Reviewing Square Merchant Fees: Is Square Right for Your Business?

By Randy Hayashi
In Credit Card Processing

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.) The company also bills software upgrades on a monthly basis.

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 Merchant Service: An Overview

In 2010, Square made waves in the fintech industry with its Square Reader. This small, 1-inch, square device allowed businesses to accept card payments from anywhere. It could be plugged into any phone or tablet—be it Android- or iOS-powered—via the headset jack to convert it into a credit card processing machine.

The idea for this device came to its co-founder, Jack Dorsey—who also co-founded Twitter (now X)—when his friend was unable to make a sale as he didn’t accept credit cards as payment.

Today, what makes Square especially useful to small businesses is the fact its payment processing software and tools can be used without any upfront costs, minimum transaction requirements, or contracts.

Square charges a flat-rate fee (regardless of the type of the card) on successful transactions—unlike many of its competitors that have complicated fee structures. By paying Square merchant fees, businesses can avail of installment plans with no interest and low-cost credit card payment processing hardware.

Square Merchant Fees

Square became popular because of its innovative technology and low merchant fees. Businesses were charged a flat fee of $275 a month for monthly transactions totaling up to $21,000. The company started charging swipe fees on all transactions making it an expensive option for small businesses as their sales grew.

Some card processors charge different credit card processing rates based on the type of card being used, but Square only has one standard flat rate.

Here are Square’s latest processing fees for each type of credit card transaction:

In-person payments (chip, swipe, & tap): 2.6% + 10¢
Keyed-in payments: 3.5% + 15¢
Online payments: 2.9% + 30¢
Invoice payments: 3.3% + 30¢
ACH transfers: 1% (mandatory minimum transaction amount is $1)
Recurring payments: 3.5% + 15¢

It should be noted that some of the above rates change depending on the Square payment hardware that you are using. Below are a few examples of how in-person payment (chip, swipe & tap) charges change based on the Square product used.

Square Terminal: 2.6% + 15¢
Square Register: 2.5% + 15¢
Square Appointments: 2.6% + 10¢

Square Merchant Service Charges

The term merchant services refers to all the financial, hardware, and software services that are needed by businesses to process card payments. If you choose to work with Square, you can rest assured that there are no hidden Square merchant fees. 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. Square services also include access to free customer support through phone and email to help combat issues when setting up the payment system or while maintaining them.

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. Additionally, there are no return fees or leasing options with Square hardware. One advantage with Square is that you don’t have to pay monthly fees for using their hardware and as your business scales up, you can invest in more Square hardware. These are the card readers and other hardware you can choose to purchase:

Magstripe card reader: 1st free, additional $10
Chip card reader: $35
Contactless & chip reader: $49, $59 for second-generation device
Square terminal: $299
Square register: $799
Square stand: $124
Square stand mount: $124

Square merchant fees not only include hardware costs and transaction fees, such as credit card processing fees, fees on contactless payments, and card-not-present payment fees but also software fees and a few additional fees. Square usually offers monthly subscriptions for their software products. Square also offers free versions of the below software.

Square POS: Free
Square for Retail: $60 for each location
Square for Restaurants: $60 for each location (Plus version), Custom pricing is available in the premium version for restaurants processing above $250,000 annually.
Square Appointments: $29 per location (Plus version), $69 per location (Premium version)

Apart from the core square merchant fees described above, businesses can incur additional fees with Square as listed below.

Refund fees: There are no refund fees when using Square to process refunds, but businesses do not get back the transaction fee that was charged on the original payment.
Non-compliance fees: Businesses accepting credit card payments have to adhere to PCI-DSS standards. Violation of these standards could lead to non-compliance fees being charged.
Instant transfer fee: Square allows you to transfer funds to your business bank account immediately for a fee of 1.75% on each transfer. Otherwise, Square follows a schedule for fund transfers, which is usually the next business day.

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Square Merchant Services Reviews

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.

In general, Square has favorable reviews online and is considered a good payment processing option for small businesses that are just starting out. It has a rating of 5 on Merchant Maverick and 4.7 on GetApp. Positive points include the simple and user-friendly square dashboard and software interface. On the other hand, a few reviews indicate poor customer service.

Businesses need to be aware that Square is not a traditional merchant services provider, but rather a third-party payment processor. This means that they don’t have an underwriting or risk review process for businesses that open Square accounts.

Although this allows merchants to open accounts with no approvals and start accepting card payments almost immediately, it also means that there is a higher chance of accounts being put on hold or even being terminated. Your account can be frozen with review pending when sudden changes in transaction patterns and abnormally large payments are detected and flagged as suspicious.

This can become a huge problem for small businesses that usually don’t have backup payment processors. Hence, you may need a third-party API to boost transaction security. Moreover, Square’s inventory tools are easy to use but are not robust, and third-party apps may be required for more complicated inventory management as well as for better integration.

How Square Merchant Service Rates Are Going 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:

Square: $720

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.

Payment Depot’s Advantage Over Square Merchant Service

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.

What to Consider Before Choosing Square’s Online Payment Processing

There are a few other things to consider before choosing Square. As mentioned earlier, 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.

Type of Business

Square’s basic POS works quite well for any type of business as it has eCommerce, CRM, checkout, and inventory management features. It is simple to use but has all the necessary features and businesses can always add more features as their business scales up.

However, Square offers unique hardware and software packages for businesses in certain industries. These are Square for Retail, Square for Restaurants, and Square Appointments. As their names suggest, these packages are crafted to meet the unique needs of each industry that they cater to. If your business is in one of these industries, then Square’s specific packages could be the most cost-effective option for you.

Square for Retail is best suited for retail businesses such as gift shops. This software package includes advanced reporting, analysis, checkout, sales, and inventory management tools. It also supports unlimited transactions, products, and employee logins and offers an online store for free.

Square for Restaurants offers unique features that are essential for restaurants such as kitchen display systems, floor management, online ordering, and flexible payment. This makes it well-suited for full-service, quick-service, bar, themed, and fast-casual restaurant establishments.

Individual contractors and those in the service-based industry can opt for Square Appointments. It has specific features such as scheduling, client management, and online booking that make it very useful for professionals such as hairdressers, makeup artists, and personal trainers and businesses such as salons and spas.

Credit Card Processing Transaction Types and Sizes

If you are selling in person, those sales are considered 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.

Credit Card Processor 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.

Other Considerations for Square Merchant Services

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 to Square Payment Processing

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 Merchant Service Bottom Line

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.

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FAQs about Square Merchant Fees

Q: What is Square, and how does it benefit small businesses?

Square is a point-of-sale and payment processing service perfect for small businesses. The payment processing software and tools can be used without any upfront costs, minimum transaction requirements, or contracts, making it an attractive solution for businesses that are just starting or processing occasional in-person sales.

Q: What are the Square Merchant Fees?

Square charges a flat-rate fee on successful transactions. The current processing fees for each type of transaction are:

In-person payments (chip, swipe, & tap): 2.6% + 10¢
Keyed-in payments: 3.5% + 15¢
Online payments: 2.9% + 30¢
Invoice payments: 3.3% + 30¢
Recurring payments: 3.5% + 15¢

Q: Are there any specific tools or hardware required to use Square?

Yes, to accept credit cards in person, you will need a credit card reader hardware. Square offers various hardware including a square terminal, register, appointments, and different types of card readers. The prices of this hardware range from $10 to $799 depending on your needs and scale of business.

Q: What are Square’s software fees?

Square charges software fees on a monthly basis for some of its products. The fees start at $29 for Square Appointments and can go up to $69 for its premium version.

Q: Are there any hidden fees while using Square?

Apart from the main Square merchant fees, there can be additional fees including non-compliance fees for violating PCI-DSS standards, and instant transfer fees of 1.75% for immediate fund transfers to your business bank account.

Q: Does Square offer any specific packages for certain industries?

Yes, Square offers unique hardware and software packages for specific industries including Square for Retail, Square for Restaurants, and Square Appointments, each providing features essential for the specified business types.

Q: Are there any restrictions or risks involved while using Square?

Square is a third-party payment processor and does not have an underwriting or risk review process for businesses opening Square accounts. This can lead to a higher chance of accounts being put on hold, frozen, or even terminated when sudden changes in transaction patterns or abnormally large payments are detected and flagged as suspicious.

Q: How does Square compare to other credit card processors like Payment Depot?

Square has a flat rate fee structure which works well for businesses with lower sale transactions. However, for businesses with higher sales transactions, it might be costly.

Q: Is Square right for my business?

If you are a startup or an occasional seller, like a flea market vendor, and your average sale is below around $10 to $15, then Square would be an attractive option. However, for an established or larger business, or if your average sale is higher, another credit card processor like Payment Depot might be more cost-effective.

Q: Are there any potential downsides to using Square as my payment processor?

Square’s customer support hours may not align with your business operations. Smaller businesses and those with irregular sales patterns might also face issues with transaction holds due to Square’s processing algorithms. Square might not be the best choice for businesses with steady and higher average transactions.