Businesses Reel from Coronavirus Linked Payment Processor Chargebacks
(10 June 2020 – Global) Payment processors such as PayPal, Worldpay, Square and Stripe are forcing many businesses to wait days or even weeks to access account deposits, citing the need for loss protection against consumers seeking refunds for cancelled airline tickets, holiday accommodation and other goods and services.
The move is compounding cash flow constraints for many small business owners already devastated by lockdowns and shifting consumer behavior. Payment processors reassure merchants they will address the semantics however damaging payment delays are emerging as yet another challenge for businesses hit hard by the novel coronavirus. Businesses that charge customers up front for goods and services they promise to deliver in the future are particularly at risk.
Square maintains the decision was based on factors including an industry being more prone to payment disputes and the length of time the company has been using Square. In March and April credit card customers disputed up to three times as many purchases than prior to the health crisis according to Aite Group (ex-fraudulent purchases).
‘Chargeback’ disputes accounted for a mere 0.05 percent of credit card transactions preceding the pandemic, yet now in sector verticals such as tourism these contested transaction are reaching as high as 40 percent according to Mercator Advisory Group. If a merchant becomes insolvent, the processor can be left to cover customer charges. Payment processors assert they must ensure merchants' customers can get repaid when they demand refunds.
PayPal’s successful US$4 billion bond market raise in May was notable for both its size and price following record transaction volume for the company. PayPal raised the US$4 billion in 10-year bonds priced at 160 basis points over Treasury, yielding 2.3 percent - less than what PayPal charges merchants in the US. The terms were in part due to the staggering growth in volume for PayPal as payments have shifted online, a multiyear trend that accelerated in Q2 2020 as physical shop fronts shutdown. PayPal added 7.4 million new accounts and expects to add up to 20 million new accounts by the end of Q2 2020.
“Among PayPal's merchants in travel and events, some companies recently were paying out more in refunds than they were taking in with new bookings” stated PayPal CFO John Rainey at a May investor conference.
"Chargebacks have been this small leak in the plumbing somewhere that no one's cared about. Now this is a place where the pipe can actually burst” said Chargehound CEO Adrian Sanders.
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