Square Inc is one of the more recognizable an successful mobile payment firms around but a current fraud case is causing a few sleepless nights for some investors ahead of a planned IPO.
This is not a sophisticated data hack but a simple low tech travel voucher scam which has highlighted just how vulnerable the new breed of mobile payment apps can be.
Hidden deep within its IPO filing is vague details about a $5.7 million loss run up by ‘a single seller.’ That company is Nebraska event-planning company Creative Creations, under investigation by the FBI for selling worthless travel vouchers for Southwest Airlines flights.
From October 2014 to March this year, Square processed $7 million in card payments from Creative Creations customers and by the summer was stung for more than $3 million in chargebacks from irate customers.
Creative Creations has said it is unable to honor outstanding chargebacks which leaves Square on the hook for refunding customers still awaiting refunds.
This has led to the Wall St Journal ‘raising questions’ about Square’s fraud prevention policies. Creative Creations is reportedly operated by a 30-year old Omaha woman, whose unchecked fraudulent activities contributed to nearly a quarter of all the transaction losses incurred by Square this year.
"We act as the merchant of record for our sellers, which puts us in their shoes with respect to card networks and puts the risk for refunds and chargebacks on us," Square said.
The Better Business Bureau of Omaha received more than 1,500 complaints over several months that requests for refunds were ignored by Creative Creations, and Square’s failure to notice the warning signs has caused some embarrassment just ahead of its public offering.
