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Analysis: Is Square The Cheapest Credit Card Processor For Your Business?

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We are commonly asked whether Square is the cheapest credit card processor for a given business. Sometimes the answer is clear, other times it’s more complicated. If you have a higher-volume business (say, $10K per month or more in card payments), then you can almost certainly find a better pricing plan than Square offers. But what if you’re a low-volume business? Is Square always the best bet?

To get that answer, we’re going to need to harness the power of math.

First, let’s take a look at what Square charges. For in-person transactions, you’re typically going to pay 2.75%. However, if you upgrade to Square Register, the company’s slick new hardware, you’ll pay 2.5% + $0.10, which is a break with Square’s longstanding tradition of no per-transaction fees. These rates apply regardless of the card network or the card type — which means Square processes certain types of cards, like American Express cards and most business and high-value rewards cards, at a loss to the company. Square’s loss is your gain, because you’ll end up saving money on some of those transactions (but also paying more for standard cards).

If we’ve said it once, we’ve said it a thousand times here at Merchant Maverick: interchange-plus pricing is (almost always) the best value you can get. It’s also the most transparent plan.You pay the network-mandated interchange fees plus a processor-mandated markup (a percentage and/or a flat dollar amount).

Given the confusion and frustration that emerges from tiered pricing models that lump transactions into inexpensive or expensive tiers, it’s no surprise interchange-plus — sometimes called “cost-plus” — caught on the way it did. That said, not many mPOS processors offer it. The ones that do often provide it as part of a larger monthly subscription package, making the process of separating out all the various costs (such as a shopping cart, virtual terminal, etc.) difficult. But there is one option that will give you interchange-plus pricing with no fancy add-ons: Payline Mobile.

At 0.5% + $0.20 markup over interchange for the basic plan, Payline Mobile is one of the least expensive merchant-account-based mobile processing options. And all you need to do to maintain your account is process enough card-based transactions to generate $25 per month in processing fees. If you come up short, Payline will just bill you the difference instead of charging an additional fee. That’s pretty spectacular, to be honest. Consider, for example, that PayAnywhere will charge you an obscene $79 if you fall below its $5,000 monthly minimum for the Storefront plan, on top of your processing fees.

So how much do you need to process with Payline Mobile to meet that $25 monthly minimum? How does that compare to what you’d pay with Square? I sat down and crunched a lot more numbers than I would normally like just to find out whether Square can actually compete with interchange-plus.

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Running The Numbers: How To Find Your Break-Even Point

To start, calculating the break-even point for percentage based transactions is pretty easy. The formula is just your processing volume multiplied by the percentage. However, since we know the break-even point, $25, we need to shuffle the formula around a bit.

  • Breakeven = processing volume (y) * processing rate (%)
  • $25 = y * %
  • y = $25 / %
  • y = ?

Here’s where things get tricky.

Working with companies that charge just a percentage (like Square) is easy because with its standard pricing plan you don’t need to know anything other than your monthly processing volume.

To calculate actual fees with an interchange-plus plan, you need three pieces of information: (1) your average interchange rate plus markup, (2) your average ticket size, and (3) number of transactions OR (4) your monthly volume. (So long as you have your ticket size and one of these pieces of information, you can calculate the other.)

For my examples, we are assuming an average interchange of 1.54% + $0.12. That’s fairly typical of most merchants, but if you process a lot of American Express or business/rewards cards, you should expect a higher rate. Manually entering transactions (instead of swiping or dipping) could also affect your costs, especially if you do it fairly often.

We’re going to look at two average ticket sizes, $20 and $45, and play with a few different monthly volumes so you can see the differences. For Square, remember the processing rate is 2.75%. Payline Mobile offers two plans, Start and Surge, with different markups and monthly costs for each:

Start Plan Rates

  • Processing rate: Interchange + 0.5%
  • Per-transaction fee: $0.20
  • Monthly fee: None

Surge Plan Rates

  • Processing rate: Interchange + 0.3%
  • Per-transaction fee: $0.20
  • Monthly fee: $9.95

To show you the math, we’ll start with the Start Plan, because it has no monthly fee. Your actual processing costs would be 2.04% + $0.32 once you add the markup to our expected interchange rate.

So if we want to figure out how much you’d need to process to generate $25 in fees, your math should look like this to start:

  • BE = y * 0.0204
  • y = BE / 0.0204
  • y = $25 / 0.0204
  • y = 1,225.49

Our break-even point at 2.04%, is $1,225 to generate $25 in fees. But we’re not done yet because we have that $0.32 per-transaction fee to consider.

With an average ticket size of $20, that’s 61.25 transactions (1225 / 20), but let’s round down to 61 transactions.

The next step is to multiply the number of transactions by the per-transaction fee:

  • 61 transactions * $0.32 = $19.52.

That’s another almost $20 in fees just as a result of per-transaction costs, for a grand total of $44.52 in processing fees on $1,225/month in card transactions.

But now we’ve overshot our mark!

Unfortunately, there’s no precise way to calculate what it would take to create $25 in processing fees. All we can do is play with the numbers and see what we get. We know that the break-even amount will be less than $1,225, but I don’t think it’ll be too much lower than that, so I’ll start at $950 and work my way back from there if necessary.

Hey, I warned you at the start. I did way more math than I normally like to do.

Finding the Cheapest Credit Card Processor: In-Depth Analysis

It’s time for some trial and error. Now that you know how to do the math, I’m not going to repeat it — instead, I am going to put it all in tables for you. I’ve rounded the average number of transactions to whole numbers (up or down based on standard rounding conventions).

Scenario 1:
Start Plan,
$20/avg ticket
$950/month volume
Scenario 2:
Surge Plan,
$20/avg ticket
$950/month volume
Scenario 3:
Start Plan,
$20/avg ticket
$700/month volume
Scenario 4:
Surge Plan,
$20/avg ticket
$700/month volume
Percentage Fees$19.38$17.48$14.28$12.88
Per-Transaction Fees$15.36$15.36$11.20$11.20
Monthly FeeNone$9.95None$9.95
Total Monthly
Processing Fees
$34.74$42.79$25.48$34.03

Taking a look at all of this, you can see that with a $20 average ticket, the break-even cost is just about $700 (a little above that with the Surge) — and at this rate, it’s obviously cheaper to stick with the Start plan.

For comparison’s sake, Square’s fees are as follows:

  • Square fees at $950/month: $26.13
  • Square fees at $700/month: $19.25

So yes — in these very low-volume situations, Square is the better value. The main problem is Payline Mobile’s per-transaction fee is so high.

Let’s change it up though. Say you have a higher average ticket size. Let’s go $45 per ticket.

Scenario 5:
Start Plan,
$45/avg ticket
$950/month volume
Scenario 6:
Surge Plan,
$45/avg ticket
$950/month volume
Scenario 7:
Start Plan,
45/avg ticket
$700/month volume
Scenario 8:
Surge Plan,
$45/avg ticket
$700/month volume
Percentage Fees$19.38$17.48$14.28$12.88
Per-Transaction Fees$6.72$6.72$11.20$11.20
Monthly FeeNone$9.95None$9.95
Total Monthly
Processing Fees
$26.10$34.15$25.48$34.03

First, note that one of these scenarios winds up being functionally identical to Square: Scenario 5, which generates $26.10 in fees versus Square’s $26.13. So we have proof that Square can be on par with interchange-plus plans.

However, you should also notice the break-even point for Payline Mobile’s $25 fee has increased. With the larger transaction size, you’d need a little bit more than $950 a month to break even on both plans — I ran the numbers again and at $1000, the fees were $25.44 + $9.95 (a total of $35.39). And again, you don’t save much with the Surge plan at this lower volume. Not enough to cover the monthly fee, for sure.

Calculating Break-Even Points To Compare Rates

Calculating how much you need to process to justify a monthly fee isn’t much different than the standard break-even point formula, though. Your break-even amount is the monthly fee, and the percentage is the difference between the two processing rates. For Payline’s Start and Surge plans, that difference is 0.2% (0.5-0.3), and the break-even point is is $9.95.

  • BE = y * 0.2%
  • $9.95 = y * 0.002
  • y = 9.95 / 0.002
  • y = 4,975

To cover the difference between Payline’s Start and Surge plans, you would need to process $4,975 per month to justify the monthly fee.

So what does that look like, fee wise? And how does that look compared to Square? Let’s round to $5,000/month and run the numbers with both $20 and $45 tickets.

Scenario 9:
Start Plan,
$20/avg ticket
$5,000/month volume
Scenario 10:
Surge Plan,
$20/avg ticket
$5,000/month volume
Scenario 11:
Start Plan,
$45/avg ticket
$5,000/month volume
Scenario 12:
Surge Plan,
$45/avg ticket
$5,000/month volume
Percentage Fees$102.00$92.00$102.00$92.00
Per-Transaction Fees$80.00$80.00$56.96$56.96
Monthly FeeNone$9.95None$9.95
Total Monthly
Processing Fees
$182.00$181.95$158.96$158.91

Note that you’re actually paying less in fees with the Surge plan now that we hit the break-even point. That’s good. But compare that to Square fees at $5,000/month: $137.50. You’re actually paying more with Payline’s interchange-plus plan than you would with Square at this point. (As a trade-off, though, you get the added stability of a traditional merchant account rather than a third-party processor like Square.)

Let’s move beyond that break-even point though. Let’s run the numbers again with a monthly volume of $8,000.

Scenario 13:
Start Plan,
$20/avg ticket
$8,000/month volume
Scenario 14:
Surge Plan,
$20/avg ticket
$8000/month volume
Scenario 15:
Start Plan,
$45/avg ticket
$8,000/month volume
Scenario 16:
Surge Plan,
$45/avg ticket
$8,000/month volume
Percentage Fees$163.20$147.20$163.20$147.20
Per-Transaction Fees$128.00$128.00$56.96$56.96
Monthly FeeNone$9.95None$9.95
Total Monthly
Processing Fees
$291.20$285.15$220.16$214.11

 

At $8,000/month, Square’s fees are $220. So you start to see very minimal savings with Payline Data.

But the big takeaway here is this: You’re paying significantly less in fees with a $45 average ticket compared to a $20 average ticket. About $70 worth, in fact.

That lines up with what I said earlier — that at $10,000/month, you can definitely get better pricing than Square offers. Below that, it depends on a lot of different factors, as you’ve seen.

Changing The Equation: Enter Square Register

Let’s take a look at these numbers again, but this time let’s compare it to Square Register pricing: 2.5% + $0.10. The per-transaction fee is considerably lower than Payline Mobile, but the overall percentage fee is higher, which provides a good point of comparison.

Scenario 17:
Square Standard Pricing,
$20/avg ticket
$5,000/month
Scenario 18:
Square Register Pricing,
$20/avg ticket
$5,000/month
Scenario 19:
Square Standard Pricing,
$45/avg ticket
$5,000/month
Scenario 20:
Square Register Pricing,
$45/avg ticket
$5,000/month
Percentage Fees$137.50$125$137.50$125
Per-Transaction Fees$0$25$0$11.11
Monthly FeeNoneNoneNoneNone
Total Monthly
Processing Fees
$137.50$150$137.50$136.11

 

You’ll see that with a $45 average ticket, at $5,000 per month, the cost savings with Register are almost nonexistent, but at least you don’t end up paying more, as you do with a $20 average ticket. For comparison, look again the fees generated by Payline Mobile at the same volume, with the same ticket sizes. (Yes, I just copied the chart from above.)

Scenario 9:
Start Plan,
$20/avg ticket
$5,000/month volume
Scenario 10:
Surge Plan,
$20/avg ticket
$5,000/month volume
Scenario 11:
Start Plan,
$45/avg ticket
$5,000/month volume
Scenario 12:
Surge Plan,
$45/avg ticket
$5,000/month volume
Percentage Fees$102.00$92.00$102.00$92.00
Per-Transaction Fees$80.00$80.00$56.96$56.96
Monthly FeeNone$9.95None$9.95
Total Monthly
Processing Fees
$182.00$181.95$158.96$158.91

 

The big difference is that the per-transaction fees with Payline Mobile are three times more than they are with Square. Twenty cents can add up when you’re dealing with it hundreds of times. So even though you pay more in percentage fees with Square Register, you still wind up paying less overall than with Payline Mobile.

How to Spot Cheapest Credit Card Processor: Final Takeaways

Theoretical numbers — the rates you’re quoted on paper — don’t tell the whole story. And really, they tell a different story to every merchant, depending on processing volume, transaction size, and the type of cards processed.

Square and other mPOS processors simplify the math because to figure out your processing costs, all you need to do is multiply your volume by your percentage rate. Generally, the only value that changes the equation is manually entering transactions.

With interchange-plus pricing, there’s a whole lot more to consider. And it’s hard to look at the percent signs and dollar signs and understand exactly how your rates will vary unless you have an established processing history.

That’s what it is so important for you to be able to run the numbers yourself to see if you’ve really found the cheapest credit card processor. If you’ve been processing for a while already, you can easily get all the numbers you need by looking back at your records.

If you’re new to credit card processing and you’re only interested in a mobile solution, you’re probably safest starting out with Square or another mPOS solution with a straight percentage-based fee. Stick with it for a few months, then look at your processing history. You should be able to run the numbers and see whether another solution might give you a better deal.

And finally, you should consider the overall value of the mPOS service you choose. Cost will be a major consideration, but make sure you consider the advantages of the different features available to you. It might be worth paying a bit more for a feature that will save you time and effort.

But if all of that is too much, here are a few simple rules to stick with:

  • The smaller your average transaction, the higher your per-transaction costs will be.
  • The larger your average transaction, the lower your per-transaction costs will be.
  • The lower the per-transaction fee, the better.
  • The lower the percentage rate, the better.
  • If you have to pick one, you’ll probably save more by opting for a lower per-transaction fee. This is especially true if the difference in percentage rates is less than 0.3%, the difference in per-transaction fees is greater than $0.10, or you have an average ticket value under $40.

Good luck on your quest to find the cheapest credit card processor!

Got questions about mPOS processing rates? Check our comment guidelines and leave us your thoughts!

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Melissa Johnson

Melissa Johnson

Melissa Johnson has been writing about payment processing and mobile payments since 2014, and has been quoted in articles for Credit Karma and The Next Web, among others. She graduated from The University of Kansas in 2010 with bachelor's degrees in English and journalism.
Melissa Johnson

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8 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Gary

    I’m on an interchange plus plan of 0% + 3.5 cents per swipe. My average swipe size is around $10. I’m doing about 30K in total credit card sales per month, and my effective rate is coming out to about 3.23%. I can’t help but think that something is wrong, since this is significantly more expensive than Square’s 2.7%. Am I being tricked somewhere?

      Melissa Johnson

      Hi, Gary!

      Without actually seeing your statement, I can’t give you an exact answer. But generally speaking, merchant accounts with a markup that low tend to come with a monthly fee, which likely plays a big part. It’s also possible that you’re processing a lot of cards with a higher interchange — rewards cards, business/corporate cards, and American Express cards all tend to have higher interchanges. I’d advise you to check your statement for fees other than processing rates, which could explain why the effective rate is higher than Square’s. (Please also keep in mind that Square is playing a numbers game — it charges less for American Express and other high-interchange transactions because it’s balancing out those costs by making money on lower-interchange transactions.) If you aren’t super confident in your current processor, I also suggest you check out our top-rated merchant providers for some alternative options!

        Abner

        Hi Melissa! Great article. Question… I have an app that charges the customer just $0.10 per transaction. Is there a payment processing company that charges just a percentage instead of a dollar amount? It doesn’t make sense for me to pay a dollar amount if I’m only getting $0.10 per transaction. Does that make sense?

          Melissa Johnson

          Hi, Abner! There’s a LOT that goes into payment processing, rate negotiations, etc. It’s hard to give the perfect answer with so little information, but in your case, I would look at platform payments such as WePay and make sure that your pricing structure is set up so that you can cover the associated processing costs plus turn a profit or otherwise pass them onto the consumer.

            Stephen Connally

            I’m looking at an average ticket of $700 or $1400 per transaction. At this point I have no idea how many of those transactions i’ll run a month. It’s a new business. I’m having trouble understanding who I should go with. I was looking at Square or CDG. I just don’t want to get locked in. BOA is who I do my banking with and they offer merchant services as well as Quickbooks. Not sure where to go from here. I’ve read everything you’ve generously provided several times and just don’t feel any more confident.

              Melissa Johnson

              Hi, Stephen!

              There’s a lot we don’t know about your business, so it’s difficult to say definitively (so many factors come into play!). However, based on the data you’ve given us, I would recommend going with a merchant account of some sort. Bank of America’s merchant services are likely a poor fit for you because they tend to stress expensive hardware leases and multi-year contracts. First and foremost, I would suggest either CDG or Helcim. I think QuickBooks Payments, if you’re planning on using QB for accounting, could also be a potential fit, but look at CDG and Helcim first.

              I hope this helps!

                paul schultz

                Melissa, do you know of any CC processing brokers (like energy and health insurance brokers) that a small company or nonprofit can hire to help it find the best CC processor for the company’s needs? This is a very complicated field and requires great expertise to compare competing CC processors. The broker should be someone who has experience in the field and does not get a commission or finder’s fee from a CC processor or bank to bring in new business. The broker would be paid a flat fee for his/her services. If so, please let me know pschultz@afcinc.org

                  Amad Ebrahimi

                  Paul,

                  I think Phil Hinke might be able to help you. Check out his website: http://www.merchantfeesavers.com/

                  Take care!

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