Etsy sellers have raised concerns about a fraud protection program that is negatively impacting their businesses.
Since the end of June, some sellers have had their accounts subject to restrictive adjustments, resulting in much of the money they receive from customer orders being withheld. This hold, known as a "payment reserve," can last anywhere from two weeks to 45 days, which is creating stress and financial hardship for many sellers.
Etsy is an online platform that specializes in selling handmade, vintage, and artisan products. It works like an online marketplace where individual sellers can create their own store and offer their unique products to buyers around the world.
Items sold on Etsy range from jewelry and clothing to furniture and home decor, all made by the sellers themselves. Buyers can view the different online stores, see photos and detailed descriptions of the products, and make purchases directly through the site.
Etsy's fraud protection program is intended to protect buyers and ensure that sellers can fulfill the number of orders received. While the system can be effective in preventing fraud and scams, some sellers complain that it is affecting long-standing and reputable stores. They claim that they have not had a significant increase in orders or refunds, which leaves them stumped as to the reasons for withholding their earnings.
For some sellers, especially those who sell custom products that take time to produce and ship, withholding money is destabilizing their businesses. Several of them live hand to mouth on the income they earn from their Etsy sales, using the money to cover production and personal expenses.
An example is the case of "D." (he declined to reveal his name in an interview with The Verge), 75% of the proceeds from a $150 order, for example, are held by Etsy, in what's known as a "payment reserve," for between two weeks and 45 days. After Etsy's fees, taxes, and other expenses are taken out of the remaining 25% that D. has access to, they only have about $13 left.
This lack of access to his earnings for several weeks can lead him to rely on savings and credit to maintain his operations, as he himself indicates.
The situation has led some sellers to reduce their inventories and reject high-value custom work. They have also noted that the reserve system is complex and makes financial planning difficult, as they must meet a minimum reserve on each sale before the money is available for use.
Although Etsy has mentioned that the reservation system affects less than 2% of shops and that money is usually released within two weeks, affected sellers feel that the company has not been responsive to their needs and that the prolonged retention is hurting their business.
In some cases, Etsy has advised sellers to meet certain "Star Seller" program requirements to avoid reservations. However, for some, this is not feasible due to the nature of their products and the way they run their businesses. Sellers are asking Etsy to work with them to find solutions that are best suited for smaller shops that operate differently than large-scale ones.
