Business Owner Details Getting ‘Screwed By Square’

    February 13, 2014
    Chris Crum
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Alex Shvartsman runs a small store called Kings Games in Brooklyn as well as its e-commerce counterpart. He’s been a longtime Square Reader user, and was an early adopter of Square Market, the company’s online storefront for small businesses.

“I’ve used the Square Reader (the little square dongle) for close to two years, and their e-commerce site almost literally since they day they launched it last summer,” Shvartsman tells WebProNews.

He was a happy customer until late last year when someone used stolen credit card numbers to place several large orders on his site, and ultimately got him “screwed by Square,” as he put it in a blog post.

Before the issue was discovered, the store shipped about $1,800 worth of trading cards to different addresses provided by the criminals. Nothing about the transactions, according to Shvartsman, was suspicious, but in November, he received two chargeback notices from Square totaling about $1,200. He wrote:

I deal with occasional chargebacks in-store, and through PayPal for our eBay transactions. In all PayPal cases, I have been able to get my money back once I provided proof that we shipped the item where we were supposed to, with tracking and delivery confirmation. Resolving such a case typically takes from a few days to a few weeks.

Square has a slightly different procedure. For each chargeback, they provided a link asking me to fill out a survey and provide supporting data such as invoices, receipts, and communications with the buyer. None of which I had, since the entire transaction was handled online, directly through Square. That’s OK though — their FAQ suggests that even without additional documentation, they will represent the seller and try to resolve the dispute on their end — just like PayPal would.

Unlike PayPal however, it seemed that they just withdrew the disputed funds from my store’s bank account, without any additional follow-up.

At this point, he tried to get in touch with the company, but discovered they offered no phone support, so he was left to settle for hearing back from the company via email a week later only to be told that Square would respond to billing disputes on his behalf, and that it could take up to 90 business days to resolve the disputes. Meanwhile, a third chargeback emerged, bringing the total to about $1,800. He wrote:

$1800 is a lot of money to me. What’s worse, these items are sold on incredibly low margins. After the wholesale cost, shipping, and processing fees, I make approximately $5 in net profit for each $90 box of trading cards sold. (And that’s not counting fixed costs!) So an $1800 loss wipes out profits from literally tens of thousands of dollars in sales.

As recently as last week he got another chargeback for another order from November. He emailed Square again, and got a much more prompt response telling him they had deactivated his account, and that he would no longer be able to process credit card transactions using Square, and “for security reasons” could not divulge the reason for the termination.

An understandably irate Shvartsman blogged:

So not only has Square done nothing so far to help me resolve these chargebacks, not only did they withdraw 100% of the funds in question from my bank account, but they also punished me for being a victim of fraud by shutting down my account without advance notice, even though I have processed hundreds of legitimate transactions with them before and since this incident.

I’m out over $2300 to date, but this will end up costing me even more money in lost business. This Monday alone, my employees and I packed and shipped out approximately 250 orders we received through eBay and other seller portals over the weekend. Each of those shipped orders included a flyer inviting our customers to visit our Square-supported site. Those of them who might, will find that they can no longer place orders with us there, and we’ll most likely lose their repeat business. We’re now scrambling to get a PayPal shopping cart installed on the site, but that will take some time.

Shvartsman tells us a number of people have expressed to him having similar issues with Square. Many, it would turn out, were quite sympathetic to his plight, and ultimately he managed to make some real noise with his blog post. Gawker’s Valleywag and some other publications republished it or otherwise reported on it, and Square itself got the message. So did its competitors.

Someone from Square customer support called him, and told him that Square had indeed attempted to fight the chargebacks on his behalf, but lost the cases. The support guy told Shvartsman that Square was going to inform him via email “soon,” but since he “expressed a strong desire” to know about the transactions on Twitter, he was given “a more immediate update” by phone.

Shvartsman wrote in a follow-up post:

Losing the chargebacks does suck, but I could accept that, if all the other parts of this scenario had played out differently. My real issue was with the lack of communication, which I expressed to him, and he acknowledged that they could have done better in that regard, and are working on improving that aspect of their business.

Then the conversation got around to the cancellation of the store’s account. He started off by explaining that collectibles are a high-risk sort of item with lots of fraud potential, and that they planned on disallowing the sale of this type of item via Square e-commerce portal in the future. Which is interesting, because how exactly do you define a collectible, and who is going to evaluate listings and enforce this policy? According to Wikipedia, the only type of items Square currently disallows to be sold using their service are firearms.

The Square representative was at least kind enough to offer that he could still use the Square Reader device in the brick-and-mortar store. His blogged response to that:

Really, Square? Really? Isn’t it a little like breaking up with someone over text message, and then magnanimously suggesting that you’d be willing to still be friends with them?

Someone else at Square, he says, also tried to reach him at the store while he was away, which led to him to trying to call a toll-free number only once again finding it impossible to speak with a human. He woke up on Thursday to find that Square had emailed him $2,280.78 – what he says is the full amount of disputed transactions less Square’s 2.75% fee.

“At this point, I don’t know if they managed to convince the credit card companies to cover these chargebacks after all, or if they decided to pay it out of their own pocket,” he wrote.

But while dealing with all of this, Shopify and PayPal both became aware of the situation, and stepped in to offer Shvartsman solutions and discounts. Shopify, he says, offered to waive six months worth of fees totaling about $1,000, and PayPal actually showed up at the physical store, and offered to set up a shopping cart on the website and a PayPal Here-enabled POS terminal in the brick-and-mortar.

“Although I really appreciate the offer of help from Shopify, my immediate plans are to move forward with PayPal,” he tells WebProNews. “They’re going to help install a shopping cart onto our web site which will allow us to process online orders via PayPal, as well as set up a PayPal Here POS terminal for in-store purchases. They’ve showed a tremendous amount of initiative, visiting the store, asking a lot of questions about our business to see how they can help us move forward. I’m also very comfortable with their system for handling chargebacks, which goes further to protect the seller than the other services I’ve looked into.”

“At this time, I have no plans to continue using Square in any capacity,” he added. “Although they have taken considerable steps to resolve the issue, they still don’t have a robust system in place that would make me feel comfortable with using the service to process online transactions.”

He does tell us after having a conference call with a couple of people from Square that they did seem “genuinely interested” in feedack as to how they can improve the merchant experience.

“I hope that my situation will help nudge them toward setting policies in place that will prevent other merchants from suffering a similar fate in the future,” he tells us.

As for the resolution, he adds, “I’m sure that PR had a lot to do with it, but there are any number of ways they could have chosen to proceed, including doing nothing at all. Even if their motive may have been primarily to respond to a wave of negative PR, they deserve credit for choosing to act quickly and in a way that was meaningful and helpful to my business.”

Shvartsman wrote in his second blog post, “There are lots of fascinating ethics problems here. As a self-interested individual, I’m obviously thrilled to have my money back. But is this resolution fair? Should I have expected far less, given how often merchants lose chargeback cases, out there in the real world? Should I have expected more, given the additional loss of business and the fact that our account is still cancelled, not because we did something wrong but due to the cold equations of risk management? And if Square covered the loss, is this fair to them? Or have I leveraged the power of social media to extort a favorable resolution?”

Interesting questions to which direct answers aren’t likely to come. Either way, the ultimate resolution was probably the right PR move for Square, which is just celebrating five years of operation. Also, they just launched a feature that lets you request money from people by email.

Image via Google

  • http://www.pamelahazelton.com Pamela Hazelton

    Square might very well have lost the disputes. Where the company really went wrong was its lack of transparency with its customer – the very one who was making Square money. Square's business users should be informed on issues with their own accounts.

    • http://iSpyQuality.com/ iSpy Quality

      Couldn’t agree more.

  • SandyWT

    I had received an ad in the mail to sign up for Square for my business–and was about to–until I read this. Nothing is more frustrating than a business that you can’t reach to discuss issues. I will not use Square now. Perhaps they didn’t lose much business from me, but I’m sure this is being multiplied many times over. Thanks for the information.

  • http://fashionurbia.com Fashion Urbia

    what a moron who the heck would use square in the first place. No thank you .. keep me with traditional processors

    its not even squares fault. Someone used stolen credit cards and he accepted them.

    He was greedy you know he didnt have those kind of orders all the time or else 1800 would not matter much

    yeah he knew what was happening and the marks up are at least 50 percent this guy is bold face liar

    • 15yrsExperienced

      Oh and traditional processors charge waaaaaay to much to matter anymore, they are being replaced by the likes of Stripe (GREAT), Square (GREAT IDEA BUT FAILING), and Electronic transfer. The merchants that pay monthly fees, statement fees, gateway fees, and each incremental penny for everything are the morons – wait, that IS the traditional processor. Sorry pal.

      • http://fashionurbia.com Fashion Urbia

        I rather pay an extra half percent then have hank danky and his brother process my transactions. I am sorry but you are a real fool if you use these processors.
        I cant believe people trust these kind of companies with their money. With their money !!! No wonder why Bernie Madoff ripped off so many dumb people

    • Consaka

      And how would he know he was getting scammed with a bad card? I have been doing business online for a very long time. Sometimes you get some clues but many banks like Amigy in Texas will not even work with merchants to determine if an order is fraudulent.
      I have a great deal with traditional processors. At least you know what to expect from them and they are professional. Sure they might charge a bit more upfront but you get screwed less from behind. And you know what to expect with much less time and money wasted from the likes of Square and Paypal.

  • SquareDOWNER

    This is going to be a pretty big topic, we are in talks and have been with corporate counsel over just this issue. We lost close to $10,000 and e-properties as a result of Square not investigating. They could not have, there was a written contract, assets were shifted and changed hands and continue to be but the chargebacks went through. They simply appear to NOT have had the staff to do what they claim to have done, dispute for the merchant. This will be a class action IMHO, but we are going after them directly. They closed our account after two as well, which added insult to serious injury. Great story and I hope enough of the right people read it, as much as I hate to say it, everyone should post it at ripoffreport.com. Thanks.

    • http://fashionurbia.com Fashion Urbia

      I got an idea use a trusted processor and never trust anyone with your money

  • eddie

    worst part is that your money goes into a squared bank account. with a traditional processor the money goes into your bank account. imagine if squared, who has never made a dime, goes under like a lot of dot.coms and silicone valley companies, not that they will but go with someone that puts your money in your bank account.

  • Paul Crowley

    The first mistake here was not understanding in detail what it means to be a credit card merchant. I know, he wasn’t really taking credit cards through Visa but through a “reseller” of credit card services. Well, the rules are the same. The important fact here is when a credit card is used in a fraudulent manner – especially when it is done Card Not Present (a.k.a. on the Internet) the merchant loses. Period. There is no “proving” anything here. What you need is a basic business insurance policy where you are covered for fraud losses. You might have one and not even know you have that coverage.I have been on both sides of the credit card fraud situation a number of times. As a cardholder I have never had a problem getting all the bogus charges removed and I have never had to pay for anything that was a fraudulent charge. As a merchant I have had to take the hit every single time when an Internet sale bounced because it was fraudulent.This isn’t a Square problem – it is a business problem and someone didn’t understand the business model of taking credit cards. Could Square have helped? Sure. They could have provided more information about the customer and the potential for fraud when they noticed the sale going through. You can assume they knew the shipping address and the billing address didn’t match up and this is a huge red flag for potential fraud. Also the business owner should have known from someone that this was a high-risk sort of business and should have taken more steps to prevent losses due to credit card fraud.Credit card fraud isn’t prosecuted in the US and is probably the number 3 or 4 crime in the US – right after jaywalking or letting your parking meter run out. It happens to everyone, either as a card holder or as a merchant. And with the Internet, it happens from foreign countries as well. There are many sorts of things merchants can do to limit their exposure to fraud.

    • Consaka

      I agree. For me I got tired of the risk and not knowing so I made shipping address have to match the credit card address. The problem is for my car accessories that often shops are ordering the products and apparently they use the bosses credit card which has his home address and not the address of the business. Now I have to make judgement calls on all of those. so far so good but where can you get fraud insurance? Never heard of that for a merchant. First Data has never mentioned it.

      • Paul Crowley

        Insurance – I have it in a policy from Hartford. Bigger merchants have big insurance – think Best Buy. They simply ignore card fraud.

  • Consaka

    This is a very interesting article and is exactly the reason I do NOT do business with EBAY. Ebay did near the same thing to me as a merchant. They first came to me and made all these promises. Then when some fraudster made a purchase and then tried to back out of it they said it was my fault because he wasn’t super verified or something but nowhere did they show how to accept verified only paypal users. I mean what is the point in having unverified paypal users? Is that like the sport reserved for fraudsters?
    I did some research and discovered I was not the only one having trouble with them. I also learned that although paypal likes to make people think they are a bank they are not and they can keep and hold your money as long as they like and they don’t have to explain anything to you. You probably have as much risk letting paypal hold your money as you do letting the homeless guy on the corner hold it. You have the same guarantee as far as the law is concerned.

  • Scott Henshaw

    Really an excellent article

  • Richard Lloyd-Roberts

    Heres an update. I build websites and mobile apps for my clients. I have had chargebacks totaling $2200 in the last month from clients that decided they changed their mind. I offer a NO refund policy. Square are still in the habit of pulling money right out of your account without warning. They are still not servicing their customers. I have 20 plus clients using square that I will not send to paypal or some other credit card processor. No support and no help.