Payments startup Square, e-Commerce organization run by new Twitter CEO Jack Dorsey, is going for an initial public offer (IPO) and mentions in the filing to Securities Exchange Commission (SEC) that the fraud could be a major hurdle for it. Square was target of hacking as a single seller used its payment services resulting in a huge loss of $5.7mn for the e-Commerce startup. The automated global payment system and the liquidity of Square were the major reasons why it was the target for illegal or improper use.
Most of the online payment services are being utilized for terror financing, money laundering, illegal sales of goods and services, etc.
However, Square didn't mention any additional information related to the huge money loss from one seller and how it occurred. The one seller's fraud is particularly vulnerable to abuse, Square said in the statement. Generally, online thieves or hackers stole credit card or debit card numbers for making such illegal transactions.
Sometimes hackers also use fabricated bank account numbers or credit card to steal amounts from e-Commerce websites. "In the three months ended March 2015, we recorded a loss of approximately $5.7million related to fraud by a single seller using our payments services," said Square in its filing to SEC.
Square waited for raising money from public for years. The net revenues of Square grew to $850mn in 2014 from $552mn in 2013 and it recorded revenues of $561mn for the first half of 2015. This shows encouraging growth in revenues.
Alarmingly, its losses were also up at $850mn in 2014 from $552mn in 2013 and $561mn in the first half of 2015. Square is investing in huge in marketing drive to promote the e-Commerce activity in the global market. The sales and marketing costs were also up at $113mn in 2014 from $64mn in 2013.
In some cases, e-Commerce organizations are left in a helpless state, whenever such fraudulent incidents take place. In the latest case, Square lost millions of dollars in a fraud committed by just one single seller.
"When our products and services are used to process illegitimate transactions and we settle those funds to sellers and are unable to recover them. We suffer losses and liability," explains Square in its filing.
However, Square didn't make it clear on the number of shares to be issued and target amount to be raised from the market. Square is spreading its footprint in traditional markets by promoting the habit of using e-Commerce system. It's exploring even coffee shops, small cloth shops, boutiques, which otherwise generally accept cash transactions only.
Though it's not different from the fraudulent transactions taking place online, the cause of concern is the inability to find out the culprit.
Generally, whenever a billing dispute between a cardholder and a seller takes place including any fraudulent transaction, then the transaction would be charged back to the seller and the amount to be refunded to the cardholder. If seller denies to be refunded the amount or unable to reimburse due to closure, bankruptcy or any other reason, then e-Commerce organization bears the loss by paying its own money to the cardholder. This is how fraudulent sellers cause damage to online e-Commerce business.
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