Comprehensive Guide to Square Chargebacks in 2024

I used to sell items at conventions using point of sale (POS) setups. Since Square is big in this space, and I’m wary of chargebacks, I decided to explore how Square handles them.

I’ll explain how Square handles chargebacks and ways to prevent them.

Let’s begin with what “Square chargebacks” are.

Key Takeaways

• Square chargebacks work like other processors.
• No chargeback fee.
• Time limits vary by card network.
• No chargeback protection.
• No specific chargeback rate threshold.
• Businesses can't arbitrate Square chargebacks.

No matter the chargeback type, you need to lower your dispute rate to avoid penalties. One of the best ways to do this is by using chargeback alerts.

We offer these alerts and make them easy to integrate with your system. Learn how.

What is a Square Chargeback?

A Square chargeback happens when a customer asks their bank to reverse a Square payment. Customers may dispute charges for fraud, billing errors, or product issues. Square merchants must respond to these payment reversals within a certain amount of time.

The process for Square chargebacks depends on the card network used. For example, if a Visa transaction is disputed, Visa's chargeback process applies.

Square chargebacks are unique because Square doesn’t allow sellers to pursue arbitration..

Most issuers allow merchants to fight dispute outcomes if the decision favors the customer, but Square doesn’t.

Otherwise:

The process follows a standard chargeback flow and usually includes:

• A chargeback process
• The dispute affecting your chargeback rate
• A long and costly procedure

Check out this piece for more information on chargebacks in general. Then, read the guides in the list to learn about the different parts of disputes.

In short…

When a chargeback occurs, you must submit a rebuttal letter with evidence to the cardholder’s issuer. The issuer then reviews the evidence and decides if the chargeback remains.

On average, merchants win 30% of cases. The best chance of winning comes from providing solid evidence.

If you lose, the chargeback adds to your chargeback rate. A high rate can lead to penalties, including monitoring programs and possibly losing your ability to process payments.

Is there a difference in how chargebacks work if a customer uses a credit or debit card?

Summary: Square doesn’t have a special chargeback process. It’ll vary by card network.

Is There a Difference Between Chargebacks Done on Credit or Debit Cards?

A debit card chargeback pulls funds from a customer’s bank account. It offers less fraud protection than a credit card chargeback, which falls under different regulations. Credit card chargebacks freeze the funds, while debit card chargebacks require more proof from consumers.

We have more information on the differences in this guide.

This is a guide covering disputes on Square. Thus, we need to move on.

You might have heard that they offer chargeback protection. Not anymore.

Summary: Debit cards have fewer protections.

Square Chargeback Protection, Does it Exist?

As of April 19, 2019, Square no longer offers Chargeback Protection. This service used to include fraud screening, waived chargeback fees, and up to $250 in protection for merchants.

Some sources may still claim Square offers this service, but it no longer exists. Square replaced it with “dispute management features,” such as:

• Contract builder: Build contracts.
• Dispute dashboard: To track disputes.
• Disputes experts: They deal with banks on your behalf.

Don’t believe me?

Here’s information from one of Square’s team members:

Screenshot source: Square

Let’s discuss why each of the “dispute management features” are nothing special.

Generally payment processors deal with banks on your behalf, anyway. This isn’t a good unique selling point.

A dispute dashboard doesn’t do anything to protect you from chargebacks. All it does is help you track your rates and kind of understand where they’re coming from.

As for the contract builder… It seems like a generic contract-builder tool you can find anywhere else on the internet. Moreover. You should let a legal expert deal with building contracts to truly prevent chargebacks.

If you’re after chargeback protections, you’re better off using Stripe or Shopify.

That isn’t the best response if you’re adamant on using Square. But I’ll provide actionable ways to help prevent disputes later.

Otherwise, let’s dive into Square’s chargeback process.

Summary: Square has no chargeback protection.

What is the Square Chargeback Process?

Here’s how the chargeback process would work for Square:

1. Cardholder disputes the transaction with their issuer.
2. The issuer notifies Square of the dispute.
3. Square pulls funds from the seller’s account to cover the chargeback.
4. Square’s Dispute Resolution Team contacts the merchant for evidence.
5. The seller submits evidence to Square.
6. Square forwards the evidence to the issuer.
7. The issuer makes a decision:some text
   1. Merchant wins: The chargeback is reversed.
   2. Buyer wins: The chargeback remains

Let’s go over questions you might have.

What if the seller doesn’t have enough funds in their merchant account?

Square pulls money from the merchant’s linked bank account. If funds are unavailable, contact Square's Recovery Team for assistance.

What kind of evidence should you gather?

You’ll generally want to provide the following, though:

• Communication logs
• Receipt
• Delivery confirmation
• Proof the customer agreed to your terms of agreement

The evidence to provide will vary by chargeback type. Usually the payment processor will tell you what to send. But it all depends on the transaction.

I wrote a list of every chargeback reason code along with the evidence to submit for each. Use what I wrote as inspiration on what to provide.

I mentioned “chargebacks” and “disputes.” Are they different?

Technically, yes. I provide more of an explanation in this guide. Most folks will use the terms interchangeably, though.

And do you have a certain amount of time to submit your evidence? Yes.

Square Chargeback Time Limits

Square will notify you by email, through the Disputes Dashboard, or in the Point of Sale app when you need to submit evidence. Deadlines vary by card network, so submit your evidence as soon as possible.

Here are some time limits from major card providers:

• Discover: 5 dayssome text
  • Retrieval requests: 20 days
• American Express: 20 days for inquiries and chargebacks
• Mastercard: 45 dayssome text
  • Second chargeback: 30 days
• Visa: 20 days

Use these as a reference. I recommend submitting your evidence as soon as possible.

What happens if you miss the deadline?

You automatically lose the dispute. Don’t be late with sending your evidence. Otherwise, you’ll have wasted your time gathering it.

Will Square charge any fees if I get a chargeback?

Summary: The time limit will vary by situation.

Square Chargeback Fees

Square doesn’t have a chargeback fee. 

Square compensates for this by having higher processing fees.

The average fee is 2.6% plus $0.10 per transaction. For comparison, PayPal charges 2.29% plus $0.09 per transaction, but also charges a $15 dispute fee (or $30 for high-chargeback merchants).

These fees aren’t refundable if you win chargebacks and can add up quickly. They have chargeback protection for certain disputes, though.

You’d need to review PayPal’s chargeback policy to determine which processor is better.

You might have seen that I mentioned high chargeback rates. Does Square have penalties for this?

Summary: Square has no chargeback fee.

Does Square Have a Chargeback Rate?

Square doesn’t have a set chargeback rate. However, you are still subject to chargeback monitoring programs if you exceed certain rate thresholds set by card networks.

Learn more about these programs here.

You might have gotten a Square chargeback. What should you do?

How Do I Respond to Square Chargebacks?

You’d respond to Square chargebacks by:

1. Gather as much information as possible about the dispute.
2. Access your Disputes Dashboard to get details.
3. Complete the Information Request Form from one of these places:some text
   1. Dispute notification email
   2. Square Point of Sale app (under Reports)
   3. Disputes Dashboard
4. Submit the information before the deadline.
5. Wait for the issuer’s decision.

Issuers may take up to 90 days (or longer) to decide. Fraud cases may require more time since issuers might involve law enforcement.

There’s no way to make this process go quicker. The best you can do is to patiently wait for Square’s email on the issuer’s decision.

You should know what to expect from Square’s dashboard before proceeding.

The Square Dispute Dashboard will give you these details:

• Deadline to submit your information.
• Dispute status.
• Information the bank needs.
• Why your customer disputed the order.

The best way to increase our odds of winning a dispute is to submit the best evidence possible. While that’s vague, it’s all you can do.

We have a guide that might help you with winning, though.

The actual best way to deal with chargebacks is to prevent them from happening. How would you do that?

Summary: Submit your evidence and await a response.

How to Prevent Square Chargebacks?

Square doesn’t put much effort into fighting chargebacks for you (allegedly). The best option you’ll have to deal with them is to prevent disputes from happening.

You’ll have situations like friendly fraud where customers will intentionally try to get money from you, which you can’t prevent. However. Your chances of winning these cases are around 40%.

Here are some ways to prevent chargebacks on Square.

1. Use Square Risk Manager

This tool only works with online orders, but gives you the means to set rules that trigger alerts on orders. For instance, if someone used a Diner’s Card to buy 350 bags of cat food at 4:05 AM, an alert could go off. You could manually review the order or have 3D Secure appear.

You can also review the orders to ensure all the information matches:

Source: Square

3D Secure is a two-step authentication means to make customers verify their order is legitimate. Some businesses have reduced their chargeback rates by up to 70% by using 3D Secure [1].

Wouldn’t that create friction with my shoppers?

Visa claims that 95% of orders are low-risk and won’t trigger 3D Secure [2]. You’re also in charge of the filters that trigger this. Thus, you could let more orders through if you want to reduce friction.

And a case study from Best Buy Canada in 2022 showed that EMV 3DS had an 86% approval rate. Meaning, you won’t lose much profit by enabling this.

Enable this by navigating through your Square Dashboard to Payments, then Risk Manager.

2. Get Signatures

In-person orders should require signatures and ID checks to verify the buyer. While signatures alone won’t prevent chargebacks, they can serve as important evidence in disputes.

For online orders, e-signatures in contracts offer a similar layer of protection.

3. Collect as Much Evidence as Possible

Store as much order information as possible, including:

• Signed forms
• Proof the customer agreed to your cancellation policy
• Proof of delivery

Again, this likely won’t prevent chargebacks. But if you have all of this information, it may deter some customers from trying to file one.

Be sure to comply with local data protection laws to avoid legal issues.

4. Try to Always Use EMV Chips

Always use EMV chip terminals for in-person payments. Avoid swiping cards, as that increases your liability in fraud cases.

5. Prevent Merchant Error

Merchant error makes up for 20 – 40% of chargebacks. This includes shipping the wrong item, not being accurate with product descriptions, and having vague descriptors.

Be transparent with what you’re selling and ensure you have quality control over your products. Also optimize your fulfillment process to reduce potential mistakes in your supply chain.

6. Respond Quickly

Happy customers are less likely to file chargebacks. That means you should address their issues quickly and offer solutions. For instance, if a customer wants a refund for an item, and you don’t have a clause in your refund policy that excludes that reason, refund them.

It’s cheaper than dealing with a chargeback.

While Square doesn’t have chargeback fees, you’re still paying money to delegate staff toward dealing with the dispute.

Let’s finish things up

Wrapping Up

Square chargebacks aren’t much different from other payment processors’. The differences come from the lack of a chargeback fee and ability to arbitrate disputes.

But you know what’s better than dealing with chargebacks?

Preventing them with dispute alerts.

Reach out to us and learn whether Chargeback is the right solution for you.

Sources

• [1] 3D Secure. Chargeback Gurus.
• [2] Visa Secure with EMV 3D Secure. Visa.