Chargeback fears Prompts Delay of Merchant Funds by ePayments Companies

Like many small businesses, Bluebonnet Photography has been hurt by the pandemic as customers have cancelled photo shoots, The Wall Street Journal (WSJ) reported.

Now, the Tacoma, Washington, portrait studio is facing another challenge.

Square, the San Francisco-based ePayment company, recently started holding 30 per cent for every transaction for four months “to protect you and Square from unexpected loss events,” according to WSJ.

In an email, Square told Tamara Hudson, Bluebonnet’s owner, the decision was based on the fact that she works in an industry where payment disputes are common, and she hasn’t been using Square’s service for very long, the newspaper reported.

“I’ve really been left in a lurch,” Hudson told WSJ, insisting she has never had a disputed transaction in three years of doing business with Square.

Not only has Square processed $100,000 in Bluebonnet payments annually, she said, Square’s lending arm has offered customers financing and she has used its software for customers to book sessions and launch marketing campaigns, the report said.

Hudson told WSJ she plans to drop the company.

Square isn’t the only ePayment company trying to protect themselves against chargebacks. Others, including PayPal, Stripe and Worldpay have implemented additional waiting times to access funds deposited in their accounts, WSJ reported.

The ePayment companies say they must be vigilant against possible losses for customers who seek refunds for purchased airline tickets, vacations other products or services.

A Square spokesman told WSJ the new rule impacts fewer than 1 per cent of its customers.

The decision to impose hold times followed a report that revealed that from mid-March until the end of April, credit card holders contested three times as many purchases as they did before the pandemic, according to Aite Group, a Boston-based financial services industry research company, as reported by WSJ. Some categories, including travel, had chargebacks of 40 per cent.

PayPal Chief Financial Officer John Rainey told investors last month that some companies are distributing more in refunds than they were taking in.

“Chargebacks have been this small leak in the plumbing somewhere that no one’s cared about,” CEO Adrian Sanders of Chargehound, the California-based software maker for the payments technology industry, said. Now, “this is a place where the pipe can actually burst.”