Stripe reveals challenges that will make or break Europe’s digital economy

4 Jun 2019

Image: © Weyo/

Businesses are being hammered by fraudulent disputes while the onset of new SCA regulations will hit small firms the hardest.

The Collison brothers’ Stripe has unveiled a new tool to help businesses recover and defend themselves from one of the most fraudulent activities in e-commerce: chargeback fraud.

The payments player has also published the findings of a new study at Money 20/20, indicating that the European economy could face a loss of €57bn after the onset of new Strong Customer Authentication (SCA) regulations, with small businesses expected to be disproportionately hit.

‘Chargebacks beleaguer internet businesses; they’re unpredictable, hard to win and hurt cash flow’

A chargeback happens when a cardholder makes a claim to their bank or credit card company that a payment made on their card was fraudulent. When a chargeback occurs, the business to which the payment was originally made is required to repay the full purchase amount, plus a chargeback fee.

Chargebacks are a major headache for small businesses and start-ups that trade online. These disputes often have a material impact on a business’s cash flow, as funds are pulled from their account while the dispute is assessed. This can take up to three months, during which time the disputed funds remain unavailable to the business, even if they ultimately win the dispute.

With Chargeback Protection, businesses on Stripe are not only safeguarded against fraudulent charges, but are also automatically reimbursed for the cost of a disputed charge and any associated fees, saving them time, money and resources.

“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.”

It’s a tough time to be an online business in Europe

While offering an elixir to firms beleaguered by chargeback fraud, the bad news is that European firms are not prepared for the onset of new SCA rules as part of PSD2 in September, with only one in two expected to be compliant.

‘SCA will make or break internet businesses’

A new study conducted by 451 Research for Stripe forecasts that Europe stands to lose €57bn in economic activity in the first 12 months after SCA takes effect. The findings are based on surveys conducted with 500 qualified payment professionals at online businesses and 1,000 consumers in the UK, France, Germany, the Netherlands and Spain.

It found that SCA will disproportionately impact small businesses. It also found that three in five businesses with fewer than 100 employees are either unfamiliar with SCA, won’t be compliant before the September deadline or are unsure when they will be ready.

“SCA is unequivocally the single most disruptive event to impact European digital commerce, and many businesses – especially smaller ones – have yet to fully grasp its extensive impact,” said Jordan McKee, analyst at 451 Research.

“Our study indicates low levels of preparedness and, most troublingly, a lack of appreciation for how SCA will transform how European consumers will buy online.”

According to Stripe, many businesses are preparing to minimise the transactions for which SCA will be required. This can be achieved through a set of exemptions, which allow, for example, recurring payments or small purchases (under €30) to be approved without extra layers of friction.

However, businesses are dramatically underestimating the complexity and resource burden of managing and optimising these exemptions.

Around half of respondents plan to handle management of exemptions completely in-house. The challenge is that exemptions are complex to administer, especially for smaller businesses, and require visibility on how card networks and banks will apply exemptions across Europe. For instance, purchases under €30 are exempt from SCA, but SCA will be requested by the customer’s bank once five transactions below €30 have been made or the total value of those transactions reaches €100.

The most recent version of 3D Secure, which to date has been known by consumers under names such as Verified by Visa and Mastercard SecureCode, is emerging as a popular SCA-compliant way to accept payments online. However, one in four online businesses are not yet familiar with it. For those that are familiar, 24pc believe they will only implement it after the September deadline.

“SCA will make or break internet businesses. The urgency to get ready for it cannot be overstated,” commented Guillaume Princen, head of continental Europe at Stripe. “We’re building infrastructure to insulate internet businesses from this kind of regulatory complexity. Our ambition is to accelerate online commerce and empower innovators to easily experiment with new internet business models.”

To make matters worse, 73pc of European online shoppers are unaware of the new authentication requirements coming to the online checkout experience in September.

When asked what they believe would be the best authentication experience, 54pc say one-time passcodes while 26pc said that fingerprint recognition such as Touch ID on Apple devices would be best.

Despite this apparent low preference for fingerprint recognition, 43pc still believe that it is “most secure”. This indicates a need to help consumers get more comfortable with mobile wallets such as Apple Pay and Google Pay as a secure and easy way to check out online.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years