Etsy under fire for withholding money from sellers

Independent retailers trading through Etsy claim the online marketplace is “destroying” their businesses by withholding 75% of their income for up to 45 days.

Etsy has informed many small business owners on the site that their takings are being put on hold to “keep the marketplace safe” and cover the cost of potential refunds. Such “reserve systems” are “not uncommon” on e-marketplaces, said Sky News, but the percentages and duration are typically lower.

By comparison, Amazon’s reserve rate is around 3% for “established sellers”, said the BBC. The UK’s small business commissioner, Liz Barclay, said that Etsy’s “level of reserve is new to us”.

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Authorities in the UK have no formal power over the US-based company, but according to the broadcaster, government officials have met with an Etsy representative.

Barclay told Sky News that small suppliers “need to be paid as quickly as possible or they may go to the wall”.

Small business owners have accused the company of holding their income “with little care for how it will affect families in a cost-of-living crisis”, the site reported. Some “have been left unable to pay their bills”.

A seller of made-to-order furniture told the BBC that two reserve periods had been imposed on them consecutively. “Etsy are holding around £7,000 of my money, leaving us to use credit cards and family loans to try and keep our business running and keep food on the table,” said the retailer, named only as Dan from Buckinghamshire.

His partner added that with “no ability to have the reserve lifted”, the policy had “destroyed” the business.

An Etsy spokesperson told Sky News that “while we understand that payment reserves can cause short-term disruptions to a seller's payment schedule, these temporary holds are common practice across marketplaces”.

Online retail expert Martyn James told the BBC that it “made sense” for Etsy to hold on to income until customers receive their orders, but that “the business should not be sitting on money for any longer as an anti-fraud measure”.

The dispute “was an example of how online sites could ‘slip through the cracks of regulation’”, he added.

Since launching in 2005, Etsy has attracted around six million sellers and almost 15 times as many buyers.