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.
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