Square May Not Always be the Best Choice
In today’s economic climate, the bottom line is scrutinized more than ever. Every dollar spent needs to be weighed as its importance to the business versus spending that dollar on something else. Never before has the term “penny-pinching” been more relevant.
The “Square” Merchant Account product arrived on the scene as the economy was wreaking havoc on businesses that were losing money from all angles as consumers were tightening their belts. It’s not surprising that businesses that were looking at reducing costs gravitated to the Square’s new pricing model for their merchant account credit card processing.
Before Square came on the scene, it was unheard of to have a merchant account that didn’t carry with it some sort of monthly and per swipe fees. After speaking with many principals’ of other merchant account providers, I was told that “in their opinion” the “Square” business model was an unprofitable and losing proposition and was nothing more than a flash in the pan concept that would quickly disappear. My thought was that it was a model here to stay and more providers would soon follow suit since this was a product that the consumer was demanding.
Consider what happened to the mortgage industry in the 1980’s. It was unheard of to be able to get a mortgage without paying at least 3 points (3%) in closing costs. Then came along the mortgage brokerage era and paying points quickly became a thing of the past with most mortgages carry zero point options as well as zero closing cost options. Once the business changed from a service industry to a commodity, the pricing of the old days was laid to rest. The same thing is happening to the credit card processing industry and those who do not join the bandwagon will be rendered obsolete very quickly.
The sheer fact that Square is now processing approximately 5 Billion dollars per year in transactions clearly shows this concept is here to stay. And of course the fact that PayPal, one the largest processors in the payments processing industry has followed suit with their “PayPal Here” product and Intuit’s “GoPayment” program as well as a couple more players such as USBSwiper.com joining the race, only provides more support that this type of low cost merchant account product is not going anywhere anytime soon.
While the profit margins for the credit card processor may be lower, the sheer volume of business flowing through these accounts can more than make up for the slimmer margins. More and more merchant account processing companies are experience defections of their customer base to these lower cost models in the effort to trim their bottom lines and survive the current very difficult economic climate.
However, are these new cheaper merchant accounts always the best choice for a business? The answer is yes and no but really is a function of the volume of credit card transactions flowing through that business.
Obviously the Zero monthly fee option is extremely attractive to any business but does the math always justify it? Let’s take a look.
As I mentioned at the top of this article, if you are a mid to large business, this merchant account option may not be the best choice for a variety of reasons with the first as the obvious cost of the merchant account fees itself. Other considerations that need to be taken into consideration are the smartphone data plan costs which can be exorbitant. There may be more cost effective connection services for merchant accounts such as internet air cards for small laptop or notebook computers that companies like square do not support but companies like USBSwiper.com (who also offers “Square-Like” merchant accounts for PC based systems as well as Smartphone device options.)
Another consideration that a mid to large size business needs to weigh is whether they want to invest in the small expensive iPhones, iPads or other devices that can more easily be stolen from the business or whether the business even wants to use these devices at their store front or office location. Many businesses already have a large investment tied up in their desktop or laptop pc’s and if there was a great merchant account program available, those terminals would be perfect for the credit card processing. In this case the cost of adding all the new mobile devices as well as the data plans could be extremely cost prohibitive no matter how much they are saving on credit card processing fees. Existing pc’s in an office are typically already tied to a router or other internet access making those terminals perfect for credit card processing systems that convert these terminals to the credit card processing terminal. Companies such as Square do not offer their merchant account programs for anything but smartphone devices and therefore can not compete with companies such as USBSwiper.com / MobileSwiper.com that offer the same type of merchant account as Square but provide it for both the smartphone realm of products as well as pc based products. Also, larger businesses may want the added flexibility that pc based systems offer by being able to print receipts for their customers on the spot whereas the smartphone programs only offer emailed receipt functions or with some programs that do provide for printed receipts will require a Bluetooth type printer which can also be cost prohibitive.
I define a mid to large size business as any business who processes credit card payments in excess of $30,000 per month ($1000 per day). Any volume less than that is what I would consider a small business and for the smaller businesses the Square type merchant account or The USBSwiper and MobileSwiper merchant account programs may be a good choice from purely a cost per transaction factor. Keep in mind that a small business still must consider the data plan costs associated with a smartphone program as well as other considerations such as being able to print receipts on the spot. (something most smarthphones are unable to do but the USBSwiper.com system for pc’s can). For businesses processing large volumes and want to do so on a smartphone or a computer, the USBSwiper.com and MobileSwiper.com solution again offers lower processing rates than Square or anyone else with rates starting as low as 0.74%.
So let’s take a closer look at the transaction costs and see where things stack up.
Square charges a Flat rate of 2.75% for qualified Swiped transactions. Keyed transactions (ones where the merchant has to manually type in the credit card information) are charged at a rate of 3.50% plus 15 cents. For purposes of our comparisons, we are only going to focus on swiped qualified transactions. Again, Square and a handful of others charge no monthly fees.
A traditional merchant account typically charges a monthly fee of approximately $20.00. This usually includes a gateway fee as well. The merchant accounts for use on a computer such as the ones offered by USBSwiper.com offers a monthly fee of only $6.95 and provides 3 different rate plans with transaction rates that range from 0.74% to 3.50% with the average rate being around 2.00%. Some merchant accounts also have some per swipe fees of around 20 cents per transaction as well.
If your company processes under $1000 per month the math works out as shown below for the 2 different processors doing 20 – $50 transactions.
$1000.00 x 2.75% (Square) = $27.50
$1000.00 x 2.20% (Typical merchant account) = $22.00
+ $20.00 monthly fee
+ (batch out fee per day – .07 x 30 days) = $2.10
+ (per swipe fee 20 transactions x .25) = $5.00
Total for traditional merchant account = $49.10
In the above example, clearly the Square type merchant account is the winner by $21.60 per month.
If your business processes $10,000.00 the savings (based on the above assumptions) for a Square type account is = $17.10
For $20,000.00 = $12.10
For $30,000.00 = $7.10
These savings continue until such time as the amount being processed exceeds $40,000 per month. Let’s take a look at what happens to these numbers when that threshold is reached. This also assumes $50 per transaction so we are looking at 800 transactions during the month.
$40,000 x 2.75% (Square) = $1,100.00
$40,000 x 2.20% (Typical merchant account) = $880.00
+ $20 monthly fee
+ (batch out fee per day – .07 x 30 days) = $2.10
+ (per swipe fee 800 transactions x .25) = $200.00 = $1102.10
Savings = $2.10
Obviously some other factors that can influence these numbers slightly is that a business can have larger or smaller dollar amounts of each transaction which will have an effect on the number of transactions performed which will have an effect on the per swipe fees.
Of course these savings are fairly small in comparison to overall overhead of a business and therefore all the other factors should be considered when deciding if this merchant account model will be right for your business. The additional costs of the devices, data plan, lack of receipt printing capabilities and potential theft of the devices need to be considered when analyzing these minor cost savings.
Until now, Square and a small number of other providers have stepped up and offered these very competitive merchant account programs but have been limited to only being able to offer them for smarthphone type devices. For a more balanced product line that offers even better rates than those offered by Square and the others and also offers the PC based compatibility tied to these rates as well, consider the MobileSwiper.com / USBSwiper.com solution.