Square Chargebacks

Square credit card reader on iPad_CardinalCommerceAmong the more popular mobile payment startups that have appeared, and have offered small businesses an easier way to process card payments, is Square, Inc. Square offers merchants a device which turns a mobile device into what is basically a cash register they can carry in their pocket, enabling small businesses to have large processing power for consumer credit and debit cards. The problem comes with the chargebacks inherent in card processing, and the fact that the small businesses who use Square as their card processing method cannot afford the chargebacks they inevitably encounter.

The Damage of Chargebacks on Small Business

For any business, chargebacks are a big hassle which can tie up funds and interrupt cash flow as disputes are slowly settled, often not in the merchant’s favor. Square itself has lamented the “complicated” and “slow” process of chargebacks and how the process involves “a lot of paperwork and documentation,” which leaves funds in limbo and damages the merchant often more than the consumers who initiated the process. Perhaps Square’s understanding of the undue burden these chargebacks place on their small business clients is why there is now a Square chargebacks protections policy seeking to mitigate the damage chargebacks inflict upon their customer base. 

Square’s Chargeback Protection

Square decided to up the ante in its offering of small business solutions by providing chargeback protection to sellers who use Square in both the United States and Canada. Square clients who find that buyers have initiated disputes on items purchased using the device will find those charges covered for free, up to $250 dollars per month. This coverage is promised regardless of whether the selling ends up winning or losing the dispute with their consumer. This chargeback protection definitely makes Square’s card-reader product more attractive to small businesses that have other choices, including similar products from Amazon and PayPal.

The Price of Chargeback Protection

Merchants should be aware that Square chargebacks protection launched in March 2015 has not come without some difficulty to the company. Despite offering the protection of up to $250 per month, payment card fraud can often cause chargebacks totally much more per month. If a seller refuses to make good on these chargebacks or Square is somehow unable to collect the funds from the seller (such as in a bankruptcy filing), Square can be left holding the bag, which in one case was to the tune of $5.7 million involving a single seller.

Should Square be unable to regain control over fraud practices damaging their business model, increased processing fees and fines could adversely affect their ability to provide the expected level of services to their clients. The bottom line is that merchants cannot expect the problem of chargebacks to be solved by their card-processing partner, their bank, or any other entity. Chargeback prevention must ultimately begin and end with merchants’ practices and relationships with their consumers.  


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