Is the Square a direct credit card processor like TSYS and First Data?
Several credit card salespeople want to sell me their credit card terminal services. Some tell me they are direct processors (meaning that my transactions do not go through a "middle-man" processor such as a bank), but the Square representative can't/won't tell me that they are a direct processor. Some of the direct processor representatives say that because the Square isn't a direct processor nor are they a bank-type middle-man, that the square has less government and/or industry oversight controls. Who is right? Am I better off going with TSYS or First Data, or with the Square?
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Apr 4, 2019
Gary,
Too many people like to use industry terms to confuse people. It is about the money, i.e. the rates or fees. What is best for you and your business? Do the math to find out!
Square is an aggregator, which means they process all transactions under one MID (Merchant Identification Number). All people or companies that use Square process as a sub-account under Square’s account. Aggregators allow merchants to accept credit card and bank transfers without having to set up a merchant account with a bank or card association. There can be several drawbacks with using an aggregator and several benefits. One drawback is overpaying based on volume and ticket size. Another is getting locked into their equipment. Square original business model was one price. However, they realized that does not fit every business and they now have pricing all over the board. Square Pricing: https://squareup.com/pricing
Here is a recent article with numbers, overpaying with Square:
https://www.valuepenguin.com/2017/08/large-businesses-may-be-overpaying-squares-credit-card-processing-services
TSYS and First Data are an acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks within an association.
There are many ISOs or MSP, which can also provide assistance. Some of these smaller companies can provide TSYS and First Data services, as an ISO (independent sales organization). Some of these companies can offer added value services and a more personalized touch. You could get the same rates as going direct. Some ISO's can actually provide better rates than if you go direct because they receive volume discounts and pass the savings along.
Lists of companies:
www.business.com/categories/best-credit-card-processing
First, you should look at your business volume and ticket size. Then ask, if you expect these numbers to increase. Are you taking a lot of debit cards? Are cards going to be swiped or keyed in? Then you can start estimating.
Here are some simple numbers:
This is a swipe regulated debit card transaction. Visa Debit CPS Regulated 0.050 % + 22¢, even with a standard ISO discount rate of 0.20% + $0.10, you would pay .25% + $0.32. So, on a $50.00 transaction, you would pay $0.445 in fees. With Square "Register”, 2.5% + $.10 on $50.00 would be $1.35 in fees. That is a $0.905 difference. This is the best rate Square offers. So even if you have a $10 monthly fee and a $6.95 PCI monthly fee, you would save after approximately 19 transactions a month.
You can run the numbers yourself.
Square Pricing: https://squareup.com/pricing
Visa Interchange Rates: https://usa.visa.com/dam/VCOM/global/support-legal/documents/visa-usa-interchange-reimbursement-fees-2017-april.pdf
Mastercard Interchange Rates: https://www.mastercard.us/content/dam/mccom/en-us/documents/merchant-interchange-rates.pdf
You really have to do the math for your specific situation. I would be happy to provide assistance should you be interested. https://www.cardz3n.com/contact
Apr 2, 2019
Hi Gary! Working with a direct processor typically won’t save you more money unless you process a very high volume of transactions every month and can negotiate better rates or fewer/lower fees. For most businesses, you can get competitive rates from resellers (payment facilitators like Square or independent sales organizations/merchant service providers [ISO/MSP] like Helcim or Payline).
If you process less than $5,000 per month or have small sales tickets, Square is a good choice because it doesn’t charge any monthly or annual fees, and doesn’t have any monthly minimums. There’s also no lengthy contract—you pay as you go for the processing you use. You do want to read the user agreement to make sure your business or the products/services you provide aren’t on its prohibited goods and services list.
If you process more than $5,000 per month or have large sales tickets, get pricing quotes and contracts from TSYS and First Data to compare—both are good companies. Also, call a couple of ISO/MSPs for some quotes and contracts to review.
For both direct processors and ISO/MSPs, ask for interchange-plus pricing and find out what fees they charge. Most charge a monthly statement fee, monthly gateway fee, and annual PCI compliance fee. They usually have a monthly minimum of processing fees that they charge as well (ask the dollar amount that you have to process to meet the minimum). Ask about the contracts—the term length (ask for month-to-month), early termination fee (ask for a waiver), and if there is an additional services clause (ask what it includes and how you can opt out of it). Before you select any company, you need to read the contract and make sure you're aware of all the fees--some salespeople don't tell you about all the fees. If they say they won't charge something--get a written waiver.
I hope this is helpful! If you want more information about what to look for in a processor, our credit card processing review is a good resource: https://www.business.com/categories/best-credit-card-processing/