Reviewing Square’s Merchant Services and Fees: Is Square Right for Your Business?
Square is a point-of-sale and payment processing service for small businesses that has hundreds of thousands of users nationwide. It’s free to create a Square Payments account, and the Square point-of-sale (POS) app can be downloaded for free on any Apple or Android phone. (It’s perfect to use on an iPad.) This makes Square an easy and attractive payment processing solution for businesses that are just starting out or process occasional in-person sales. How do business owners know if Square is the right POS system for them? Let’s get into the nitty-gritty.
Square’s Merchant Fees
Some card processors charge different fees based on the type of card being used, but Square only has one standard flat rate.
Here are Square’s processing fees for each type of credit card transaction:
- In-person payments (chip, swipe, & tap): 2.6% + 10¢.
- Keyed-in payments: 3.5% + 15 cents
- Online payments: 2.9% + 30 cents
- Invoice payments: 2.9% + 30 cents
Other Square charges
It’s free to create a Square account and to download the Square POS app. If you’re accepting credit cards in person, you will also need credit card reader hardware. When you first sign up for Square, you’ll receive a free magstripe card reader that you can plug into your phone to accept payments. However, there are card readers and other hardware you can choose to purchase, including:
- Magstripe card reader: 1st free, additional $10
- Chip card reader: $35
- Contactless & chip reader: $49
Square merchant fees reviewed
If you’ve been shopping around for credit card processors and have looked at a few other rates, Square’s 2.75% seems high—and for some businesses, it is. Square’s pricing can be cost-prohibitive for some businesses. When evaluating a merchant services provider or credit card processing company, it’s important to look at the entire fee structure. Many companies charge hidden fees that can cause especially small business owners headaches.
For example, many processors offer rates lower than Square’s 2.75%, but they also have a monthly fee or charge a 25 or 30-cent fee with each transaction in addition to the percentage rate. Or they might lock you into a long-term contract. It’s important to do the math yourself before choosing a merchant account.
How Square stacks up
Let’s break down some of the math to see how Square stacks up against other credit card processors in different situations. Here are the fees we will compare:
Square: $0 per month, 2.6% + 10¢
Payment Depot: $49 per month, interchange + $0.05 per transaction*
If you process $20,000 in monthly sales with a $10 average transaction and a total of 2,000 transactions, here are the approximate fees you would pay with each processor:
Payment Depot: $511 (using Visa’s average interchange rate)
As you can see Payment Depot’s fee structure is a lot more favorable, and the savings are even more substantial as your credit card volume and order values increase.
Unlike Square, Payment Depot doesn’t take a percentage out of your sales. You pay wholesale interchange costs, and there are no pricey markups on transaction fees on our end. Instead, Payment Depot charges a monthly membership fee based on your transaction volume.
*We can offer low-ticket merchants a special rate of 5 cents per transaction instead of 15 cents. Give us a call today to discuss!
Real Statement from a Coffee Shop Using Payment Depot
To better illustrate Payment Depot’s advantage over Square, here is an actual payment processing statement from a coffee shop using Payment Depot and Clover Station:
Total Processing – $19,602.18
Total Transactions – 1,469
As you can see, Payment Depot’s fee structure is clearly a lot more favorable compared to Square’s new pricing.
Other Considerations Before Choosing Square
There are a few other things to consider before choosing Square. First, you should know that Square is a third-party payment processor, not a traditional merchant account. Being a third-party payment processor means you can have instant access to Square without an application process or waiting period, but it also means you have a higher risk for account holds and terminations.
Is your business high-risk?
If your business is considered high-risk, there’s a greater chance you will experience funds being withheld or your account being terminated. These types of risks are inherent with any credit card processing or payment services, but they are higher when you opt for a third-party processor like Square.
Square outlines right in its terms and conditions what it considers “high-risk.” Generally, a high-risk business is anything more likely to result in chargebacks, such as subscription services, software programs, and dating services. Businesses can also be classified as high-risk based on their industry. For example, online gambling, bitcoin, adult products, and supplements or nutraceuticals can all be considered high-risk.
Transaction type & size
If you are selling in person, those sales are considered a lower risk than online sales. That is because you physically see the card and can confirm the buyer’s identity. The size of your transactions can also determine the risk factor. For example, if you normally process smaller transactions, and you suddenly process a huge one, Square may flag that transaction and take longer than usual to process.
Your hardware needs
You can buy the Square reader at stores like Best Buy and plug it into your mobile device’s headphone jack, making it an ideal choice for small business owners who want to start taking credit and debit card payments in-store today. It comes equipped with the ability to read EMV and NFC technology, so you will automatically achieve PCI compliance.
But if you need more functionality beyond just processing payments at checkout, you’ll likely want to opt for a more heavyweight solution as your POS. If you’re looking to take credit card payments on your online store or through a virtual terminal, you may find a more cost-effective credit card processor that easily runs both.
Beyond eCommerce, you should also consider if you want to:
- Take gift cards
- Send invoices
- Take mobile payments like Paypal, Apple Pay, or Google Pay
- Be able to keep a card on file
Finally, some questions you should consider:
- Do Square’s customer support hours fit into your business days? Will they be able to support you when you need them? Their support team is available from 6 am to 6 pm PST daily, so if you find you need support at 8 am EST, for instance, you’ll have to wait.
- Does Square provide the integrations you need with your current software stack? If you already have an eCommerce store, for instance, does it integrate with your online shop or will you have to manually enter sales?
When to Choose an Alternative
As you saw in our calculations above, Square is not the best credit card processor for businesses that have steady sales and higher average transactions.
Most retail businesses like boutiques and gift shops, as well as service providers like spas and restaurants, will need a credit card processor that offers more competitive rates. In this case, a membership or interchange-plus pricing model—such as the one offered by Payment Depot—would be a better fit for your business. If you have a high-risk business, it’s also best to apply for a traditional merchant account.
Square is an attractive option for startup businesses and occasional sellers such as flea market vendors. Its transaction rates are ideal if your average sale is below around $10 to $15, such as in cafes and coffee shops. But, if you are an established or large business or your average sale is above that threshold, you can save hundreds of dollars per month by choosing Payment Depot.
Still need help deciding? Send us your merchant statement or proposal and our payment experts will analyze it for free, to help you decide which processor is right for your business.