The reserve will “protect you and Square from unexpected loss events,” Square said in an email to another customer, which was used as an exhibit in a lawsuit filed against the company over the practice in May. “We realize this is a challenging time for many business owners and we remain committed to supporting you.” Square declined to discuss the suit.

Online Shift
For retailers, it’s not just canceled plans that are causing the increase in card disputes. The pandemic prompted a massive shift to online commerce -- which is more prone to fraud -- as businesses across the country remain shuttered and consumers look for no-contact ways to buy goods.

That means some of the surge stems from a quirk in the rules set by payment networks like Visa Inc. and Mastercard Inc. Merchants can avoid being liable for in-store purchases by upgrading point-of-sale systems to accept chip cards. No similar mechanism exists for online purchases.

“Small merchants, as they’ve scrambled to make sure they can be relevant in this new normal for all of us, they’re also now bringing on the liability for those transactions,” said Nicole Jass, a senior vice president at Fidelity National Information Services Inc.

The world’s biggest payments companies often say the ability to dispute a transaction is a key reason consumers are comfortable using electronic payments. Banks in recent years have sought to streamline the dispute process, and it can take just a few clicks to charge-back a purchase.

Those moves rankled retailers, who can be charged a fee of as much as $50 every time they face a dispute. And merchants contend they’re seeing something known as “friendly fraud,” in which consumers dispute legitimate purchases rather than return goods for a refund.

“Friendly fraud is hard to quantify, given that the genuine consumer has conducted the transaction and is subsequently disputing it,” Aite Group said in a report last month that showed 16% of consumers admitted to perpetrating such fraud.

In response to the pandemic, Visa implemented a monitoring program to help reduce the volume of invalid disputes. American Express is extending the amount of time merchants have to respond to a dispute to 30 days.

“For many businesses, it’s the first time they’re experiencing this,” said Max Neukirchen, head of merchant services at JPMorgan Chase & Co. “And we want to help them on their journey. A lot of these changes will stick even after we reach some form of normal again.”

This article was provided by Bloomberg News.

First « 1 2 » Next