Is Square Payment Processing Right for You?
Square is a great product.
Let’s analyze its advantages and disadvantages, so that you can determine whether it’s the right product for your business.
At 2.75% per transaction (3.5% +15c for key-in), Square makes it easy to anticipate costs.
While different payment types carry with them varying transaction fees on the Interchange processing network, Square has found a price point that covers them all on average.
However, if you tend to accept a wider range of payment types, including debit cards, then your average transaction rates — for your unique business — could be much lower than what Square has in store for you, as it lumps everyone into a single category.
The impact on your bottom line may be significant. Consider the following example:
$25K in monthly sales x 2.75% = $687.5
$25K x 2% (industry avg.) = $500/month
Food for thought!
For busy merchants who need to balance their attention to different aspects of running their business, Square’s monthly bills are very straightforward. They will show how much you processed, and how much the total fees were.
Unfortunately, these don’t include details about the type of transactions that were carried out. You will not know which type of credit or debit cards were used, or the detailed reason for any additional fees charged to you.
Knowledge is power. Equipped with the right information, you have the opportunity to optimize your operations and save on your bottom-line costs of doing business. If and when you are ready to examine your business more closely with the help of a merchant services provider, then traditional processing solutions come with very detailed statements.
Unlike PayPal that requires several days to transfer funds to a bank account, Square pays you as quick as traditional processing systems.
The downside is that it could mess with your accounting and reconciliation process by not aligning credits and debits from your bank account. You can avoid such issues with traditional 2 business-day funding.
If you don’t have a friend in the merchant services industry on your side, a Square account is a quick, turnkey alternative to sign up for.
Alternatively, opening a traditional processing account comes with a more rigorous verification process. This helps ensure that you would be processing at the lowest rates for your business category, as well as avoiding any unnecessary charges.
Cheap or Free Equipment
The Square reader is priced at $10, and there are rebate programs available to cover that cost.
However, just like you wouldn’t give away anything for free in your business, nothing is actually free in the processing world. The price of readers are incorporated into Square’s flat rate structure. Furthermore, EMV-enabled readers come with an additional cost.
Chasing a $60,000 Promise
Every merchant gets approached by payment processors with offers for reduced rates or free terminals.
“We were clients of Merchant Concepts for 10 years and had a wonderful working relationship with them. During the financial difficulties of 2008 we were inundated with calls from numerous competing merchant services companies, each offering to save us money…”
One of the largest independent retailers spanning multiple locations in the Portland (Oregon) metro area was enticed by a competing merchant services company with an offer to save $60,000 annually on their payment processing costs by knocking several basis points off their transaction rates.
We don’t believe in punishing clients for terminating service with us for good reason, and $60,000 is a good reason.
Three months after leaving us, however, the retailer realized that their overall costs had gone up instead of down, and that working with Merchant Concepts had been saving them more on their bottom line.
When the merchant presented us with their new statements a couple months into their chase after the promised $60K in savings, we identified numerous hidden fees that had been tacked on by their processor and merchant services provider. We also noticed frequent transactions of over $10,000 involving corporate credit cards that were accompanied by hefty fees. Without additional information — referred to as Level 2 & 3 data — that is supplied during these type of transactions, merchants can get charged up to as high as 3.5% on Interchange.
On top of it all, our former client was frustrated with how much time and energy they were spending trying to get helpful service:
“For assistance we were given a long distance phone number and we never got the same person to assist us when we called.”
We were excited to earn back their business, and found even more ways to make their operations smoother (and save them more money).
Once the merchant was able to get out of their binding year-long contract, we immediately accomplished 5 things:
- Negotiated with the processing banks to eliminate all superfluous fees.
- Rolled out a point-of-sale technology that ensured every retail location always supplies Level 2 & 3 data along with their transactions.
- Trained every single employee on the new systems and best practices.
- Reinstated direct, local service & account monitoring. No sales reps, no call centers.
- Restored our portion of the transaction rates (or “discount rates”) back to previous levels.
Side note: A typical “discount rate” of 20 basis points, for example, translates to a 0.2% charge to transactions. This is the fee that covers the “service” portion of merchant services, whether actually provided or not.
The merchant now enjoys a bottom-line cost reduction of thousands of dollars across key transactions, without having changed the fee structure at all — only the way these transactions are handled.
In addition, all of their employees now understand how the ways they process payments affect the company bottom line, and carry out every single transaction mindfully. Charge-backs are down (one of the most costly scenarios for merchants). When in doubt, employees happily give us a call to avoid costly mistakes, thanks to the trust we’ve established with every member of their management team as well as store, warehouse, and back-office staff.
Not only are most merchants led to focus solely on rates when choosing their payment processing partner, but they are also the wrong rates.
90-95% of the fees for running transactions are levied by the credit card companies and the banks. “Discount rates” that are tacked on by merchant services companies (in exchange for their service, assuming they provide any) represent only a tiny fraction of the total costs. The type of customer payments and the technology and manner in which they are processed have the most significant effect on bottom-line costs to doing business — lower rates do not always translate to lower costs.