Square Clarifies Controversial “Reserves” Policy

Over the past several years, Square has grown into one of the most popular small business tools and enabled entrepreneurs to process payments in new ways. However this ubiquity also means that changes to their policies — such as adjustments made to their fees — are often big news and may court controversy. The latest example of this revolves around reserves, with some small businesses claiming that Square has begun withholding up to 30% of their payments. Now Square is offering more insight into this decision and what they’re doing to reassure customers.

In a blog post, Square stated that they do employ “rolling reserves” for some sellers. Specifically, the company explains that reserves are applied to businesses that are more likely to see chargebacks, including businesses that sell goods or services with future delivery dates. They also singled out the CBD products as an example of goods that tend to see higher than normal chargeback rates. Overall, Square says that just 0.3% of accounts currently have reserves.

The post went onto to clarify that funds held in reserves are meant to help businesses avoid negative balances while also protecting buyers. As for the “rolling” in rolling reserve, Square explains that a certain percentage of a seller’s volume is set aside and released on a rolling basis. They also note, “These funds still belong to the seller and are only used if that seller is unable to cover disputes, if no disputes occur, they receive the full amount.”

While the intent behind Square’s use of reserves is understandable, some businesses have taken issue with the policy — especially at a time when businesses are hurting from the impacts of the ongoing pandemic. As CNN Business reports, a petition of Square merchants states, “Small businesses can barely survive as it is, and now that Square, Inc. is withholding funds, many more small businesses are going to be closing because of Square.” One affected business owner, Sean Weber of Legal Knock, told the New York Times that Square had withheld $4,000 from him in May despite no customer every requesting a refund for his services. CNN Businesses asked Square for comment but the FinTech did not respond.

Looking ahead, Square says it has recently instituted a new policy where sellers will be informed about Square’s decision to utilize reserves before the action goes into effect. This will give small businesses time to decide if they’d like to continue using the company’s services. Square also notes that they’re working with their customer service agents so that they’ll be better able to explain to concerned sellers why a reserve system is being instated and how they can obtain their funds more quickly.

Concluding their blog post, Square wrote, “As always, we aim to be transparent, offer sellers choice, protect buyers, and provide a better experience with Square.” Nevertheless, it’s unclear whether the company’s explanation will help quell the controversy. That said, if the percentage of small businesses affected is as small as Square suggests, it is possible that the noise surrounding this policy change is driven more by coverage than by direct impact (CNN Business does report that the aforementioned petition has only 1,300 signatures). Of course, there is also something to be said for poor timing. In any case, while these incidents might leave some small business owners with a bad taste in their mouths, only time will tell whether they will actually chip away at Square’s dominance.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

Bilt Rewards Launches Travel Portal with Benefits for Cardholders

Last year, the startup Bilt made a splash when it announced a new service that would reward users for paying their rent. That premise was then expanded upon with the launch of the Bilt Mastercard, which is issued by Wells Fargo. Now, continuing to capitalize on both the hype of their product and the demand for travel, Bilt has debuted another new offering for customers. This week, Bilt Rewards announced...

Cash App Introduces Round-Up Investing Feature for Debit Card

Debit card customers looking to grow their investments gained a new, automated option today as Block Inc. (formerly Square Inc.) officially announced a new feature for its popular Cash App. Now, customers with the Cash App Cash Card can opt into Round Ups as a means of growing their investments. When this feature is toggled on, Cash App will round up debit card purchases to the nearest dollar and invest...

Marqeta Expands Credit Program with New APIs and More

A FinTech that specializes in creating credit card experiences is rolling out some new features. This week, Marqeta announced what it calls a "significant expansion" of its credit platform. This includes more than 40 new credit APIs that will further help clients craft and launch their own credit card products. Additionally, the company notes an updated intuitive dashboard. Using this platform, businesses can create unique card options that can not...