Legal risks when using stripe as a payment processor (disputes, funds suspension)

Sharetribe Go Community Edition
1

Hi fellow members of sharetribe,

I have a question regarding the risks when using Stripe as a payment processor.

During my preparations for setting up the marketplace (this is meant as a platform where sellers and buyers can meet for exchanging specialized hardware, so I am not selling anything myself),
I asked a legal advisor to dive into the stripe user terms and the stripe connected platform terms.
In this case: https://stripe.com/en-nl/ssa , https://stripe.com/en-nl/connect/legal.

He came up with this passage and the implications:
In article 8 section C Stripe states:

*“In certain circumstances, we may (or may require you to) place funds in reserve or impose conditions on the release of funds to you (each a “Reserve”).

We may establish a Reserve for any reason if we determine that the risk of loss to Stripe, Customers, or others associated with your Stripe Account is higher than normal. For example, we may hold or establish a Reserve if:
(i) as a consequence of your or your Customers’ activities, we determine there is an unacceptable level of risk or prospect of loss to us or to your Customers,
(ii) you have violated or are likely to violate this Agreement, or
(iii) your Stripe Account has an elevated or abnormally high number of Disputes. We may at our discretion hold all funds in Reserve in a bank account in our name. All funds held in Reserve and all rights, title and interest to such funds, are at all times exclusively for our benefit and vested in us. If we establish a Reserve, we will provide you Notice of the amount, timing, and conditions upon which the funds in the Reserve will be released to you. In many cases, the Reserve amount will be the entire amount of Charges processed using the Payment Processing Services. We may change the terms of the Reserve or impose additional conditions to the Reserve based on our continuous assessment and understanding of the risks associated with your Stripe Account, including if required to do so by Payment Method Providers or Payment Method Acquirers, or for any other reason. We may fund the Reserve with funds processed through your use of Payment Processing Services, by debiting the Payout Account or another bank account associated with your Stripe Account, or by requesting funds directly from you”*

My legal advisor also stated that, since arbitration in Ireland is part of the agreement, in practice, getting Stripe to release funds is a costly endeavour since I would have to travel to Ireland and pay arbitrators.

This passage and the implication have raised some concerns for me.

My questions.

1 From your experience using stripe within sharetribe, have you ever experienced Stripe withholding funds (creating the mentioned “Reserve”) and if so, under what circumstances and how have you resolved this? Can you describe in what context this occurred and if you were just an operator or actively selling goods/services?

2 Also, it is my understanding that when a buyer makes a transaction by creditcard using stripe, they have the possbility to open a Dispute. In which case Stripe could refund the amount paid to them.

Is the “dispute” possibility relevant in case I am not directly selling any goods or services?
Or is this only applicable for sellers themselves?

Am I, as a market operator, still in any way financially or legally accountable should a seller not deliver according to expectations?

And if so, how can I limit any liability regarding this matter, in a good way within the user agreement mentioned on the static content of the marketplace?

Thanks. Stay safe and good luck on your sharetribe journey.

Regards,
Veek

2

Hey Veek!

Indeed, this is something that can penalize your business and cash flow if that happens, so it’s great to hear that you’re considering this while planning.

Here are some thoughts, based on our experience at Sharetribe.

1 - Stripe "reserve"

Yes, I’ve seen this happening for a few customers. This is pretty rare, though. But as soon as you get some traction and significant transaction volume, especially if combined with a high dispute rate, this will happen. In some cases, it can be a pretty high amount, like a couple of dozens of thousands of $ (I’ve seen numbers like ~30% of the monthly transaction volume)!

The marketplaces for which I’ve seen this happen had high seasonality (low volume for a few months, then really high volume for a couple of months) and were dealing with lots of sellers.

There wasn’t anything they could do: Stripe had just blocked a certain amount, for safety. They couldn’t get it paid out. After a (long!) while, Stripe adjusted, as they learned about the risk level for this website.

2 - Dispute

Yes, you will see plenty of disputes. It’s unfortunate, and a great way to limit them is to make sure you have great sellers, clear processes, open communication channels, trust in your marketplace, etc.

Still, whatever you do, you’ll have to deal with disputes and you will lose most of them: even if you provide documents and proof that they are not legit disputes, banks side with customers/buyers in nearly all cases.

So, just be aware of this and count it in your finance plans: you’ll lose some money (your commission fees + some dispute fees) regularly.

You can still decide to change this, somehow, to the sellers. However in practice, it’s difficult to do and they’ll fight with you, too. So, better to just accept it, answer the disputes always but also be realistic and prepared to lose some money.

In general, it’s a great idea to mention, in your terms of use, that you, the marketplace and marketplace operator, is not liable in case of an issue. Don’t hesitate to review your marketplace terms with someone who has legal knowledge!

Finally, note that both the reserve and dispute are things that you’ll find and experience with most (all?) payments gateways. It’s not limited to Stripe, and at least Stripe providers great tool to monitor and understand why these happen (even though, in my experience, their support isn’t really helpful if/when you try to discuss/challenge these).

Dealing with all this is simply part of (any?) business. I hate it too.

Hopefully, you’ll remain motivated! Keep up the good work :slight_smile: