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Wednesday, August 26, 2020

Chargeback Gurus pans Square's chargeback protection

With chargebacks spiking during the COVID-19 pandemic, payments analysts are questioning the true price of Square Inc.'s free chargeback protection program. While designed to protect small and midsize business (SMB) owners from expensive and time-consuming chargeback management, the program deprives merchants from effectively challenging disputes and inquiries, according to experts at Chargeback Gurus Inc., a Dallas-based chargeback solutions and remediation service provider. This lack of control could impact chargeback ratios and increase losses, they noted.

At issue is that Square's chargeback plan covers only $250 per month in losses, which could be a problem for high-ticket sellers, Chargeback Gurus representatives stated. Furthermore, items approved for coverage do not include such high-risk items as electronics and collectibles. Merchants must also follow Square's best practices to be eligible for reimbursement, they added.

In an Aug. 25, 2020, blog post titled "Square Chargebacks," Chargeback Gurus wrote, "If you already know that $250 per month isn't going to make up the financial loss from your chargebacks—or if you sell ineligible goods—then Square's plan doesn't offer you much protection at all."

In a July 27 FIS article titled "Understanding and managing disputes amid COVID-19," Jackie Fusco, the company's operations leader, dispute consulting, noted that chargebacks impose costs far beyond the value of the transaction that is refunded to the consumer. These include the cost of "researching the transaction, loss of product or service, and the operational expense to respond and manage disputes. The 2019 LexisNexis “True Cost of Fraud” report found that merchants pay $3.13 per lost dollar on avg, 6.5% increase from 2018."

Fusco further noted that customer disputes and chargebacks can be a "costly, time consuming and operationally burdensome process even during optimal conditions. The scale of chargebacks related to COIVD-19 adds to the general pressures merchants are dealing with on a day to day basis."

Saving $330 million since 2011

According to information Square posted on its website, the company has saved its customer base approximately $330 million in chargeback losses since 2011. Square also claimed to fight fraud and remediate chargebacks on behalf of its customers, performing numerous tasks that have not been widely available to SMB owners.

"Fraudulent purchases result in payment disputes, which means money out of the bank for you," Square representatives wrote. "Square uses machine learning to look at payments from across our ecosystem ($65 billion in 2017) and adjust our algorithms to account for new trends in fraud. Our systems monitor your payments to keep an eye on suspicious transactions."

While chargeback specialists agree that combining machine learning with human expertise is an optimal formula for navigating the ever-changing fraud landscape, some experts would like to see service providers like Square and PayPal cede more control to end-users. There are ways to provide services to end-users without removing control and autonomy, Chargeback Gurus noted.

Level playing field

"Square wasn't set up to be a traditional payment processor, and one of the ways it offers greater convenience to merchants is by functioning similarly to a platform like PayPal," Chargeback Gurus wrote. "This makes it easier and quicker for merchants to get set up and start accepting payments, but it means giving up some flexibility and control over other aspects of the transaction process."

Chargeback Gurus further noted that the best chargeback protection plans identify vulnerabilities that can lead to chargebacks and enable business owners to strategically fix them. The company recommends working with professional chargeback analysts to effectively combat all types of chargebacks so that business owners can remain focused on core business strategies.

"[W]hile it's always nice to save $250, this protection does not get at the underlying causes of your chargebacks, which doesn't help you figure out why they are happening or what you can do to prevent them in the future," Chargeback Gurus wrote. "Chargeback protection that allows merchants to ignore these problems can be detrimental in the long run." end of article

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