If you’re looking for a way to accept credit card payments, chances are you’ve heard of or looked at Square. Square aggressively courts new and small businesses, and many individuals and companies use Square for their credit card processing. While Square might be a good solution for some businesses, it falls short in many ways, which we’ll examine.
What’s Good: Easy Startup, Flat Rates
There are many things about Square that some businesses find appealing. Square promises a quick and easy solution for accepting credit card payments, and in some ways it delivers.
First, Square does make it easy for virtually any business or individual to sign up for payment processing. There are no long forms to fill out, no credit checks required, and no monthly minimums to meet. In essence, Square processes one transaction at a time, rather than establishing a long-term relationship with its customers. If your business is new or doesn’t have a long history, getting started with Square might make sense.
Square is especially appealing to online and mobile businesses. With Square you don’t need a fancy credit card terminal; you can process transactions from any tablet or mobile phone. Just purchase a small Square Reader card swiping device and connect it your mobile phone or tablet via Bluetooth. The Square Reader works with Square’s mobile app (which you download to your device) and essentially turns your phone or tablet into a mobile credit/debit card terminal.
In addition, Square offers a simple, easy-to-understand flat rate fee structure. Square charges 2.75% per transaction for in-person charges, 2.9% + 30 cents for each eCommerce transaction, and $3.5 + 15 cents for each keyed-in transaction.
All of this makes Square an appealing choice for many businesses, especially those just starting out, that do a lot of online transactions, and that handle occasional credit card payments.
About Those Rates…
The first problem many businesses have with Square concerns those flat rates, which are extremely high.The flat rate sounds nice but hides that fact that different types of credit and debit cards are charged different rates – many of them much lower than what Square charges.
Compare Square’s rates to merchant accounts through a traditional payment processor. A convential payment processor charges each transaction at its actual rate, based on what the industry calls the interchange rate. (This is the rate charged by the credit card companies and issuing banks.) Variable interchange-based fees are typically much lower than the flat fee charged by Square.
So while Square’s flat rates might be appealing in their simplicity, unless you’re running just a few transactions a month you’ll find that using a traditional payment processor will save you considerable money, thanks to the lower variable-rate fees. It may be only a few tenths of a point per transaction, but Square’s higher rates end up costing you a lot of money over the long run.
Square and Your Money
It’s important to know that Square is not a traditional payment processor. Square is an online payments company, like PayPal, and thus does not offer the same services and support you get with a full-featured payment processor. When you sign up with Square you do not create a conventional merchant account, you simply gain the ability to have Square handle your credit and debit card payments for you. (Note that Square does not process ACH electronic bank withdrawals – another drawback.)
This is reflected in the sign-up process. Square does not require an extensive credit history or account review before it approves a new account, as a traditional payment processor does. Payment processors require this type of background check to protect themselves against fraud; they simply won’t sign up shady businesses. Square, on the other hand, does not have these protections – and is more apt to freeze a company’s funds or place an account on hold if something unusual pops up.
Many businesses have found that Square limits the amount they accept per transaction, or place 30-day holds on certain types or sizes of transactions. Square has also been known to suspend accounts with too many transactions or transactions of too high a dollar value. In fact, Square’s Seller Agreement states:
We may terminate this Agreement or suspend or close your Square Account for any reason or no reason at any time upon notice to you.
This means that Square can shut you down for no reason whatsoever. If Square thinks that your business poses an unacceptable credit or fraud risk, your account could be suspended or you could have your funds frozen.
Better Options
Things are different when you open a merchant account with a traditional payment processor. Yes, you have to fill out an in-depth application and undergo a credit assessment, but all that makes your account much more secure for both you and the payment processor. The payment processor has looked at your business and determined that you’re a good credit risk, which means you’re not going to have your account suspended or deleted just because you run a few large transactions. (Although it’s a good idea to let your processor know if you’re expecting an unusually large transaction, and it’s still possible to receive a chargeback if you run a fraudulent transaction.)
A payment processing company, such as Higher Standards, offers expert support to all of its merchants, large or small, so if you do have an issue you can talk to a real human being about it. Payment processing companies also offer mobile and online payment options just like the ones from Square, so you can use your phone or tablet to handle your credit and debit card transactions, either in person, online, or over the phone.
You get all of this when you set up a merchant account with a conventional payment processing company, as well as lower interchange-based rates on each transaction you run. It may sound like more work to get started, but over the long run you’ll save money and have a more stable access to your funds that you would with Square. There’s a reason every large merchant uses a traditional payment processor – and why you should too!
Contact Us
To learn more about establishing a merchant account with Higher Standards, call us at 952.736.1700 or click here. We’re happy to discuss all your options!