Binding arbitration is a process I recently went through, and I think that it's excellent for two parties which are reasonably well positioned to pay for the expense of both the process and the lawyers, as well as wanting an expitied process.
The way the clause is being used to quiet individuals is pretty awful, and while I'm not a lawyer, I suggest that indeed if you have a binding arbitration clause- exercise it.
You can always retract your claim. In fact, arbitration bodies love settlements.
If you don't, then indeed, go after them in small claims court.
Upwork will have two choices: to fight you or not. They'll do the same calculation as you- the cost of the process will be expensive, and likely cost them more in legal fees then is in dispute, so they're likely to pay you to make it go away.
If you think they're going to fight, then withdraw your arbitration claim, but I suggest before even doing that, explain your situation in a letter sent by email (or registered mail) to Upwork:
https://www.upwork.com/about/contact
And explain you'd like to resolve the matter amicably, but if that's not possible, you're prepared to exercise the arbitration clause (or take them to small claims court).
This will alert their legal team, who will now explain to someone else that the matter doesn't make sense to fight, etc.
Once again I Am Not A Lawyer, but I think this is your best bet in getting the money back. But of course if you do this, you won't be working with Upwork anymore.