More and more contractors are processing credit cards using the ‘Square Up” program – most people think it is cheap, easy to set up, pain free and the only tool on the market that can authorize credit cards using their smart phone. Unfortunately, all of those assumptions are pretty wrong. When reading through the fine lines of the actual program, it seems pretty clear that this product only works for a very small subset of the credit card acceptance market – one of the few things going for Square is that it has a fixed rate, which makes it very easy to calculate what a merchant pays for their credit card acceptance. Unfortunately for the merchant, that rate is very very high. Square is also is convenient but you end up paying through the nose for their service. Merchants currently using this program should seriously consider other options.
· Positives: works nicely with existing smartphones; fixed credit card rates make it easy to calculate fees; no monthly fees.
· Negatives: Extremely high rates, which means merchants are paying far too much; if Square customer has over $1000.00 in sales in a week, Square will hold any money over $1000 and not deposit it into their customer’s account for 30 days; not PCI compliant which means significant exposure to risk.
Square utilizes a fixed pricing program - as outlined in May’s monthly newsletter, any merchant on a fixed pricing plan is simply paying WAY too much for credit and debit card acceptance – period! Square charges 2.75% when a card is physically swiped and 3.50% and $0.15/authorization when a card is not present.
So on an average $10,000 transaction where the card is present, merchant is paying $275; where the card is not present that fee comes out $350.15. In both cases, $9000 is held in “escrow” for 30 days.
Square does not charge a monthly fee or a set up charge because they are making significant money each time a merchant utilizes their program. They are not stupid –they know how to make the big bucks! But making it simple means a lot of people will sign up. And they partner which big merchants like Starbucks to get the word out – but I can assure you they are not giving Starbucks the same rates they give everyone else!
They have put Starbucks on the same plan we advocate for all merchants, interchange plus. Interchange plus is the term used to describe the wholesale rates charged by the credit card associations (Visa®, MasterCard® and Discover®). With over 150 credit cards in the market today, each of them correlates to a slightly different interchange rate.
As the name implies, Interchange plus pricing works by applying a fixed markup fee to the wholesale interchange rates from Visa, MasterCard or Discover cards. This includes two basic fees: one is often expressed in basis points (i.e. bps) and the other is an authorization fee (i.e. every time a business authorizes a credit card).
Getting a credit card swiper for a smart phone is easily available from most credit card processors – don’t be fooled into thinking that Square is the only game in town when it comes to this service.
And finally, PCI compliance is key to lowering ones exposure to risk – see EGIA July newsletter. ALL businesses that process credit cards are required to comply with PCI compliance and the potential penalties for non-compliance are stiff.
One of the few reasons for a business to go with Square is if they are doing so little volume that the monthly fees are just not worth it – with that said, best to do the math on how much total volume you expect to do because the fees charged on just a few transactions make up for quite a bit of fixed monthly fees.