Why Square Might Not be Your Best Credit Card Processing Option

 In Choosing a Credit Card Processor

You’ve seen the Square advertisements everywhere. You’ve checked out the website and everything seems pretty straightforward. All the rates are listed, and the local coffee shop that you frequent each day has a Square device, and seems to be doing ok. So, you take the leap and sign up for Square as your payment processor. You get approved immediately, receive your equipment and think, “That was easy!” until you get a very strange email a month or two later. Square is shutting your account down. WHAT? Shutting your account DOWN?? What does that even mean? You were already approved right? Your business is doing great…what is happening?? Thoughts race through your head. This is going to cripple your business. How can you sell things without being able to take credit cards?? Unfortunately, this is an all too common scenario. Read below to find out what Square is and isn’t, why this happens, and how you can prevent your business from experiencing these traumatic events.

PayFac vs. Payment Processor

What in the world is a PayFac, you ask? PayFac stands for payment facilitator. A payment facilitator has one overarching merchant account, or merchant ID (MID) under which they are able to provide sub-merchant accounts to businesses. This means that your company does not have its own MID, but will be categorized under the MID of the PayFac (for the purpose of this article, this would be Square). Upon onboarding the merchant, the PayFac then takes on the risk while getting a portion of the profits. This sometimes makes it easier to sign up for a merchant account on the front end, as the approval is fairly fast. “Great!” you think, “Then I don’t have to worry about anything!” That is where you are wrong.

Because companies like Square take on the risk of the account, they do not perform their underwriting when the merchant applies for an account. Only after you get the golden word of “approved,” does Square, Stripe, Pay Pal or any other PayFac start to review your account. It is the classic example of instant gratification, as well as false security. Because companies such as Square perform underwriting while the merchant continues to process transactions, there is a high likelihood that if your account gets terminated, it will be right when your business gets going. One of the common reasons that we hear about shutdowns are business type. “Wait,” you think. “I put that on my application, and was already accepted!” This doesn’t matter to Square. As we reviewed earlier, they are only taking a look at your account once you have committed. This is to the detriment of the merchant.

Now, what are payment processors, you ask? Payment processors work directly with the acquiring bank. The merchant is assigned his or her own MID, or bank account. The processor will act as the go-to between the bank, the merchant, and the card network. Many payment processors, such as 365 Glacier Payments, will provide you with live individualized service from a knowledgeable staff member that can troubleshoot your problems (more about Square’s customer service later). Processors can also provide you with multiple payments options such as debit, as well as provide you with a choice of POS equipment, when companies such as Square only offer one option. Best of all, the best payment processors are able to reduce your transaction costs by as much as 40% compared to a PayFac through interchange optimization. This is why 365 Glacier Payments offers a 100% guarantee that we can beat your rates on these types of accounts, as well as others.

Often times applying for a merchant account through a processor will take a few days longer than a PayFac, as the underwriting is done up front. This ensures security within the account. Once you are approved, you will not get shut down for business type. Remember that delayed gratification experiment where kids were given the option of having one cookie now, or two if they waited for a little bit of time? This is kind of like choosing between a PayFac like Square or PayPal, and a payment processor. Getting approved to take credit cards today can be very enticing, but there is a chance you might get shut down a month from now, leaving you with no option to accept credit cards from your customers. Don’t be the kid with one cookie.

“High-Risk” Businesses

There is an exception to getting shut down by Square on the back end. They do provide a “Terms of Agreement” document on their website which outlines which industries they won’t support. As stated by Square, “There are certain types of businesses and products we’re not able to support on our platform due to the nature of the regulatory system in which we operate. Details of what types of businesses and products cannot be supported are listed in our Terms of Service, and we monitor all activity on our platform to ensure compliance with those Terms.” If your business type is on this list (often labeled as “high risk” business), consider yourself lucky, as you will save yourself from the headache later. However, don’t think that you will be exempt from being terminated after you get accepted because your business type is not on this list. This isn’t the only way your PayFac account can be put on hold. Often Square will freeze your account if you process a larger transaction than usual, or if you are getting a certain percentage of chargebacks, thus slowing down business and disabling your ability to take credit cards altogether.

If you are wondering how to find a processor that will accept your “high-risk” account, there are many out there, such as 365 Glacier Payments, that specialize in taking on this type of business. These processors are very comfortable with this type of business, and their banks generally have a deep portfolio that ensures that the risk of getting the account shutdown due to business type is zero to none. It often takes a little more time to get these accounts through underwriting, but once you are approved, you are in.

Who Will Save Me the Most Money?

Although it may take a little more time to set up on the front end, choosing a payment processor is generally going to save you quite a bit of money. A processor typically offer cheaper rates than Square. If your business processes at least $5,000 each month in credit cards, you can save quite a bit on processing fees if you sign up with a payment processor as opposed to a PayFac. A majority of the time, PayFacs will offer flat rate pricing, which hides the fees that they are charging you for their services. Payment processors typically offer Interchange-Plus pricing, meaning that interchange fees will be listed separately on your statements from the processor markup. The merchant also pays different rates for different cards, which generally comes out lower than flat rate pricing. The average interchange rate for credit cards is 1.7% – 2%. So even after you add the payment processor’s markup, it’s less than Square’s rate. Additionally, if you have customers that use debit cards, you will be at a huge disadvantage with Square. Interchange for debit cards is around 0.5%. However, Square prices debit and credit transactions at the same rate. As an illustration, if you have a customer buying an item for $200 with debit, Square will charge approximately $5.40 in fees, while a processor may only charge $1.60. After multiple transactions you’ve now got some hefty fees with Square.

Customer Service without the Service

Square’s customer service can be quite a fiasco. They claim to provide customer service via email, auto live chat, and phone, but want you to utilize their online knowledge database before receiving any live help. Here is the kicker – only active account holders can get access to Square’s phone support. If you have an active account that was terminated with no notice, this means it is going to be nearly impossible to reach Square’s customer support via the phone. Compare this to the personalized services that payment processors such as 365 Glacier Payments provide, with one-on-one live phone support. Good payment processors will have a vast array of knowledge, and are able to show you how your merchant account can perform for you and your business. They will also foresee any issues that you may have before they even arise. It’s important to shop around, talk to various payment processors, and get a feel for how responsive and knowledgeable each company’s team is.

Bottom Line:

If you are looking for a stable, less expensive option for credit card processing with great service, a payment processor, as opposed to a PayFac, is the way to go. At 365 Glacier Payments we are dedicated to the education of merchants regarding business advancement and growth. If you have additional questions or need help setting up a merchant account, please schedule an appointment here. If you prefer, you can reach us at 866.857.8766 or email info@365glacierpayments.com. We are happy to help!

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