The Square card reader is the brainchild of Jack Dorsey, the founder of Twitter. The technology is a departure from the traditional mode of credit card processing, opening the acceptance of cards to individuals. Anyone who owns an iPhone, iPad or Android device can fill out a form and download an app from Square. A card reader is then mailed to them which plugs into the headphone jack of their smartphone or mobile device, thus turning the device into a mobile credit card terminal. Thanks to successful online marketing and a straightforward pricing model with no “hidden fees,” Square has enjoyed a high level of success, but this method of payment definitely falls in the high risk merchant account category.
On first examination, the Square reader seems highly attractive. There are no fees for activation, monthly use, gateway, downgrade, or early termination. Merchants pay a flat 2.75 percent for swiped transaction and 3.5 percent plus %0.15 for transaction that are typed. Where does this fall in the merchant account pricing model? It’s more expensive than the qualified rate, and comparable to the mid- and non-qualified downgrade surcharge. Next to the interchange pass-through model, however, the Square rate schedule is definitely more expensive, but most merchants don’t have interchange pass-through. So, what’s the problem with Square?
Although there is no limit on the amount of money that can be accepted in transactions per month, if the sales are card-not-present (typed into the phone) transactions of more than $1000 in any rolling seven-day period, Square holds the sales for 30 days. Transactions under this $1000 “limit” and those that are swiped are deposited into the merchant’s checking account within 24 business hours. (In all fairness, Square does have some venues to get around these limitations, but the process is cumbersome and protracted, and Square has not gotten high marks for its customer service.)
A more serious concern, however, and one that makes the Square method a very high risk merchant account is that the reader does not encrypt the information from the credit card before it is sent to the attached device. That means that the person swiping the card could use the device to skim the credit card data for their own use. The Square application can store the customers credit card information. In the hands of an unscrupulous employee, this raises the very real potential for identity theft. Taken as a whole, the apparent convenience of the Square reader does not outweigh its limitations and liabilities for taking card payments.