
Stripe Is Holding 25% of Our Funds, Indefinitely - smooke
https://hackernoon.com/stripe-is-holding-25percent-of-our-funds-indefinitely-rw1c3uc1
======
blaung
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
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.

~~~
ckdarby
Extremely doubtful, any of the card schemas would shut this down so fast. Like
the moment someone called in the first chargeback.

They're probably a payment aggregator with dynamic descriptors. This would
allow them to process the high risk and gas correctly under the proper
individual MCC but pool the transaction counts which would allow more
chargebacks.

Source: Worked as dev at payment processor with dozens of acquirers, +10M
transactions/yr, +$1B payments/yr.

~~~
jacquesm
We're talking a while ago, today this would never fly, and they were
eventually - predictably - shut down.

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davismwfl
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
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
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.

~~~
stu2b50
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.

~~~
WrtCdEvrydy
I mean, to be honest, if your sales decrease 87% and you have to refund a full
year's worth of travel, I'd expect Stripe to say something. Seems like either
they're burying the lede or Stripe is being a bag of a dicks.

------
jacquesm
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.

~~~
abnercoimbre
This is such thoughtful reasoning.

Why is it almost always the case CS reps don't dive into these details? I feel
@pat wouldn't write his article if this was the reply he got.

~~~
manquer
Legal and PR reasons mean CS reps would need to careful about what they say.
This restricts a lot of what they could share

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oliwarner
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
> _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).”

------
classics2
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
Retaliatory. Nice. That’s always a great way to run a business.

~~~
stu2b50
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.

------
neximo64
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.

------
egypturnash
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.

------
awinder
“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
Yeah, I stopped reading when he started inventing baseless conspiracy theories
of ulterior motives to justify normal chargeback loss mitigation.

------
supernova87a
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
> _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
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.

------
Simulacra
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.

~~~
victoriasun
What processors do you recommend as a stripe alternative?

~~~
ldiracdelta
Yes, what are the alternatives?

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theincredulousk
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
_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
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
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.

~~~
CaveTech
I never implied that they were badly run, merely that they’re not operating
within the current boundaries of reality.

If there’s any place for government intervention, this is it. But it’s a
slippery slope to subsidize business that are acting like the world hasn’t
changed. Unfortunately the world is complex and a business can fail due to no
fault of its operators, but that has always been the case and businesses are
risky endevors.

------
eis
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.

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some1else
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.

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katzgrau
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.

------
seanmccann
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.

------
mchusma
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.

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

------
rajacombinator
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
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.

