protection for this. Their job is to mediate the risk as a payment platform, that’s why you are outsourcing payments to them in the first place. They also market themselves as having advanced fraud detection capabilities and smart dunning capabilities totally meant to encourage customers to rely on and plan around those features. If Stripe needs a buffer to handle increased chargebacks, that needs to come from Stripe’s own revenue, not customers. Imagine if an insurance company suddenly started retaining 25% of benefits owed because there was some event in the world (natural disaster, pandemic) leading to a much higher rate of claims. It’s totally bogus for anyone to say that’s fair just because reality dealt a tough hand to that insurance company. It’s fundamentally their responsibility to remain solvent and fulfill benefits without externalizing higher premiums or holds or anything onto customers.
- notahacker 6y ago
  Their job is to collect payments, not to insure their clients against chargebacks. A chargeback is, after all, someone - rightly or wrongly - accusing their client of taking a payment illegitimately. And actual insurance companies certainly don't expedite immediate payments when fraud alerts are set off.
  - mlthoughts2018 6y ago
    No, their job is to collect payments as well as detect and prevent fraud and expedite chargebacks and refunds. https://stripe.com/radar https://stripe.com/radar If I’m paying Stripe for Radar, and there are needed chargebacks, it’s Stripe’s issue, not mine.
    - SirensOfTitan 6y ago
      Is there any indication that the poster is paying for Radar? It doesn't seem like it.
supernova87a 6y ago
> senior citizens and their clients would forget they purchased the service (or their kids/grandkids would find it on a statement and get upset) You know, I find that many businesses don't do one of the most simple things -- they fail to pay attention to how their transactions appear on the credit card statement line. A simple name and intuitive string + phone number instead of some unfamiliar company name "dba" can reduce the confusion by a lot.

supernova87a 6y ago

Call it whatever you want, it's fairly standard. Credit card companies hold a reserve for travel agencies, airlines, whatever businesses experience a high rate of chargebacks or have fundamental risks to their business (like being solvent for more than 1 year). Take comfort in that you're not alone.

itsoktocry 6y ago
>Call it whatever you want, it's fairly standard. I'm seeing this sentiment repeated in this thread. I take no issue with it, but if Stripe moves to "fairly standard" processes, at one point do they become just-another-payment-processor?
- stu2b50 6y ago
  I mean AFAIK Stripe's selling point is ease of developer use and stuff, not that they have looser risk assessment? It's fundamentally not really something payment processors can solve that if a company goes under with 100k in charge backs due, the payment processor still needs to fork over that 100k of their own money to keep their merchant accounts in good order.
- Silhouette 6y ago
  I take no issue with it, but if Stripe moves to "fairly standard" processes, at one point do they become just-another-payment-processor? As far as the really big players upstream from them were concerned, I doubt they were ever anything else. They still need a viable business model, and it's not unreasonable to protect themselves against a real risk. The problems here seem to be about how they communicated that and more generally the rather arbitrary and one-sided nature of these reserve arrangements (whether Stripe's or anyone else's) from the merchant's point of view.

rajacombinator 6y ago

Eh what a weasel-y way to deliver that message. “We would like to help you...” Please. Just be straight up with your customers, Stripe. Tell them you’re holding the funds to protect Stripe. Nothing wrong with that, it’s the message delivery.

dylz 6y ago
This is helping quite a bit, all things considered. With many other (especially 'traditional') gateways a random increase in chargebacks often leads to just being dropped from processing completely, or nearly all of it being held in reserve, sometimes for 90-180 day rolling periods for chargebacks, even more so if it's a high risk small business that may not be able to have the solvency to fund a chargeback spike.

jacquesm 6y ago

There are two ways to look at this: the first is that Stripe by virtue of their risk management process should be able to figure out ahead of time what the chargeback risk really is, and pay out what they owe you and promptly. The second way to look at it is that 25% sounds extremely generous as a first estimate. Over time it should be adjusted based on the actual risk, and likely this will happen, it is just that during a transition from 'low' to 'intermediate' or even 'high' risk Stripe has to play it safe and assume the future is going to be even worse given the slope that you are currently on. So given the fact that Stripe is in the business of passing money on to you and that they are not seeing any gains from this rolling reserve it is in their interest to keep rolling reserves as high as they need but no higher. Otherwise their reputation would tank quickly. It seems to me that you are not aware of how payment processors work behind the scenes and maybe are a bit overreacting to what makes good sense from Stripe's point of view, and which in the end only serves to protect your customers. Given that it is their - and not your - merchant account at risk they have an obligation to do this to ensure their processing business stays healthy. If you don't like that then of course the alternative is to create your own payment service. You will find that it may even be impossible to get a merchant account with this risk profile so Stripe is doing you a service. All that said, their CS rep could have done a better job at explaining all this to you.

nordsieck 6y ago
> they are not seeing any gains from this rolling reserve Is that really true? I don't know - I'm genuinely asking. Warren Buffet made his bones by investing the float from insurance premiums. Conceptually, this isn't that much different.
- jacquesm 6y ago
  Those were different times. And besides that, assuming Stripe is organized properly, which given the Collison brothers' reputation I would not doubt for a second that money does not flow through their current account but through a third party account meaning they can't touch it unless they (1) disburse it to the merchant or (2) return it to the customer.
6y ago

deleted 6y ago

[deleted]

classics2 6y ago

Or they could just terminate your merchant account and put you on the MATCH list for excessive chargebacks. This -is- being nice and empathetic for a payment processor.

Simulacra 6y ago
Retaliatory. Nice. That’s always a great way to run a business.
- stu2b50 6y ago
  I would blame the CC and banks. Charge backs are expensive, and if the merchant can't fulfill them the payment processor is suddenly on the hook for a lot of money out of nowhere. It's a defense mechanism to make sure the customer earning you 1k a month in fees doesn't go under and leave you with a 50k bill. All payment processors do it for that reason.

seanmccann 6y ago

Before Stripe and Braintree, requiring a reserve was common for a lot of merchant accounts to manage risk for new companies with no history. Sometimes they'd require an up-front reserve payment or accrual reserve (like 10% until desired reserve was met). The most reasonable is a rolling reserve (like Stripe is doing) where they hold the money a bit longer in case of chargebacks or other issues.

oliwarner 6y ago

28 days seems pretty definite. If your chargeback rate is that much higher, this is the cost of doing business. Don't like it, use another provider. Many will kick you to the kerb, or hike your rates if you're as bad as Stripe suggest. Get your bank-initiated refund rate down (provide some obvious customer service) and you'll get better terms.

chrismorgan 6y ago
> 28 days seems pretty definite. Paraphrasing to give the sense of the original phrase: “until further notice (i.e. indefinitely), as new funds come in we will withhold 25% of them for 28 days (rolling).”

blaung 6y ago

The exact reason your funds are being held is because you have a large amount of chargebacks and that is stated in the notice. This may not be any fault of your own, but your customers for some reason have decided that they want their money back and contacted their credit card issuer to get it back for them. Stripe, and all merchant processors, play in the financial world. They are doing risk mitigation in case your company can no longer fulfill these chargeback obligations as ultimately they would be on the hook. I know you are mad at Stripe and understand why. They make it so easy to take payments, but we are in very interesting and different times right now. My industry has been identified as high risk and we have seen rolling holds like this and/or longer payout schedules. A different merchant processor would act the same if put in the similar situation of high chargebacks. The best you can hope for is finding a merchant processor willing to take on more risk for you.

jacquesm 6y ago
Whatever other merchant processor you'd find would likely (1) charge higher fees (2) also implement a rolling reserve (3) kick them off if they have > 1% chargebacks so they don't risk their merchant account. Keep in mind that the processors are not going to be able to take on more risk than the card companies allow them to. You can not easily get around this in ways that are both feasible and legal at the same time. One trick I know of was a company that ran a large number of low risk transactions (gas station payments) right along a much lower number of very high risk transactions. This 'blending' lowered the charge back rate to the point that their traffic was acceptable, but in order to get away with this they were mislabeling those purchases, pretending that the high risk payments were also gas purchases. This is not acceptable to the card companies, they label this transaction laundering and will shut down any merchant account associated with such a scheme.
- blaung 6y ago
  I'll even add two more to your initial list as these are still somewhat the norm for some merchant processors: 4) Personal guarantee 5) Up-front reserve
- cutemonster 6y ago

theincredulousk 6y ago

Yes this is risk management, and tbh holding 25% for 28 days isn’t all that unreasonable. If your business’ finances can’t adjust for what amounts to a 1-month billing cycle for 25% of your revenue, look inward.

Silhouette 6y ago
If your business’ finances can’t adjust for what amounts to a 1-month billing cycle for 25% of your revenue, look inward. Under normal circumstances, that might be a reasonable suggestion. Under the current very unusual circumstances, even many large, well-established, normally viable businesses are engaging in massive downsizing or simply going under. Imposing that sort of condition on a business that is apparently struggling already due to a sudden change in its situation could easily be enough to break its cash flow and push it under, so it definitely shouldn't be done unless it's justified and proportionate.
- CaveTech 6y ago
  It’s a risk mitigation measure being applied to what’s clearly a very risky business currently. The sword cuts hard but this exactly what it’s for. The underlying businesses are in trouble and payment processors don’t want to hold the bag while the business run away with premature profits. If the business cannot survive with these provisions in place it’s because they have not accurately priced in the risks and are now upset that their vendors are not interested in acts of capitalist charity.
  - Silhouette 6y ago
    I'm not sure any business on earth has "accurately priced in the risks" of a once-in-a-generation financial apocalypse precipitated by a global pandemic. Again, if the measure is proportionate and justified, it's fair enough to impose it. Stripe has to protect itself too. But the idea that any business in the current unusual situation should be able to just casually take a disruption to 25% of its cash flow and if it can't then it's somehow been badly run doesn't stand up to scrutiny. Lots of otherwise viable and long-running businesses have been hit hard, sometimes terminally, by the virus situation.

seibelj 6y ago

For smaller transactions, cryptocurrency would be much better for the merchant because they are bearer instruments. The business has a reputation, but the customers are fly-by-night and the merchant has no idea who they are. Removing charge back risk would ensure merchants only ship if they actually have the money. Much preferred.

notahacker 6y ago
Switching to crypto-only payments would remove chargeback risk mainly by liberating the business from having any paying customers at all...

Simulacra 6y ago

Stripe has been a nightmare for one of the industries I support, primarily in the arbitrary way they cancel accounts, withold funds, and provide zero recourse or even reasonable explanation. We encourage our clients to choose a different pay processor than Stripe, it’s just not worth the hassle. I’ve spent many, many hours on behalf of clients trying to figure out what’s going on at Stripe. Their customer service might just be a notch above Comcast, but not by much.

edwinwee 6y ago
I'm sorry about this. Could you share more about the businesses you're supporting? I'd like to help figure out what's going on. My email's edwin@stripe.com.
victoriasun 6y ago
What processors do you recommend as a stripe alternative?
- ldiracdelta 6y ago
  Yes, what are the alternatives?
hellbanTHIS 6y ago
That’s the picture I’m getting after doing a little research on them, the number of similar complaints was enough to make me chicken out of using them.

awinder 6y ago

“It seemed to me like Stripe wasn’t doing well financially and THEY were the ones that were hit hard financially due to Covid-19. Perhaps they invest their client's money into investment accounts?” The whole thing really veered off course here.

Can_Not 6y ago
Yeah, I stopped reading when he started inventing baseless conspiracy theories of ulterior motives to justify normal chargeback loss mitigation.

egypturnash 6y ago

This is only barely waved at in the article, but this guy’s business is a site that helps you find cheap parking near airports. It’s not surprising that he started having a ton of cancellations and chargebacks as people started cancelling trips they weren’t going to take. I mean if we start seeing other people chiming in that Stripe is making them hold a huge reserve in businesses that are not being made completely impossible by the pandemic then maybe I’ll give some credence to his accusations that this is all Stripe covering their ass for their VC obligations. But “every single travel-related business we serve is having huge jumps in their chargebacks right now and we are making you keep a much larger safety buffer because of that” sounds eminently plausible to me.

eis 6y ago

It seems that the business in question is in the travel industry, specifically helping people find airport parking deals. Due to the Covid-19 situation I'm sure they got hit very hard and a lot of chargebacks or refunds happened as flights got cancelled. Stripe has to make sure that there are enough funds in the account to cover these transaction reversals. So I can understand where they are coming from. Trying to prove that you have enough cash in your bank account is obviously not going to work because that cash could be gone at any time or otherwise already claimed. If you got the cash then what difference does it make to you if it's in your bank or in Stripe for a month? I think this point goes against the business. One would hope that as air travel goes back to normal, the rolling reserve gets smaller. A 28 days rolling reserve should not be the end of the world. That being said I think this could have been handled much better by Stripe. This robotic "we care so much about you which is why we are doing $tough_thing to you" that is all too common nowerdays has to stop. It's a lie. It does not help the business in any way, it is just there to prevent losses for Stripe. Please drop that BS corp speak. Give the guys a call and explain the situation. Give the guys a heads-up and some time to adjust. Don't just drop the hammer like that. Engage in a discussion, try to see what can be done together. At least try it in a human way.

katzgrau 6y ago

This sucks, but plenty of companies don't get paid when they want to. If they hold 25% for 28 days and that's a huge issue, you can either switch providers or get a line of credit to give you some cushion for these events. Credit is is a reasonable and even conservative option if you know your chargebacks are temporary and you're only using it for costs you will be able to eventually cover when the 25% is released. Such is the life of being a business owner, but luckily there are plenty of solutions to these common problems if you ask your peers. This is by no means a crisis for someone who's been in business for a while, just an annoyance.

mchusma 6y ago

The bigger issue here is how expensive credit card processors are for such little value. The Visa MasterCard Amex oligopoly should be broken up. The value we get from having an additional 2-3% sales tax is very low, and only kept in place by anti-competitive behavior. This is what Stripe should be focused on of they really want to help improve global commerce: lowering this enormous tax.

neximo64 6y ago

Why don't you provide a simple way for customers to cancel their parking orders? Obviously with Covid people cannot travel and hence need no need for parking. That way you wouldn't have people calling their banks to cancel, you would have less chargebacks & you wouldn't have this 25% reserve. You would not need to complain and your customers would be happier. What the Stripe email implies is you're actually holding customer funds and refusing to give refunds & taking advantage of the Covid to keep the funds but not actually provide a service (because customers wouldn't use it). If you're providing easy refunds without any bs then Stripe is clearly in the wrong.

some1else 6y ago

It'd be interesting to find out what sort of impact the COVID situation had on chargeback rates. I don't have the data, but it's rational to assume that the numbers grew across the board. Stripe doesn't have any obligation to hedge for that risk, but having a quarter of income staked so they have no downside probably erodes infinite amounts of brand value in the long tail of their customer base. Hope somebody at Stripe is still able to reflect and see this perspective because it seems like their mission was always to make payments accessible to those who can't secure a merchant account. It'd be a shame if this type of approach to payment processing proved radically inferior to the old ways.