It’s Hip to Be Square

Having run a small business for 10 years now, I am very aware of the challenges that small businesses face. One of those challenges is offering the ability to accept credit cards. Many small businesses would like to accept credit cards, but the reality is that most credit card processing companies make it financially difficult for small businesses to do so, especially if those businesses are mobile. The two main problems are set monthly fees and lack of feasible mobile payment options. Set monthly fees that are charged regardless of the amount of transactions add up quickly and eat into any profit a small business makes from accepting credit cards. As more and more small businesses are mobile by nature, the lack of a feasible mobile payment option makes the transaction process difficult, less professional, and potentially less secure. Fortunately, in the span of two short years, a new service has completely revolutionized the world of credit card processing for small businesses. Even if you would like to occasionally accept credit cards for the smallest of businesses, you should read on.

Likely by now you have at least heard of Square. But I still find many small business owners who really don’t know how Square works. To put it simply, Square is a credit card service that allows you to process transactions through your iPhone, iPad, iPod Touch, or Android device. It works by running the Square app on your device and swiping the card through the “Square Reader” that plugs into your device’s headphone jack. You can also manually type the credit card number by hand. Sounds pretty high-tech, right? It certainly is, but in reality there are many companies that can do mobile credit card transactions through smartphones and tablets. Where Square really sets itself apart is in its pricing model.

Most credit card processors will charge small businesses in the range of $20-$30 per month just to have the ability to accept credit cards. This is before any transaction fees are calculated. For many small businesses, they may only transact a handful of sales by credit card. Some months they may not even need to run a card at all. Yet they still must pay this fee. Most processors require small businesses to sign a contract which locks them into those fees and they often will charge a setup fee upfront. Additionally, much of the time small business must buy or lease a credit card machine to run the cards, which can be very expensive. And the options available for mobile credit card transactions are limited and astronomically expensive. Square completely changes all of this.

To start, it is completely free to sign up for Square. They even send you their Square Reader for free. And if you lose your Square Reader you can pick one up for $10 at many electronics stores. This alone can save small businesses several hundred dollars. But where Square really shines is the fact they do not charge any set monthly fees. Regardless of how many transactions your business does through Square in any given month, even if it is zero, you do not pay the $20-$30 fee most processors charge. The savings on the monthly fee can really add up for small businesses. And you can accept Visa, MasterCard, American Express, and Discover without any additional fees for the different types of card you accept, like is required for most traditional processors. Square gets paid simply by taking 2.75% of each swiped transaction or 3.5% + 15 cents for each manually keyed transaction, again regardless of what type of card is used. Obviously, it is in your best interest to use the Square Reader to swipe your transactions, but if you must run a card manually (say a phone order) then at least you have that option.

Those of you that are familiar with credit card processing rates will at first think that Square’s transaction fees are high. True, their per transaction rate is higher than what most other processors list. However, the savings of the monthly fees more than outweighs that for many small businesses. That’s not even factoring in the ability to run cards while mobile without paying thousands of dollars for a traditional wireless credit card machine. Plus, with some of the extra fees that traditional processors charge for accepting American Express, or Discover, or business cards, or cards with rewards plans on them, Square’s rate isn’t really that much higher for those cards. It is also so much simpler to calculate what a transaction will cost a small business with Square’s flat transaction fee than it is to decipher the overly complex fee structure that most traditional processors present. All that said, however, there is a point where the volume of money that a business runs through credit cards will change the equation back into the favor of traditional credit card processors. So you must do your due diligence and make sure that Square will actually save you money if you run a fairly high volume of credit cards. Also, if your business primarily does manually entered transactions and you will do more than $1000 a week, you will need to contact Square to request your deposit limit raised or Square will hold some of your transaction revenue for 30 days as a security precaution.

One thing to note is that even if your company is best served by a traditional credit card for the majority of your transactions, having a Square account costs you nothing and can act as a great supplement. For example, you may only use Square for on-site visits or road shows. Or perhaps you can use it as a backup if your credit card machine is out of service. Like I said, Square has really changed the game when it comes to credit card processing and there are many possibilities for your business to take advantage.

Using my own business as an example, I switched to Square last year. I reviewed my credit card charges for the previous six months with our former processor and calculated what we would have paid using Square. I found that we would have saved about $100 over those six months if we had been using Square. And I calculated that it would take about $4000 of monthly volume before Square started to get more expensive than our previous processor. My business rarely does anywhere near that amount in credit card transactions. So the decision was pretty easy for my business. We’ve been using Square since then and it has been absolutely a great service. Nearly everyone I talk to that uses Square says they love it. Other than the way people talk about their iPhones, I’ve not seen people be so happy with any product or service in a long time.

Finally, some of you may have heard some talk in the news last year about Square’s service being insecure. The whole issue was that the credit card data wasn’t being encrypted when transferring from the Square Reader to the Square app. I can honestly tell you that this whole situation was blown quite out of proportion, primarily by a competing traditional credit card processor. Ironically, the way the competition sensationalized the issue actually backfired on them because most people could see that there really wasn’t an issue. The reality is that all data is encrypted by the Square app when transmitted to be processed – where it really matters. The fact that the Square Reader didn’t encrypt the data to the Square app made the transaction no less secure than any other time people hand their credit card to anyone else. The real issue is trusting the person or business you give your credit card to, regardless of how they swipe it. Regardless, it is all a moot point now anyway as Square has introduced a Square Reader that does encrypt the swiped data, just to silence those critics.

To sum up, I highly recommend that all businesses take a look at Square and evaluate if it will make sense to use it. However, if you run a small business, especially a mobile business, I wholeheartedly recommend that you sign up for an account and start testing it right away. It will either save you a lot of money on your current credit card fees, or it will allow you to finally start taking credit cards.

If you have any questions about Square or credit card processing technology in general, please don’t hesitate to contact me!