Thousands of business owners are furious with the new and sudden change in Square’s new processing policy. The new policy allows the company to hold up to 30% of the customers’ payments in reserves. This includes the thousands of CBD merchants that signed up with Square in the past year. These merchants are now switching to dedicated CBD solutions like AllayPay, Inc.
Per Square’s own press release, they apply reserves to “risky” sellers. These sellers may accept pre-payment for goods or services delivered later. They may also sell goods or services that face more disputes. Square also includes industries that historically receive higher chargeback rates than others. Square has also mentioned other factors, such as shifts in the macroeconomic environment. These shifts can cause certain industries to face a higher likelihood of chargebacks.
Although they said the vast majority of their sellers don’t fit this profile, there have been a tremendous number of merchants who believe they have been unfairly slapped with this incredibly large reserve.
Square processing policy claims that they give merchants advance notice before applying a reserve. They also give merchants an option to release the reserved funds. However, many affected merchants reported that Square implemented reserves overnight without notice. As a result, many merchants had to take out loans, cut expansion plans, and lay off employees.
Square’s core business has always focused on processing payments for face-to-face merchants. When coronavirus lockdowns began, many businesses temporarily or permanently closed. Square reported a $106 million loss for that quarter. In May 2020, Bank of America downgraded Square’s stock to underperform. The downgrade reflected concerns about small and medium-sized businesses during the economic crisis. Restaurants, retailers, and salons faced challenges staying afloat during the pandemic. Merchants strongly believed that contributing to Square’s financial cushion seemed unfair without high-risk transactions.
