Square Chargebacks

Table of Contents

1. How Do Square Chargebacks Work?
2. How Can I Protect Myself from Square Chargebacks?
3. What is Included with Square Chargeback Protection?
4. Where Does Square’s Chargeback Protection Fall Short?
5. Conclusion
6. Frequently Asked Questions

Square has been a game-changer for many small merchants. Vendors and small businesses who were previously cash-only are able to use Square to accept credit card payment with a phone or tablet—no costly terminals or complex set-up required.

What is a Square Chargeback? These chargebacks are ones that happen over the Square payment network. Square has brought more flexibility to payments, especially with mobile devices, but that flexibility has come with some limitations when it comes to chargebacks and chargeback prevention.

Of course, the price of affordability and convenience is often a loss of robust features, and chargeback handling is one area where some merchants feel that Square has cut some corners. Square has addressed these concerns by offering a chargeback protection plan, but is it really effective at protecting merchants from revenue loss?

Launched in 2009, Square’s point of sale app lets merchants easily and cheaply process payment card transactions with any mobile device. This made acceptance of credit card payments much more accessible to small merchants on a tight budget, and today nearly 64 million businesses use Square to take payments.

Unfortunately, chargebacks will be found anywhere credit card payments are accepted. 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. 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.

When merchants raised concerns about Square’s chargeback handling procedures, they responded by making a chargeback protection plan available to all of their enrolled merchants. This protection plan may mitigate the damage done by chargebacks, but it’s not designed to give merchants the tools they really need to analyze, fight, and prevent them.

How Do Square Chargebacks Work?

Square chargebacks start out like any other. When a cardholder believes that they have cause to dispute a transaction, they call their issuing bank and ask for a reversal of the charge. The issuer will initiate a chargeback and notify Square.

If the merchant has funds in their Square account sufficient to cover the chargeback amount, Square will place a hold on that amount until the chargeback is resolved. If the merchant does not have sufficient funds, Square will debit their linked bank account for the disputed amount.

Square’s Disputes Resolution Team will then contact the merchant to get more information about the transaction. If the issuer has asked for specific information, they will pass that request along to the merchant. The merchant should furnish thorough and detailed information in response to these inquiries in order to give Square the best chance of fighting the chargeback.

Merchants can also choose to resolve the dispute by returning the funds to the customer.

Square chargebacks are subject to the same time limits as any other chargeback, so merchants must respond quickly to Square’s dispute notifications. Merchants can review the details and status of disputes in progress on the Disputes Dashboard section of their Square Point of Sale app.

The sort of information that Square will request is the same you would provide for chargeback representment in most other circumstances: copies of receipts or invoices, emails between the merchant and the customer, proof of delivery, or the text of your purchase terms and conditions.

Square will only allow its merchants to fight a chargeback by submitting a first representment. If the issuing bank decides in favor of the cardholder, Square will not submit a second representment or pursue arbitration.

How Can I Protect Myself from Square Chargebacks?

The way to protect yourself from non-fraud Square chargebacks is much the same as protecting yourself from other chargebacks: prevention and recovery. 

Implement fraud prevention tools. Ensure that your business operation uses prevention tools to stop fraudsters before they make purchases. With more apt fraud prevention, you can cut off a lot of the fraud cases that lead to legit chargeback

This prevention step also includes using things like AVS to ensure that fraudsters don't take advantage of CNP transactions. 

Keep documentation for a response. Recovery requires documentation across your business to support your claim that a chargeback is fraudulent. This is a full-time job, so keeping payment information, shipping information, etc. is critical.

Work with a chargeback management company. These third-party vendors can help your develop your prevention and response plans without you having to dedicate an entire team to the process. Plus their tools and expertise are essential for successful chargeback prevention and recovery. 

What is Included with Square Chargeback Protection?

At a glance, Square’s chargeback protection program looks pretty good. It includes basic fraud screening to help merchants avoid chargebacks in the first place, it waives all chargeback fees, and it covers the merchant’s revenue loss for eligible transactions—up to a point.

As described above, Square also provides merchants with a dashboard that allows them to easily monitor their dispute activity, and they handle chargeback representment on the merchant’s behalf.

Where Does Square’s Chargeback Protection Fall Short?

The devil is always in the details, and there are a few things that notably diminish the efficacy of Square’s chargeback protection plan.

First, their revenue loss coverage maxes out at $250 per month. That’s more than most payment platforms offer, but for merchants who sell high-value goods or services, one or two chargebacks can quickly eat it right up.

Any portion of that $250 that doesn’t get used does not carry over to the next month, and it cannot be used to cover a partial balance.

To illustrate, let’s say you have a month where you get two chargebacks—one for $5 and then another one for $250. After Square covers the $5 chargeback, your remaining balance for that month would be $245, and no portion of the $250 chargeback would be covered.

The other big caveat is that protection only applies to eligible products. “High risk” goods like electronics and collectibles will not qualify. Merchants are also required to comply with Square’s best practices for accepting payments in order to qualify for chargeback reimbursement.

Conclusion

Square’s chargeback protection plan seems to have been created with their core user base in mind. Small merchants and vendors who typically deal on low dollar amount transactions for low-risk goods may find that Square’s coverage is sufficient to take the sting out of occasional chargebacks and protect them from any meaningful revenue loss. For those merchants, there can be peace of mind knowing that Square will deal with the chargebacks and they won’t have to worry about managing each individual dispute that comes through.

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.

Either way, while 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 protection that allows merchants to ignore these problems can be detrimental in the long run.

Ultimately, the best chargeback protection is a comprehensive strategy that identifies the vulnerabilities that lead to chargebacks and informs an action plan for fixing them. That goes for all merchants, no matter what payment processor they’re using.

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