Apr 28 2011
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Unlike most Square (squareup.com) reviews, this Square up review focuses primarily on the things that matter to merchants and business owners, instead of just focusing on the Square’s technology. Square is often called “Square up” or “Squareup” because of the domain that Square uses for its website; however, the official name is for the company is “Square.” The names will be used interchangeably in this review.
Founded in February of 2009 by Jack Dorsey who is also the founder of Twitter.com, Square has seen tremendous growth in a very short amount of time. Much of the company’s success can be attributed to the fact that Square has ingeniously broken the mold of traditional credit card processing by removing the traditional barriers to entry and bringing credit card acceptance to the individual. iPhone, iPad and Android users simply fill out a quick form, download the Square app, and then await the arrival of the Square up reader in the mail. The Square credit card reader simply plugs into the headphone jack of the phone making it a mobile credit card terminal. In fact, Square’s model has been so successful that it has attracted big name competitors such as Intuit (GoPayment) and North American Bancard (Pay Anywhere) to offer similar mobile processing services.
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Another area where Square differs greatly is in how it markets and sells its service. Where most merchant account providers utilize poorly trained outside independent agents who are focused on setting high fees for big commissions, Square relies mostly on online marketing and partnerships with retailers and cell phone service providers. Nearly all of Squares customers sign up directly through the homepage of the company’s website or by purchasing a reader a store with a 100% mail-in rebate. Square has also enjoyed resounding online buzz and word of mouth promotion. With the removal of sales agents and middlemen, Square avoids the “hidden fee” problem of which the credit card processing industry is notorious. Square’s pricing is also straight forward and easy to understand and will be covered later in this review.
One of the most appealing aspects of Square is that, unlike nearly every other processor, Square credit card processing has only one fee: the processing fee of a transaction. There are no other fees that are typical of credit card processing, such as activation fees, monthly fees, gateway fees, downgrade fees and early termination fees. Square has no additional monthly fees whatsoever and no monthly minimum processing fees.
No matter the card type, merchants pay a single flat rate of 2.75% for swiped transactions, or 3.5% + $0.15 per typed transaction (as of this review). Although the transaction rate is higher than the “Qualified” rate of most traditional merchant accounts, it is comparable to the “Mid-Qualified” and “Non-Qualified” downgrade surcharges that about 80% of most transactions experience in a traditional merchant account setup. The rate is, however, much more expensive than the Interchange Pass-through rate pricing model. Given that most merchants do not have Interchange Pass-through, the fact that Square has no monthly fees and no time commitment makes it one of the most affordable credit processing options in the market. Nevertheless, Square does have some drawbacks.
Square does not verify the credit history of its customers (a benefit for some) so it sets a few limitations to avoid potential losses to fraud. Square states that there is no limit to the amount of money that can be accepted per transaction or per month, which is a half truth at best. Instead of denying large transactions or high volumes of sales at the time of transaction, the company relies on two methods to limit possible fraud.
The first method is the most transparent and can be found with a little research in Square’s help section, but the company does a poor job of disclosing it before merchants run into a problem. Square will place holds on funds of card-not-present sales for 30 days if more than $1,000 is charged within any rolling seven day period. This means that if a merchant keys-in $1,100 in sales within a seven day period (either in a single transaction or multiple), instead of swiping the card through the card reader, the extra $100 will be held by Square for 30 days. This policy applies to any amount over $1,000 in any seven day time period. Merchants who regularly process more than $1,000 in seven days in card-not-present sales have two options to circumvent the deposit hold. With the first option, Square periodically reviews accounts and will raise the limit automatically for merchants that regularly process over the $1000 in card-not-present sales, have few refunds and very few to no chargebacks. With the second option, merchants can request a form by emailing Square Support to request a raise the deposit limit.
The second method Square uses to limit fraud is much less transparent and the reason for the company’s low score in this section. Merchants are reporting in great numbers that Square has randomly and without explanation, or notification, placed lengthy holds on their funds – even with swiped transactions. Square appears to rely on undisclosed algorithmic “risk factors” to place automatic holds on transactions or amounts that it deems suspicious. It many cases it appears to flag a high number of legitimate transactions without notifying the merchant of the hold, or the reason for it. Square’s policies regarding these types of holds are murky at best and make the service highly undesirable for higher volume merchants. It appears that the company needs to do a much better job of educating merchants about the types of transactions the have a risk of being held, notifying merchants when transactions have been held, and communicating with the merchant through the hold process. Since fund holding can greatly impact a merchant’s operations, the grade for this section will remain low until Square improve the system.
[$1000 card-not-present hold a problem? Find a mobile provider that doesn't have it]