Square Chargeback Protection - The Full Guide for Merchants

Square is a popular payment processor. What began as a simple smartphone-capable credit card reader has become a prominent, multinational eCommerce technology corporation. Both enterprise and small business owners now use Square to enable a host of credit card payment-related services, including point-of-sale, virtual terminals, and online checkouts.

But since Square gives its users access to credit and eCommerce payment systems, it exposes merchants and vendors who use the service to chargebacks. Chargebacks are costly, complex, and time-consuming fund reversals—and the issue continues to grow in volume and scope as demand for online payments expands.

Merchants need support. In response, Square has developed seller safeguards for its users. Let’s explore Square chargeback protection and how Square addresses chargebacks for you and your business.

What Is a Square Chargeback?

Square chargebacks are consumer disputes that occur over the Square payment network. If a customer has an issue with a listed credit card charge (e.g. a fraudulent transaction, an incorrect charge, an unknown billing name), they can call their issuer and ask for a reversal. The issuer initiates a chargeback and notifies Square, who then debits the amount out of your merchant account.

The entire credit card chargeback process helps protect consumers from the financial damage of unauthorized transactions. Consumers should not have to pay for incorrect or fraudulent card activity. The eCommerce payment ecosystem only works if cardholders feel safe to use their credit cards.

But for merchants, the chargeback process is a complicated and expensive nuisance. Not only do you lose the reversed sale, but there are extra chargeback fees and processing costs. Plus, a significant number of cardholders abuse the consumer protections offered via chargebacks, activity known as friendly fraud. Some users attempt to recoup payments for less-than-honest reasons (e.g. dissatisfaction, buyer’s remorse, forgetfulness), leaving you to foot the bill. You can fight such false claims, but that involves additional labor and costs as you must provide compelling evidence to the issuer about the legitimacy of each transaction. Square chargebacks are a headache for eCommerce sellers.

How Does Square Chargeback Protection Work?

To support its merchant users, Square offers chargeback protection. The payment platform helps limit customer disputes through three avenues:

• Fraud Detection: Square takes proactive steps to deter fraud before it happens. The more you can prevent suspicious transactions from sneaking through your payment processing, the fewer credit card chargebacks you will have. Square will monitor your store activity, use machine learning and past transaction data to flag dubious orders, and send alerts about unusual customer behavior on the Square payment network to your account. 

• Dispute Resolution: Square has a dispute resolution team who will fight against false claims on your behalf. Through your Dispute Dashboard, the dispute resolution team will guide you through the chargeback process, asking for evidence and other paperwork as they represent your case to the issuer. Square prefers to handle all chargeback dispute matters filed on its network internally, saving you the hassle of dealing with the dispute process.

• No Chargeback Fees: Square levies zero chargeback fees. Plus, all merchants can access the Square Dispute Resolution team at no cost. Square does apply the normal processing fee of 2.65% for standard money transfers associated with lost disputes and it passes down any credit card network penalties.

Square Chargeback Protection Limitations

While Square offers helpful chargeback dispute support, it falls short of providing complete protection to its merchant users.

Before 2019, Square Chargeback Protection included reimbursements (up to 250$ per month) for all chargeback costs that meet eligibility requirements, even for lost disputes. It would also waive all fees or costs handed down by the cardholder’s issuing bank for covered payments. Unfortunately, the reimbursement program is now canceled, which leaves you more exposed to the financial damages related to customer disputes. Some may find the new lack of compensation a drawback.

Another limitation of Square’s chargeback protections is its approach to high-risk products. Digital goods or electronics did not qualify with its pre-2019 chargeback management, and you can likely expect little protection today with items highly susceptible to fraud.

Lastly, while Square fights on your behalf, you still have to take the time to compile evidence on your own. That means Square does not solve all the problems associated with chargebacks from A to Z.

Is Square’s Chargeback Protection Service Really Good for Merchants?

Square certainly gives reliable fraud prevention and dispute resolutions for its users, but it does not handle the entire burden of the chargeback lifecycle. And since the reimbursement program is canceled, you might not feel fully protected.

Still, Square's preventative approach offers simplicity. Other PSPs may provide full chargeback insurance programs for covered products, but in turn apply hefty chargeback fees (which Square avoids). Moreover, much of the coverage provided by competitor services only applies to fraud-based chargebacks and does not cover a substantial amount of friendly fraud that is service related. Square skips all that extra insurance complexity with its simple approach to chargebacks.

Either way, it is in your best interest to supplement your seller protections with chargeback mitigation. A third-party chargeback solution can better manage the entire chargeback lifecycle, providing you complete protection beyond the scope offered by Square and other PSPs. If you want to win false chargebacks and stop chargebacks from happening in the first place, consider integrating a comprehensive chargeback mitigation solution into your payment infrastructure.

The Bottom Line

Square manages chargebacks initiated on its network through no-fee representment and fraud prevention. But while the service simplifies the dispute process for many merchants with a Dispute Dashboard, an internal dispute resolution team, and pre-transaction fraud prevention, it does not offer the protections or reimbursement programs that fully protect you from the financial hardship of chargebacks. If you use Square, consider additional chargeback support.

Do you want to win more Square chargebacks and limit the number of chargebacks initiated against you? Talk to Justt to learn more about our chargeback mitigation solutions for your business.