TL;DR: More than 1,000 Square merchants launched a formal complaint against the company for holding back on 30% of their customers’ payments. “Small businesses can barely survive as it is,” the online petition reads, “and now that Square, Inc. is withholding funds, many more small businesses are going to be closing because of Square.”
Square Merchants Complain Company Holding 30% Their Customers’ Payments
Represented by Small Business Owners of America, the group claims, “Square, Inc. has recently started a process, whereas they are not releasing funds to their merchants for 120+ days, as they are having cash flow problems and their business model is causing them to possibly go bankrupt. They continue to withhold income for 120 days to small business owners. There is no appeal process, no way to verify funds, contracts, methods, etc.”
For its part, Square calls the practice a rolling reserve. “Reserves are a common industry practice designed to prevent a negative balance on your account. At Square, we currently apply what’s known as a ‘rolling reserve,’ in which a percentage of your processing income is set aside in a reserve balance, and then released on a rolling basis. Your reserved funds are only used if there aren’t enough funds in your linked bank account and available Square balance to cover any disputes, refunds, or outstanding fees,” the FAQ page explains.
Square is a popular processor of credit card transactions for small businesses in the United States, and such outfits rely upon thin profit margins even in relatively prosperous times. One can only assume the possible hit of 30% being held up during the coronavirus pandemic could be disastrous. To add insult to injury, “The withholdings came with little warning, they said, and Square asserted the right to hang on to the money for the next four months,” Nathaniel Popper revealed. “Square told them that it was doing this to protect against risky transactions or customers who demanded their money back. But several affected businesses provided documents to The New York Times showing they had not had any returns or risk flags.”
Square, Inc. was co-founded by Twitter CEO Jack Dorsey, known for his championing of various so-called ‘little guy’ causes, including heavily through philanthropy, and for the supposed censorship-resistant qualities of cryptos like BTC, ironically. The Square business model of offering relatively-frictionless payment processing for smaller businesses has proved profitable, as the company founded in 2009 went public by 2015 and currency trades on the New York Stock Exchange, recording a net income last year of more than $375 million. “Square said it had started holding back money late last year and expanded the practice to protect consumers against losses during the pandemic,” Popper detailed. “But Square did not withhold money before. And it appears to be the only payment company that is systematically applying the practice beyond the industries that the lockdowns hit particularly hard, such as travel companies, according to industry consultants and competitors.”
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