Square VS Merchant Account: Which Is Better For Your Business?

Choosing the right way to accept credit and debit cards can make a big difference for your small business. Square makes it easy: no long-term contracts, flat-rate fees, and quick setup. It’s perfect for new or small businesses looking for a simple, all-in-one solution.

But as your business grows, Square’s flat rates can add up. Full-service merchant accounts offer lower processing costs, advanced features, and more control, making them better for higher-volume or more complex operations.

This guide breaks down the key differences between Square and merchant accounts, so you can pick the best processor for your business.

How Is Square Different From A Merchant Account?

Square has no application fee, and almost anyone can open an account. You provide basic business information and verify your identity, and you can start processing within a few days.

Merchant accounts, by contrast, require more thorough underwriting. Processors review your business to assess risks like chargebacks, fraud, and compliance. Approval can involve multiple back-and-forths and may take longer.

For small or new businesses, Square’s streamlined setup is a major advantage.

How Does Square Work?

Square started with basic card processing and simple reporting, but it now offers a full suite of services.

• Credit and debit card processing via EMV, NFC (contactless), and magstripe
• Square Online with payment gateway and shopping cart features
• Support for card-on-file, invoices, and QR code payments
• Analytics and reporting via Square Dashboard
• One free Square Card Reader for magstripe payments
• Optional devices include contactless/chip reader, Square Terminal, or Square POS
• Industry-specific tools: Square Appointments, Square for Retail, Square for Restaurants
• Extensive online knowledgebase
• Customer service via email and phone

You can sign up via the website or mobile app, and begin accepting transactions almost immediately.

For a deeper dive, see our full review of Square Credit Card Processing and our guide to Square POS credit card readers.

How Does A Merchant Account Work?

A merchant account is a full-service payment solution. Unlike Square, your account is unique, not aggregated, and you undergo detailed underwriting before processing your first transaction.

Merchant accounts typically include:

• Credit and debit card processing via EMV, NFC, and magstripe
• Payment gateway access for online transactions
• Optional ACH/eCheck support
• Online reporting and analytics
• Compatible terminals for purchase, lease, or rent
• Support for advanced POS systems
• Optional add-ons: loyalty programs, recurring billing, etc.
• Customer support via phone and email

The underwriting process takes more time, but it reduces the risk of sudden account holds or terminations later.

Key Differences Between Square & Merchant Accounts

Square and traditional merchant accounts both let you take credit and debit card payments, but they work very differently. Here’s a quick breakdown to help you figure out which one makes the most sense for your business.

Square offers upfront transparency and uniform rates, while merchant account pricing can be negotiated and may vary by business size and risk.

Is Square Cheaper Than Other Merchant Services?

Square VS Merchant Accounts For High-Risk Businesses

Square generally blocks high-risk merchants under its Prohibited Use Policy. The only exception is a CBD program with higher rates.

Many merchant account providers also restrict high-risk businesses, so specialized high-risk processors may be required.

Choosing Between Square & A Merchant Account

Before making a factor choice, consider factors like business size, processing volume, and priorities like hardware options, account stability, and customer support.

Square is usually the cheapest and easiest option for small or seasonal businesses. With no monthly fees or long-term contracts, you only pay when you process — making it ideal if you don’t run cards year-round.

Choose Square If:

• You have a part-time or seasonal business
• You only have credit card transactions occasionally
• You operate a small nonprofit
• You process less than $5K/month

A traditional merchant account can be a better fit for higher-volume businesses or those that need more stability. While you’ll likely pay monthly fees, you’ll also get lower rates at scale and less risk of sudden account shutdowns.

Choose a Merchant Account If:

• You have a full-time, year-round business
• Your business accepts credit cards daily
• You operate a large nonprofit
• You process more than $5K/month

Square is fast to set up, but merchant accounts provide lower rates, more advanced features, and more account stability. Your decision should prioritize overall value, not just cost.