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Hundreds of Merchants Say Square Is Withholding 30% of their Payments

Hundreds of Merchants Say Square Is Withholding 30% of their Payments 101
Source: Adobe/Africa Studio

Payments service Square is reportedly withholding up to 30% of its customers’ payments during the coronavirus pandemic – although the firm says that it is only targeting “risky” customers.

A petition hosted at Change.org states that funds are being withheld arbitrarily during the COVID-19 crisis, despite Square’s claims otherwise – and has over 1,640 signatories at the time of writing.

Per the New York Times, a large number of people, mainly small business owners, have written into the publication to claim that the company – fronted by Twitter CEO Jack Dorsey – will not release badly needed funds, stating that these were placed in “reserve.” Some merchants are struggling to stay afloat as the pandemic takes its toll on the American and global economies.

A few say they will likely face bankruptcy unless Square allows them to gain access to the withheld payments.

Users say they were sent the following message,

“Reserve has been placed on your account. To help protect your business from a negative account balance, 30% of your transactions will be placed in a reserve balance and released to your account 120 days after the original transaction date.”

Square released a response, in a press release, that stated the restrictions have been in place since 2019, and only affect 0.3% of its customers.

The company said,

“We apply reserves on more “risky” sellers, such as those that take pre-payment on goods or services delivered at a future date, sell goods or services more prone to disputes, or operate in an industry that historically receives higher chargeback rates than others.”

Square also added, however,

“Changes in consumer behavior may affect even businesses that typically pose a lower risk, as we’ve seen with COVID. The vast majority of our sellers don’t fit this profile.”

Regardless, business owners told The New York Times that “at a time when other companies are trying to help small businesses,” Square was doing the opposite.

The same media outlet suggested finance may be at the heart of the issue, claiming that “Square has been hit harder by the pandemic-induced recession than other technology-focused payment companies.”

Author Nathaniel Popper wrote,

“More than rivals like PayPal or Stripe, Square focuses on merchants with physical stores, many of which had to close during shelter-in-place orders.”

Square’s latest financial results were published last month. They and showed a USD 106 million quarterly loss, and the company has, Popper added, “reported that it was increasing the cash it had on hand by 290% to hedge against future losses.”

We contacted Square for comment and will update should they reply.

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