Square vs Your Own Merchant Account

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Square vs Your Own Merchant Account

How Do I Decide if I Should Choose Square or Get My Own Merchant Account from a Merchant Services Provider?

Price Consideration:

Square is set up for the small volume merchant.  Square does not have a monthly fee or transaction fee; only a rate of 2.75%.  Let’s compare this pricing to a typical merchant processor charging $10 per month plus 1.89% + $.20 per transaction.  On a monthly volume of $2,000 with 40 transactions of $50 each, square would charge $55.00.  The merchant account processor would charge $37.80 plus $8.00 plus $10.00 or $55.80, very close to the same fees.  If your monthly sales volume is less than $2,000, and you choose your credit card processor based on price only, then your choice would be Square.  If your monthly sales volume is more than $2,000 per month, then based on price only, your best choice would be to get your own merchant account.

Bookkeeping Consideration:

Square uses a process called “Daily Discount”.  This means that they take their 2.75% fee before they deposit money into your bank account.  A $100 transaction gets deposited into your bank account as $97.25.  When you get your own merchant account, the full $100 is deposited into your account.  All the fees are deducted on the first of the month following the month of processing.

The Daily Discount sounds simple enough when you have the same transaction amount every time.  But let’s look at the numbers when you have odd amounts.  Let’s say you run 3 transactions, one for $87.36, one for $35.42 and one for $53.78.  How do you reconcile your bookkeeping when your deposits total $176.56 and the money deposited into your bank account says $171.70, which would be the sum total of these 3 transactions minus the fee from Square?

Having your own merchant account makes bookkeeping a breeze.  Your merchant services provider will give you a daily report summarizing each transaction.  And they will give you a monthly statement listing each daily deposit, which will then match up perfectly with your monthly reconciliation from your bank account. This system will save you time personally if you do your own bookkeeping or save you money in hours paid to a bookkeeper.

Keeping an eye on your business consideration:

Square is an “Aggregator”.  This means that they lump all their customers into one merchant account.  Therefore, Square does not have as robust reporting as you can get with your own merchant account.  Merchant Services Providers always give their merchants access to batch reports and monthly statements. Electronic Money Company, in addition, provides you with an online portal where you can see transactions live, monitor any chargebacks, see batch reports and monthly reporting, plus search for particular transactions. You can also set up requests for specific email notifications regarding transactions, batches, and funding.

PCI compliance consideration:

PCI is short for PCIDDS which stands for Payment Card Industry Data Security Standards.  “The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to ensure that ALL companies that accept, process, store or transmit credit card information maintain a secure environment,” taken from www.pcicomplianceguide.org. In otherwords, PCI was created to educate merchants how to prevent fraud.  The United States had more than 50% of the world’s fraud from credit cards prior to establishing PCI Security Standards.

Since Square has aggregated all their merchants into one merchant account, they do not have requirements to make sure each merchant is PCI compliant.  However, all processors that set up merchant accounts are required to do their due diligence in bringing all of their merchants up to standard with PCI requirements. The fee for helping merchants maintain these standards runs approximately $90 to $100 annually for each merchant.  I am sure you would agree that this is a small price to pay for helping to prevent credit card fraud from forever expanding.  Plus when you are PCI compliant, you know that your transactions are more secure.  You can display your PCI certification so that you customers know that you are doing your best to prevent credit card fraud and that they can freely use their cards in your establishment.