If you're a small business owner, you likely already know how important it is to be able to accept credit card payments. But with so many options out there, how do you know which is the best payment processor for your needs? Two of the most popular options are Square and traditional merchant accounts. But what's the difference, and which one is better for your specific business? Here's an in-depth comparison of Square vs merchant account.
What is a Square?
Square is a payment processing service that offers a unique square-shaped card reader to accept payments. It works with smartphones and tablets and allows business owners to accept credit cards anywhere.
Some key features of Square include:
Easy to set up and use, with no complicated contracts or fees. You simply plug the reader into your device's headphone jack.
Flat rate processing fee of 2.6% + 10¢ per transaction in-person, or 3.5% + 15¢ per transaction online. No hidden fees.
Receives funds deposited directly into your bank account in 1-2 business days.
Offers additional features like invoice sending, virtual terminal, loyalty programs, and e-commerce integration.
Specialized solutions for retail, restaurants, and service businesses.
What is a Merchant Account?
A traditional merchant account is an agreement between a business and a provider (usually a bank) that allows the business to accept credit card payments. The provider handles the processing of transactions.
Some things to know about standard merchant accounts:
More complex setup, often requiring a credit check and physical office visit. Longer application process.
Multiple potential fees including application fees, monthly minimums, statement fees, and chargeback fees. Rates vary widely.
Processing rates typically range from 2.3% to 3.5% + per transaction fee. Depends on business type, card brands accepted, and more.
Funds are deposited to your account within 2-4 business days usually.
May come with monthly minimum processing requirements. Higher costs if not met.
Gateway, terminal, and other services are needed at added costs.
Account monitoring and security included.
Key Differences
There are a few major differences between Square and traditional merchant accounts:
Pricing - Square uses simple, transparent pricing whereas merchant accounts can have many complex fees. However, Square's cut is higher than average merchant account rates.
Contracts - Square has a month-to-month service. Merchant accounts usually involve long-term binding contracts lasting 3+ years.
Approval - Square approval is fast and anyone can sign up. Merchant accounts require formal applications and approval is not guaranteed.
Features - Square includes most features needed out of the box. Merchant accounts offer greater customization of features but extra add-ons cost more.
Use - Square is best for mobile and online businesses. Merchant accounts fit brick-and-mortar stores with regular inventory and large volumes of transactions.
Is Square vs Merchant Account Better for Your Business?
So which option should you choose for your small business? Here are a few factors to help you decide on Square vs Merchant Account.
Transaction volume
If you only process a few thousand dollars per month in sales, Square is likely the better fit. The interchange fees from processors like Square make sense for small-volume sellers. Large ticket sizes over $500 can be cheaper on a merchant account.
Mobility
Do you sell at events, pop-ups, or markets? A mobile POS like Square allows you to accept payments from anywhere. Merchant accounts are tied to your store location.
Cost
Square costs more per transaction but has lower startup costs and no monthly fees. Larger businesses may save on interchange fees with a merchant account. But you must consider added account costs too.
Contracts
Want to avoid early termination fees and long-term commitments? Go with Square. Their lack of contracts makes it easy to change later as your business grows.
Business Type
Square best suits simple retail stores, mobile businesses, and low-volume sellers. Full-scale merchant accounts with customizable options fit higher-risk businesses like auto repair or B2B selling.
Growth plans
If rapid growth is in your future, a merchant account gives room to scale. Square may become less cost-effective as your sales volume increases over time.
In Conclusion
When deciding between Square and a traditional merchant account, the right choice depends on your business's unique needs and goals. At 5 Star Processing, we understand this complexity. Our dedicated account representatives take the time to understand your business operations and long-term vision. We then suggest the credit card processing solutions that make the most sense for your current situation and future growth plans.
With 5 Star Processing, you get the best of both worlds - the innovative technology and flexibility of Square combined with the customized options and cost savings of a merchant account. We ease the account setup process while still providing tailored solutions. Our simple transparent pricing and dedication to customer service ensures you get the most value.
Whether you’re a small retailer, restaurant, mobile business, or a large corporation, 5 Star Processing has the payment solutions and expertise to help your company succeed. Get in touch with us to start a conversation and find the credit card processor that best enables your business growth and financial objectives.
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