subject: The Basics Of The New Square Payment System [print this page] If you spend any time online looking at ecommerce sites you cant avoid seeing the new Square advertisements. Available for iPhone, iPad and Android, Square is a new service which allows anyone, anywhere to accept credit card payment without first applying for a merchant account. Of course, as you would expect, any such technology offers advantages and disadvantages.
First, the Advantages
For a very small business which only makes use of credit card technology on a rare occasion, Square allows access to an additional form of payment. The processing fees are straight forward, 2.75% for swiped transactions and 3.5% + $0.15 for keyed in transactions. There is no contract and once your account is set up you are ready to roll, anywhere you have signal. Signing up is free and the square card reader and application are too.
Now, the Disadvantages
For any business beyond the smallest, Square is too expensive to use and too prone to employee-based problems, as the card reader is so small that it is easy to lose.
Rates are too high for large scale purchases; right now average discount rates are about 1.79%, and while that difference doesnt seem large, it really is when your take is in the thousands. Just look at the math: $10,000 x .0179 + $25 (the average monthly fee) = $204. The same $10,000 x .0275 = $275. It is easy to see how using Square for a standard business could become very pricey.
An additional challenge to larger businesses starting a Square account is that the company wont issue more than $1000 in the first month while you are establishing your credibility. Who has time to wait for that? You can petition the company to accelerate your payments, but with a merchant account you dont have to worry about such things.
So, Which is Better?
For the typical business there is little question about which option is more flexible or useful. Clearly, applying for a standard merchant account just makes more sense. In addition to processing credit card payments, a merchant account can offer help in marketing, can be used online when you expand to the Internet and offers a variety of tools such as loyalty programs and email newsletters to help your business grow.
The exception to this rule would be if you are using credit cards minimally and dont want to bother with setting up a merchant account. You would need to process less than $1000 a month by credit card, and use Square as an additional convenience for your customers from time to time.
