Square has recently hit the scene and is getting a ton of buzz and press.
This is for a number of reasons, whenever the founder of Twitter is involved in a new and exciting product there is bound to be interest from the media. Additionally their system is processing an extremely large number of transactions, with an exponentially increasing number of new merchants signing up daily. Along with their growth they have also received a large amount of interest from the venture capitalist of the world, and count Visa as one of their high profile investors.
While an exciting take on the credit card processing industry, we find it difficult to recommend Square to any small business owner that is looking to process credit cards at their company. However as a pure mobile tool for a small number of transactions a month, or as a backup tool for more established businesses it does serve a useful purpose.
Our take on Square is that it has accomplished its mission of becoming the PayPal of the offline world. Sadly that is where it fails for small businesses, as yes it is easy to apply for and start working with, but the price for that simplicity is that you will pay more money and lose the benefits of customer service and the security of having a company to back you in the event of a chargeback.
Those small business owners who decide to use Square are often misled to believe that Square represents the next evolution of the credit card processing industry, when in fact in many ways it is a step backwards from what they receive from a traditional merchant processor.
Yes the rates are easy to read and understand – However you are always paying a higher rate than you could be if you set up your account with a solid and reputable merchant account provider. Unfortunately many small business owners have been burned by bad merchant accounts and less than stellar merchant account providers. To these individuals, Square represents a new direction and what looks like cost savings, however if you find the right merchant account with a solid company you will always be able to save money over Square. Again this is for individuals with businesses that process over $5,000 per month – read on for more information on this distinction.
The other big factor merchants should consider is the customer service angle, if the loss of processing for even a day could significantly impact your companies bottom line then Square is not for you. If however you are a small time artisan who can handle the service being intermittent, or the application not working properly for a day then Square may be the right option for you. If Square looks like an attractive option but you have concerns about the customer service aspect we suggest checking out Intuit GoPayment, which offers a similar solution but includes some customer service upgrades over Square.
While the excitement behind Square is warranted, at this time it is really not a good option for any small business owner processing over $5,000 per month who needs a reliable and cost effective solution for their credit card processing needs.
If you own a small business and are considering Square take a quick moment to evaluate how many transactions and the total cost of the items you are selling. If all of your transactions are going to be swiped using the reader, assume a 2.75% processing cost. If you are processing under $1000 per month, you will be looking at $27.50 in costs per month. Compare this to a merchant account provided by one from a reputable and highly reviewed merchant account provider, which should average out to between 1.5-2.15%. A standard merchant account would typically save even leaning towards the high end around $6.00.
Obviously it is not as simple as that, as monthly minimums and other fees play a role. With this in mind lets be very aggressive and say those additional items will add on average an additional $20 a month to your costs. Now rather than saving $6.00 the merchant account is adding another $14 per month.
However what happens if you process $5,000/$10,000 per month:
Square – Cost: $137.50 / $275.00
Merchant Account – Cost (transaction + monthly): $125 (~$105 + $20) / $235 (~$210 + $20)
At $5,000 per month you are saving over $12 per month, and at $10,000 you are saving $40 per month. In addition you have access to a 24/7 customer support staff, if for any reason your terminal or mobile application is not working. On top of that unlike with Square you have the ability to contest and argue against chargebacks and other items that will arise, but you are not protected against.
Also these numbers assume that you will be using the Square credit card swiper successfully for all transactions. One of the biggest complaints that we have come across in our talks with individuals is that they struggle consistently with getting the reader to work. One of the benefits of the system is there is the failsafe option of keying in the transaction, however this does increase the price significantly to 3.15% and 15 cents. In addition merchants that process over $1000 in a week through the “keyed” entry will have that money placed into a 30-day hold cycle. Square does this to help fight fraud but one can imagine the frustrations for business owners that tried to swipe the card but are unable to do so, who suddenly find themselves paying increased costs and unable to access their money for 30 days
If you are running a business that will process over $1000 per month, our recommendation is that you leave Square to the babysitters and lemonade stands of the world and find a merchant account provider that is best poised to help you save money and let your business succeed.
In addition to the above as more and more individuals use Square, the limitations of Square continue to be noted for those small business owners that need to process real volume or have to move through sales quickly. If the cool factor is outweighed by the limitations this would be another reason to go with a traditional merchant account rather than Square. Common Issues being reported include:
- As we mentioned we keep hearing from individuals who are having issues with the scanner not reading cards consistently, often the user is required to swipre his/her card mutliple times before it is read successfully – once again this represents a double whammy as you are paying the higher costs plus after $1000 the funds will be held for 30 days.
- You are at the mercy of your wifi/wireless signal. with a complex process taking place merchants are seeing an “Authorizing” screen which spins until an eventual timeout, forcing he transaction to be started again from anew. In addition to the hassle, customers seem to be concerned that they are being double charged.
- “Unkown Bank Brand” is showing up, this seems to be an issue with Square being unable to authorize the cards – note most merchants have experienced this issue when swiping “normal” Mastercard/VISA cards.
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