Chargeback Guarantees
- Chargeback guarantee services approve/decline orders and reimburse you for fraud on approved orders - but they're incentivized to over-decline borderline transactions to protect their own margins
- Typical cost is 0.5-1.5% of GMV; the true cost is that plus false positive revenue lost when good orders get declined
- Guarantees make sense when your fraud rate exceeds 0.5% and your team lacks bandwidth for manual review - below that, 3DS and Stripe Radar/similar are usually better ROI
- Always negotiate a false positive SLA: guarantee providers should own the cost of declined legitimate orders, not just fraud chargebacks
Before evaluating guarantees, understand:
- Fraud metrics - Your current fraud rate
- Fraud types - What's causing your losses
- 3D Secure - Free liability shift alternative
On this page
Do the math before signing a contract. For a typical SMB:
- 0.5% fraud rate x $500K annual revenue = $2,500/year in fraud losses
- Guarantee at 1% of revenue = $5,000/year cost
- You'd pay double your fraud losses for the guarantee
Break-even requires roughly a 1% fraud rate, which is rare for SMBs. Guarantees rarely make financial sense under $500K/year GMV and should be evaluated case by case from $500K-$5M. Before spending money on a guarantee, fix your billing descriptor and enable 3DS on high-risk segments - both are free and address the most common sources of disputes.
A chargeback guarantee is a service where a vendor assumes your fraud liability: they approve or decline orders, and if an approved order turns out to be fraud, they reimburse you. The key tradeoff is cost versus declined good orders, because guarantee providers are incentivized to decline borderline transactions to protect their own margins. This page covers pricing, provider comparison, and how to determine whether a guarantee saves you money or costs you sales.
Chargeback guarantees are designed for card-not-present (online) transactions. For card-present, EMV chip + signature/PIN already provides liability shift. If you're CP-only, this page doesn't apply to you.
How Chargeback Guarantees Work
Traditional fraud tools give you a score (e.g., "this order is 73% likely to be fraud"). You still decide whether to ship. If you're wrong, you eat the loss.
Guarantee providers give you a decision: approve or decline. If they approve and it's fraud, they reimburse you.
Traditional: Score (73%) → You decide → You liable
Guarantee: Decision (Approve) → You ship → They liable
What's Covered
| Covered | Not Covered |
|---|---|
| Fraud chargebacks on approved orders | Friendly fraud (check your contract) |
| Chargeback fees | Non-fraud disputes (not as described, etc.) |
| Shipping costs (some providers) | Orders you approve against their decision |
| Chargebacks from transactions before contract |
Read your contract carefully. Coverage varies significantly between providers.
Major Providers
| Provider | Model | Best For |
|---|---|---|
| Signifyd | Guarantee + score | Mid-market e-commerce |
| Forter | Decisions + guarantee options available | Enterprise, high volume |
| Riskified | Guarantee | Fashion, luxury, high-AOV |
| ClearSale | Guarantee + manual review | International, emerging markets |
| Kount (Equifax) | Score + optional guarantee | Flexible needs |
| NoFraud | Guarantee | SMB e-commerce |
The Cost
Guarantee pricing works one of two ways:
| Model | How It Works | Typical Range |
|---|---|---|
| Percentage of GMV | X% of approved transaction value | 0.5% - 1.5% |
| Per-transaction fee | Flat fee per approved order | $0.05 - $0.15 |
Example math:
| Scenario | Guarantee Cost | Your Fraud Rate | Fraud Loss Without | Net Savings |
|---|---|---|---|---|
| $1M GMV, 1% fee | $10,000 | 0.5% | $5,000 | -$5,000 (lose money) |
| $1M GMV, 1% fee | $10,000 | 1.5% | $15,000 | +$5,000 (save money) |
| $1M GMV, 1% fee | $10,000 | 2.5% | $25,000 | +$15,000 (save money) |
The breakeven question: Is your fraud rate higher than their fee?
The Hidden Cost: Declined Good Orders
Here's what vendors don't emphasize: guarantee providers are incentivized to decline borderline orders.
If they approve a $500 order and it's fraud, they lose $500. If they decline it and it would have been good, you lose the sale but they lose nothing.
| Provider Incentive | Your Incentive |
|---|---|
| Minimize fraud payouts | Maximize approved revenue |
| Decline when uncertain | Approve when uncertain |
| Protect their margin | Grow your business |
The Forter argument: Forter now offers chargeback guarantees but historically emphasized a technology-first approach, arguing that pure guarantee providers decline 5-15% of good orders to protect themselves. Their position: better technology means approving more orders while still covering fraud losses.
The Signifyd counter: Guarantee providers argue they approve more orders than merchants would on their own because they have better data, so the net effect is positive.
Who's right? Depends on your risk tolerance, your margins, and how good you are at fraud detection today.
When Guarantees Make Sense
Good Fit
| Situation | Why Guarantee Works |
|---|---|
| High fraud rate (>1.5%) | Math works in your favor |
| No fraud team | Outsource the expertise |
| High AOV | Single fraud loss is catastrophic |
| Approaching VAMP/ECM threshold | Can't afford more chargebacks |
| Low margins | Can't absorb fraud losses |
| Scaling fast | Don't have time to build fraud ops |
Poor Fit
| Situation | Why Guarantee Doesn't Work |
|---|---|
| Low fraud rate (under 0.5%) | Paying for coverage you don't need |
| Strong fraud team | Already doing well internally |
| Low AOV, high volume | Per-transaction fees add up |
| Mostly friendly fraud | Guarantees don't cover it |
| Tight margins | Fee exceeds fraud savings |
What to Ask Providers
Before signing:
| Question | Why It Matters |
|---|---|
| What's your approval rate for my vertical? | Tells you how many orders they'll decline |
| What's NOT covered? | Friendly fraud, specific reason codes |
| How fast do you reimburse? | Cash flow impact |
| Do you cover chargeback fees? | $15-25 per chargeback adds up |
| What data do you need from me? | Integration complexity |
| Can I override your decisions? | Flexibility vs. coverage |
| What's the contract term? | Locked in for how long? |
| How do you handle disputes? | If you disagree with a denial |
Test to Run
Before committing to a guarantee:
- Calculate your true fraud rate - Fraud chargebacks / Total transactions
- Calculate your fraud cost - Fraud losses + chargeback fees + operational time
- Get guarantee pricing - Usually need to share volume for a quote
- Compare - Is guarantee cost < fraud cost?
- Ask about decline rate - What percentage of your orders would they decline?
If the guarantee costs more than your fraud AND they'd decline orders you'd approve, you're paying to lose sales.
Scale Callout
Under $500K annual GMV: Guarantees don't make economic sense. Focus on 3DS, basic rules, and manual review.
$500K - $5M GMV: Evaluate case by case. If fraud is a problem and you don't have a fraud person, guarantees can be the right outsourcing decision.
Over $5M GMV: You can likely negotiate better rates, but also consider whether building internal capability makes more sense long-term.
Where This Breaks
Friendly fraud dominant: If most of your chargebacks are customers lying about not receiving orders or claiming "unauthorized" on legitimate purchases, guarantees won't help. They cover true fraud, not customer abuse. See Friendly Fraud.
Mixed fraud types: You have low third-party fraud (guarantee helps) but high friendly fraud (guarantee doesn't help). Make sure you understand your fraud mix before buying.
International complexity: Some providers have limited coverage in certain countries or higher fees for international transactions.
Alternatives to Guarantees
| Alternative | Pros | Cons |
|---|---|---|
| 3D Secure everywhere | Liability shift, no ongoing fee | Adds friction, some decline lift |
| In-house fraud team | Full control, no per-txn cost | Need expertise, slower to scale |
| Score-only tools | Lower cost than guarantee | You keep liability |
| Processor native tools | Already integrated | Often less sophisticated |
| Manual review | Highest accuracy | Doesn't scale, slow |
See Fraud Vendors for the full landscape.
Next Steps
Evaluating guarantees?
- Calculate your fraud rate - Know your baseline
- Understand your fraud types - What's actually causing losses
- Get quotes from 2-3 providers - Compare pricing and coverage
Not ready for guarantee?
- Enable 3D Secure - Free liability shift
- Set up velocity rules - Catch obvious patterns
- Review processor tools - Use what you have
Already have high fraud?
- Survive a fraud attack playbook - Emergency response
- Check network program status - Know your thresholds
- Consider guarantee as bridge - While you fix root causes
Related Resources
- Fraud Vendors - Full vendor landscape
- Fraud Vendor Selection Guide - How to choose
- 3D Secure - Alternative liability shift
- Fraud Types - Understanding what you're preventing
- Fraud Metrics - Measuring your fraud rate
- Network Programs - VAMP, ECM thresholds
- Friendly Fraud - What guarantees don't cover
- Rules vs. ML - Detection approaches