Square's Four-Day Outage Sparks Debate On POS Contingency Planning

October 4, 2023
The payments industry is grappling with the question of point of sale (POS) contingency plans following an outage at Square, with stakeholders sizing up the need for backup systems and processors.

The payments industry is grappling with the question of point of sale (POS) contingency plans following an outage at Square, with stakeholders sizing up the need for backup systems and processors.

Last month, as covered by Vixio, small business POS system Square went down in all eight of its markets, causing up to $2.2bn in lost sales over a four-day period.

At various points, Square announced via its incident status site that it had patched the outage, only for merchants to return to customer complaint channels with stories of further disruption.

The experience led some of these merchants to say that they will leave Square, while others took to social media to say that they are considering their options.

Meanwhile, payments industry observers have been exchanging ideas on what might be the optimal contingency for merchants in the event of future outages.

Broadly speaking, the options available fall into three categories: 1) online backup systems; 2) offline backup systems; and 3) cash acceptance.

Staying online during an outage - P2P payments

There are many options to take payments online during an outage, but choosing the right one will depend on the merchant’s size, their technical fluency and their current tech stack.

Ryan Cunningham, account executive at payments data firm TokenEx, told Vixio that the simplest form of online backup in the US are peer-to-peer (P2P) services such as Zelle, Venmo or Cash App.

These services are already popular in the US — more than 100m have access to Zelle via their banking app, Venmo has almost 90m accounts and Cash App has more than 51m monthly active users.

If consumers use one of these services, merchants can accept payments independently of their POS system.

However, this is likely to offer only a temporary and impractical solution, given the likelihood of long queues forming and the difficulty of communicating to customers that they must use P2P.

Staying online during an outage - backup processors

Moving on to the more technical options for staying online, Cunningham said that merchants could explore processor agnostic POS devices.

Put simply, a processor agnostic POS device is one that allows the merchant to decide which processor a payment is routed to, be it Stripe, Adyen or some other vendor.

“Rather than having a POS device that is linked end-to-end, as is the case with Square, these devices route data back to the merchant so that they can control who processes the transaction,” he said.

“This is probably the most difficult technical solution, but it creates a situation where the merchant is no longer reliant on a single payment service provider (PSP).”

TokenEx offers a point-to-point encryption solution that conceals card numbers while merchants are using processor agnostic POS devices.

Cunningham said this helps merchants to stay on the right side of Payment Card Industry (PCI) Data Security Standard (DSS) Scope obligations on card number visibility.

“Using this system, merchants can tap into multiple payment processors, allowing them to negotiate better fee structures, processing rates and approval rates,” he added.

Mike Ghasemi, chief analyst for retail and hospitality at Mike Ghasemi Research in Singapore, agreed that a backup payment processor is an effective solution.

"It is important not to rely on a single payment processor for all of your payment processing needs," he said.

He added that users of an end-to-end POS system such as Square may wish to invest in a mobile POS system as backup.

Going offline - pros and cons

In a statement following the outage, Square said that its Offline Mode was used by “many” merchants while online services were down.

However, not all Square merchants have access to Offline Mode, and among those who do, some are unaware they have it or do not know how to activate it.

This is partly why Square said in its statement that Offline Mode will “soon” be available on all new Square hardware devices and “most” existing ones.

But even if merchants switch to Offline Mode, there are limitations that come with it, the first of which is the 24-hour window that merchants have to reconnect to the internet.

As Square states in its Offline Mode instructions: “Offline payments are processed automatically when you reconnect your device to the internet and may be declined if not processed within 24 hours.”

Nonetheless, for smaller merchants that do not have the technology resources to add additional payment methods, Cunningham said that switching to offline mode is a sensible option.

“This will allow you to continue to collect card information even if the network is down, but it comes with additional risk,” he said.

“Since cards are not authorised at the time of transaction, you run the risk of collecting an expired card or a card without funds on it.”

As early as 2000, Ghasemi said that he can recall POS systems adding offline functionality, but as internet access has become faster and more widespread, offline functionality became less important.

That may be beginning to change, however, as fear of outages grows and consumers and merchants move away from using cash.

“In recent years, there has been a resurgence of interest in offline POS functionality,” he said.

“Offline POS functionality is especially beneficial for merchants who operate in rural areas or who have businesses that are prone to power outages or other disruptions.”

Square introduced Offline Mode in 2012, and the 24 hours it offers merchants to reconnect to the internet is relatively low, compared with other POS systems that offer 72 hours.

Cash to the rescue

The final option available to merchants is to make sure that they accept cash payments, and to try and make sure their customers carry cash (a feat that is easier said than done).

Ron Delnevo, chair of the UK’s Payment Choice Alliance, said he is in favour of this option. “Cash always works,” he said. “Every day we see examples of systems failures that leave merchants and consumers inconvenienced.

“We have the perfect backup system, cash, and we must not allow ourselves to be deceived that adding yet another layer of technology is the answer.”

The Payment Choice Alliance continues to lobby the UK government to introduce a Payment Choice Act, with the aim of making cash legal tender for all in-person transactions.

This would mean that merchants cannot refuse a cash payment if the consumer wishes to pay in cash.

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