Reviewing Square’s Merchant Services and Fees: Is Square Right for Your Business?

By Meaghan Brophy

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 iOS or Android phone. This makes Square an easy and attractive payment processing solution for businesses that are just starting out or process occasional in-person sales.

Square’s Merchant Fees

Square has a transparent, 2.75% transaction fee for most in-person transactions. Credit card processing rates can be notoriously murky, and having a clear-cut rate is part of what makes Square so popular. Some card processors charge different fees based on the type of card being used, but Square only has one standard rate.

Here is what the company charges for each type of transaction:

  • In-person payments (chip, swipe, & tap): 2.75%
  • Keyed-in payments: 3.5% + 15 cents
  • Online payments: 2.9% + 30 cents
  • Invoice payments: 2.9% + 30 cents

Other Square Costs

It’s free to create a Square account and to download the POS app. If you’re accepting credit cards in-person, you will also need 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% sees high — and for some businesses, it is. When evaluating a merchant services provider or credit card processing company, it’s important to look at the entire fee structure.

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. 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, 2.75% transaction fee

Payment Depot: $49 per month, interchange + 15 cents transaction fee, and can go as low as $0.05

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: $550

Payment Depot: $651 (using Visa’s average interchange rate)

Now, let’s say that you are still processing $20,000 in monthly sales, but your average transaction is $40, and you have 500 monthly transactions. Here’s how each processor stacks up with a higher average sale:

Square: $550

Payment Depot: $476

Your monthly sales volume isn’t the only important factor, your average sale amount also plays a huge role. In general, if your transactions are below $20, a flat percentage rate, like the one Square offers, will be a better fit than interchange plus pricing.

In the second calculation, Payment Depot is significantly less expensive than Square. If your business has an average sale above $20, and you regularly process at least $10,000 per month in sales, a membership model like Payment Depot can save you a significant amount of money each month.  

Is Square Right for You?

Square is an excellent option for many businesses. Like we mentioned above, Square’s processing rates are ideal for companies that have an average transaction or average sale below $20. Since Square is free and easy to use, it’s also a good solution for occasional sellers or businesses that are just starting up and want to have a few months worth of sales under their belt before applying for a traditional merchant account.

Square is a good option for:

  • Businesses with small average transactions
  • Occasional sellers like pop-up vendors, flea market vendors, and artisans

Square is not a good option for:

  • Businesses with an average transaction over $20
  • Boutiques, gift shops, and established brick and mortar retail businesses
  • High-volume businesses processing over $30,000 per month

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 merchant account, 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.

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.

Bottom Line

Square is an attractive option for startup businesses and occasional sellers such as flea market vendors. It’s transaction rates are ideal if your average sale is below around $10 to $15, such as cafes and coffee shops. But, if you are an established 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.