There’s been a lot of buzz lately about mobile payment processing services like Square, and some suggest they could render traditional merchant accounts obsolete. While doing a credit card off a mobile device may work just fine for personal use and some niche markets within the retail space, a traditional merchant account might still be a good choice for many businesses.
Let’s compare Square and a traditional merchant account provider using several important criteria to determine how they perform:
Application Process: Square users complete a form, download the app to their device and then the free Square reader arrives via snail mail in 3-5 business days. Once you download the app to your smart phone, you are in business. With a traditional merchant services company, you must do a formal application and undergo a credit check to be approved for an account. A merchant representative will review your application by phone once you pass the credit screen and offer specific options based on your business and credit card processing requirements. In some cases you can receive your equipment and be ready to accept credit cards within 24-48 hours.
Customer Service: Square’s customer service handles inquiries via emails, Twitter and a blog. They are highly responsive via social media, but it still can have its challenges, especially if you need to do a return. A traditional merchant account provider often comes equipped with 24/7 customer support that’s just a toll-free call away. Some of these companies have poor customer service though, so I suggest doing a search with BBB, the better business bureau, to see if the company has any open complaints. Depending on the service, you can talk to a trained support rep, or a leave a message. Talking with a live person can help get you up and running, so you don’t experience extended downtime.
Sales Volume: Square clears transactions within 24 hrs when the card is present. For card-not-present (CNP) transactions when more than $1,000 is charged, Square will place a 30-day hold on funds within any rolling seven-day period. A traditional merchant will give you a limit on the size of the transactions you can accept. Once a transaction is processed you must batch your machine in order for your transaction to be processed. Once that takes place, your money is typically deposited in your account in 2-3 business days. Your monthly processing volume and average ticket size will be clearly outlined in your contract. If your business needs to increase those amounts, you’ll need to negotiate with your traditional provider.
Bank Accounts: You must have a bank account to use Square. Once the transaction is made, your funds will be deposited directly into the bank account – minus their fee. Traditional merchants operate the same way. All funds minus their fee are deposited once the transaction proceeds.
Cost: Square charges a 2.75% swipe fee for card present transactions, and a rate of 3.5% plus 15¢ per transaction for manually-entered transactions. Merchant accounts are typically higher. If your volume is high enough, a rep can help you custom tailor a package of products and services that meet your processing requirements and your budget.
Security: Traditional providers are PCI (Payment Card Industry) compliant and use state-of-the-art encryption to help ensure secure processing. Square is PCI compliant. Their card reader is fully encrypted, with credit card information encrypted at the moment of swipe. Compliance with industry standards helps reduce the risk of data breach, credit card fraud and identity theft for you and your customers. Being a player in electronic payment processing means abiding by the rules – it’s safer for everyone that way.
What is your opinion about handling credit cards these days? Which service do you use and why?
About the author Sarah Levy is a blogger for Merchant Express covering topics from small business marketing to the latest in payment technology. Read more of Sarah’s writing on Merchant Express blog and follow her on Twitter @Sarah_Levy81
Hey Melinda — it’s funny, I just got done writing about this on my blog!
Great article – you were very thorough.
I would just want to emphasize how much work it is on the front end to sign up for a merchant account. I set up a merchant account for my business, and the initial application wasn’t too bad, but the PCI Attestation of Security Compliance was a huge hassle and took a lot of time.
Unfortunately, I believe I need to fill that form out again annually, but hopefully I can copy most of the answers from the prior form.
Here’s my article if you are interested. I do more of a comparison between different merchant accounts, such as Paypal, Amazon Payments, Google Checkout, Authorize.Net, etc. Obviously I’m not covering all of the options out there, but I covered a number of the larger ones.
http://smartbusinessrevolution.com/7-options-for-accepting-merchant-credit-cards-for-your-business/
What does everyone think about dwolla.com as an option?
I hated it honestly. Was with them not even a month. Do not believe the hype.
Melinda- I found your blog and book via your posts on the New York Times’ You’re the Boss blog and was excited to read your posts. I was very disappointed in this post – by my count there are seven (!) misspellings / typos / grammatical errors. In the very first post I read. To be honest – i was shocked. Why should I trust that your content is factual if the editing either doesn’t exist or at best is awful? Here’s hoping this was a one time exception. Good luck. -Michael
Michael-This is a guest post written by Sarah Levy. I’m not sure why there are two authors listed but I think it may be a mistake. Though there were some errors, the points in the article were solid. There has been a lot of questions regarding Square and this article does well addressing them. I think that Square isn’t a good alternative to traditional merchant accounts myself.
New to this, I need a clarification.
Are my account deposits made directly to my personal checking or savings account? I use a credit union.
Of, must I open a merchant account.
I think it depends on business.
I think merchant services have better customer service than mobile payments have. If someone is using a mobile payment device and is not tech savvy… they might have a hard time getting help.
Right.
And direct merchant service providers can offer interchange plus pricing moel, which is far better than the mobile processors.
I am a contractor and I have been using the Rectangle Ware Ever Pay service. Only had one little snafu at the start but the tech assistance was on point.
I’ve been using rectangle for a non-profit group taking large donations. Rectangle has the lowest rates on the market and have found rectangle’s Next Day Funding to be an amazing feature added to their already reliable product. They do not hold large key entered volumes like Square had in the past. BEST of all they have people you can talk to.My rep is great and their office has real, live, customer service. How it should be.
Outstanding service all together