For many business owners, the mention of merchant services, or credit card processing, can bring up thoughts of high costs, difficult contracts and archaic processing equipment. For years these hurdles have been the industry standard, and especially for small businesses have created large barriers to entry when it comes to accepting plastic. With the help of an already popular individual, the industry is changing and doing so quickly.
Jack Dorsey, who was the co-founder of Twitter, came up with an idea for revolutionizing the payment processing industry when discussing with a friend how difficult it is to transfer payments between individuals. His friend was a painter and needed a way to accept money for his work. Since he did not need to make sales on a regular basis, the thought of paying monthly fees in order to accept credit cards seemed out of the question. In addition, as an artist he was often visiting his customers outside of the studio and needed a way to gather payments remotely.
From this conversation, Mr. Dorsey and his friend came up with a new product called Square. It is a small device, no bigger than a silver dollar, which plugs into the headphone jack of an android-based phone or iPhone, and allows an individual to swipe a credit card on the spot. The installed app on the phone is also setup to accept keyed-in numbers.
Perhaps the most exciting part of Square (beyond the technology involved) is the simplicity of the billing and fees. Unlike most merchant service contracts, there are no monthly fees, swipe minimums or ongoing costs at all. Square bills based on the following two criteria:
- 2.75% of the total transaction when a card is swiped using the free credit card reader.
- 3.5% + $0.15 of the transaction total when a card number is manually entered. The fifteen cents is a per-transaction charge that is flat regardless of the transaction amount.
This simplified billing structure is practically unheard of in the payment processing industry and allows for a lot of individuals and small businesses to accept credit cards. Even people wishing to accept payments from families and friends can get in on the action with a Square device. They will mail the dongle for free, and there is only a charge if an actual transaction is recorded.
While Square is a driving force in the mobile processing industry, they are not currently alone. Another mobile processing device that is similar to Square is operated by Intuit and called GoPayment. GoPayment uses a smartphone attachment as well and has a very similar billing structure, although they use a three-tier system rather than Square’s two.
The advantage of GoPayment over Square is that is better suited for businesses doing larger amounts of mobile processing on a monthly basis. If a business or individual is doing under $1000 a month in credit card receipts, then Square is the way to go. Otherwise they will be better suited with GoPayment.
Eric Stauffer is a business writer who rates and reviews credit card processing companies. He is part of an organization that reviews companies like Intuit Merchant Services and assists small businesses with negotiating the best deals on merchant service contracts.