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Block is likely headed for a class action lawsuit following an "unacceptable" global outage of Square, its small business merchant acquiring arm, sources have told Vixio.
From late Thursday to Sunday night (September 7-10), billions of dollars of transactions were lost to service outages at Square, leaving merchants furious at the acquirer’s handling of the crisis.
Officially, according to Square’s global incident status site, services were down through Thursday and Friday (September 7-8) in each of Square’s eight markets: the US, UK, Canada, France, Spain, Ireland, Japan and Australia.
However, even after Square announced that the outage had been fixed and all systems were “operational”, some merchants reported being unable to process sales through Saturday and Sunday (September 9-10).
Vixio spoke with John Domres, for example, owner of Buffalo Brewing Company in New York, whose online store, payroll and taproom point of sale (POS) systems were taken down during the outage.
“We didn't even find out from Square — we learned of the outage from Instagram, as other businesses were posting about Square being down,” he said.
“Most people don’t carry cash anymore, so I’d say we lost about 50 percent of our sales on that first day. Talk about horrible!”
What caused the outage?
In a statement published on Monday, Square said the outage took place after its technicians made “several standard updates” to its internal network software.
“The combination of updates prevented our systems from properly communicating with each other, and ultimately caused the disruption,” the acquirer said.
“The issue also affected many of our internal tools for troubleshooting and support, making them temporarily unavailable.”
Going forward, Square said it will take steps to protect against similar outages, and to provide “better communication” with customers during service disruptions.
The acquirer has deployed a new set of firewall and Domain Name Server (DNS) changes, for example, and will also expand its offline payment capabilities.
According to Square, Offline Mode will soon be available on all new Square devices and most existing devices, and can be used to accept payments during service outages.
Counting the costs
Given the duration and the global nature of the outage, several sources told Vixio that a merchant class action lawsuit is almost certain to follow.
In 2023, based on its Q1 and Q2 earnings, Square’s gross merchant value (GMV) is expected to hit $220bn for the year, meaning that one day of lost sales is worth $602m to customers.
Two days of lost sales would be worth $1.2bn, and four would be worth $2.4bn.
Grant Halverson, CEO of payments consultancy McLean Roche, said that lawyers will be “salivating” over the chance to incorporate those numbers into a class action.
“It’s always really bad when any outage lasts longer than 30 minutes,” he told Vixio. “This was 48 hours plus, with all markets impacted. It’s horrendous, and it shows that Block has major issues.”
At Buffalo Brewing Company, Domres agreed. “Square has fumbled this horribly,” he said.
“First, for not having the decency to tell us about the outage, and second, for not offering us anything in compensation for the outage. So I think a class action is warranted.”
Tyro sued by merchants
A class action against an acquirer following an outage would not be a first.
In Australia in 2021, merchants filed a class action against Tyro after the Tyro Eftpos payment terminal was knocked offline and rendered “incapable of repair” due to botched software updates.
For up to a month, Tyro’s merchants were unable to process non-cash payments while they waited for the issue to be resolved, and experienced a “substantial” loss of business as result, according to the complaint.
In May this year, Tyro agreed to pay A$5m ($3.2m) to settle all claims made against it for loss or damage suffered by merchants.
This number pales in comparison to Tyro’s GMV for FY 2022, however, which came in at A$34.2bn ($22bn).
“They got away with murder,” said Brad Kelly, managing director of Australia’s Payment Services consultancy, speaking to Vixio.
In Australia, Tyro and Square have a similar market share, with just over 60,000 merchants apiece.
A class action against Block in all eight markets would be a different challenge, however, and would be a gift to rival acquirers.
Rivals weigh in
Already, for example, Worldpay has taken the opportunity to compare its own customer support favourably to Square’s.
As Janice Buckley, regional account executive at Worldpay, said, the biggest issue was not the outage itself but Square’s handling of it.
“Have merchants ever tried to call them after installing their countertop solution?” she asked. ”It’s sad to say, but they do not support any kind of in-bound customer service line.”
In Square’s statement following the outage, the acquirer made only one suggestion to improve communication with customers, which was a reminder for them to verify their email addresses.
Although that may be Square’s preferred means of communication during an outage, it is unlikely to discourage merchants from flocking to social media to vent their frustrations.
“I’ve been using Square since 2017,” one merchant posted over the weekend. “After yesterday’s disaster my business lost tens of thousands of lost revenue. The trust is gone, and I’m leaving.”
