Is Cash App Right for Your Business? What About Cash App Chargebacks?
As of 2020, Cash App is one of the top 10 finance apps in the US market in terms of monthly users. Understandably, this has resulted in businesses wanting to learn more about the payment app. How does it work, and what are the advantages? What about the downsides…like the risk posed by Cash App chargebacks?
In this post, we’ll take a look at the popular payment platform, and help you determine if the rewards associated with Cash App are worth the risks.
How Does Cash App Work?
Cash App is a payment app developed by a well-known payment processor, Square. The tool allows for direct, peer-to-peer (P2P) payments using a mobile device. Similar to apps like Venmo or Zelle, Cash App will let you send and receive payments to people instantaneously.
Like Venmo, you need to have an existing bank account to fund your Cash App account. Once your account is linked, though, it’s easy to send money back and forth. Users can even request a debit card, allowing them to make purchases directly from their Cash App account. Also, like Venmo, you can incorporate Cash App into your business checkout options.
Although less popular initially, Cash App actually surpassed competitors like Venmo and PayPal Mobile Cash in terms of active users as of Summer 2020. This could be because their primary competitor, Venmo, has more of a social media angle; for instance, you might use Venmo to repay a friend for dinner, or maybe for movie tickets. And, with the global shutdown resulting from COVID-19, there are fewer situations in which this might be relevant.
If you’re a small business, it’s easy to get started with accepting payments via Cash App. All you need is a standard Cash App account. In the app settings, you can select the “Personal” menu, and change your account type to “business.” Simple as that.
Cash App can be a useful asset, but like most programs, it does have some downsides. For instance, you’ll have a relatively low threshold for the number of funds you’re allowed to accept at first. It may not be a viable option for you if your business outgrows the platform. Also, support is only available via email or social media, which can take time.
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Can Customers File Cash App Chargebacks?
One of the most attractive elements of Cash App is that it doesn't necessarily involve payment cards. As a result, you may not have to worry about banks filing Cash App chargebacks.
The chargeback process, as outlined under US law, applies only to payment card transactions; it doesn't extend to bank transfers. Thus, if a Cash App transaction doesn’t involve a credit or debit card, merchants aren’t subject to typical chargeback rules. The finality of Cash App payments can be tempting for those who are sick of dealing with chargebacks. As the company explains on their website, "Cash App to Cash App payments are instant and usually can’t be canceled."
Before you start celebrating, though, there are some extenuating circumstances to keep in mind. First, if the customer has a credit or debit card linked to their account, then the cardholder's chargeback rights would still apply. In these cases, the buyer may file a chargeback by contacting the bank directly. In this scenario, there's little procedural difference between a card payment chargeback and a Cash App chargeback; the buyer can still claw back the funds, while the seller loses revenue and merchandise, and is responsible for additional fees.
The company also has a dispute process that's analogous to a Cash App chargeback. Buyers are supposed to initiate this process by requesting a payment cancelation through the app. Once the buyer does this, you'll receive a notification asking you to either accept or reject the request (also through the app). If you reject the request, or if buyers skip over this step, they may go straight to Cash App to dispute the charge.
What Happens if a Cardholder Disputes a Charge?
While it's not a "Cash App chargeback" in the literal sense, customers can contact customer support to undo a transaction. They can initiate this process via the app or the Cash App website, as well as by phone or mail.
If a customer initiates a dispute, the company would then investigate the claim, then resolve the situation accordingly. This could happen if the company determines that you didn't provide the goods or services described to the customer. It could also happen in the event of fraud.
This would consume valuable time and resources if you're forced to participate in an investigation. And, while you wouldn't be responsible for chargeback fees (as you would with a card purchase), you could still face consequences from the company if they determine that you acted in bad faith.
Depending on the scope of the situation, there's the potential that you could get involved in a broader payment fraud investigation, too. P2P payment apps like Cash App are susceptible to fraud, just like any other platform. One tactic that fraudsters can employ is to use stolen bank account information to fund a Cash App account for their own use. The fraudster can basically siphon money out of a consumer’s account without ever needing to touch the customer’s card.
Eventually, the cardholder will notice the funds missing on their bank statement. At that point, the individual may get law enforcement involved to recover the money, which could mean more time spent with investigations.
P2P apps may not pose as much of a direct chargeback threat as other payment methods. However, the Cash App chargeback process is still an important risk factor to consider before adding this option to your checkout process.
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Fraud Management is Essential to Make Cash App Work for You
There are several roadblocks to adopting Cash App. As we mentioned, it may not be practical for businesses at all levels, like enterprise operations. Also, Cash App customer support is your only recourse if something goes wrong.
Due to the risks posed by Cash App chargebacks and fraud, we wouldn’t recommend using this platform for business without also having strong anti-fraud tools and tactics in place. These include all the fundamentals for an effective anti-fraud strategy, like address verification, CVV check, and risk threshold rules. Working in combination, these products will help you filter out a significant portion of criminal fraud attacks.
Of course, even with advanced fraud-fighting capacity, you need to remember that fraud is a dynamic problem, and you need a dynamic solution to beat it. To illustrate this point, consider the following example:
A minor might use a parent’s Cash App account to make an online purchase. The parent sees the transfer and, not knowing any better, assumes it’s a case of criminal fraud, then disputes the charge. This is a practice called “family fraud”: while fraud tools wouldn’t flag this activity, you also wouldn’t have access to the cardholder’s account history, so you couldn’t prove it was family fraud.
Alternate payment apps like Cash App can be extremely lucrative, especially if you’re focusing on Millennial and Gen-Z consumers. However, you need to know the platform’s limitations and be aware of the risks before you dive in. This means developing a plan to protect your business against Cash App chargebacks and other fraud risks.