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Square Vs Merchant Account

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Way back in 2009, a novel company called Square (see our review) introduced to the world pay-as-you-go processing, using only a smartphone and a card reader plugged into the audio jack. In doing so, Square changed the payments game. Before that, most retailers, restaurants, and other businesses had to open traditional merchant accounts. Artists and other small vendors typically had to accept cash or check only.

Now, at the tail end of 2015, everything looks a lot different. Most merchant account providers have done away with multi-year contracts with high early termination fees and started introducing transparent, highly competitive processing rates.

If you’re a new business trying to decide whether to get a merchant account or opt for Square, the decision can be a complicated one. While Square is a standardized service that uses a “third-party merchant account” (a shared merchant account with other users of the service), traditional merchant accounts vary in features, pricing, and contract terms. The right choice really depends on the nature of your business: new companies will have an easier time setting up a Square account. Small businesses might find the streamlined, all-in-one solution that Square offers to be more convenient, as well. But medium-sized and even larger businesses might chafe under Square’s pricing structure. Nor will all companies find exactly what they need with Square, making a merchant account the better choice for many.

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Application Process & Account Stability

With Square, there’s no application fee and anyone is welcome to open an account. Square will ask you a bit of basic information about your business and verify your identity, but there are no credit checks involved. You’ll be up and processing within a few days.

Obtaining a merchant account is a more involved process. The applications themselves are often quite streamlined, but you can expect the process to take longer. Part of this is because the processor’s underwriting department will scrutinize every aspect of your business to decide just how likely they are to encounter chargebacks, claims of fraud, and everything else that processors hate to deal with. You might have several back-and-forths with a representative before you get an account.

In this respect, Square has the advantage for a small or new business. There is a major trade-off, though: Square’s “come as you are” approach means that its underwriting department won’t hesitate to slap a hold on your first significantly (or suspiciously) large transaction until it decides you’re not a risk.

Merchant accounts, because they have a more intensive vetting process, are less likely to do this to you. That’s not to say they won’t ever hold your funds, but good merchant service providers do everything they can to minimize the potential for this.

If you are just getting started and need an account quickly, Square is for you. If you have a bit more time to shop around, or you are really concerned about account stability, you’re better off going with a merchant account.


As a small or even brand new business, every penny matters. That means getting a fair rate for payment processing is essential.

Square charges 2.75% per swipe (more for manual or offline transactions). There’s no contract, no hidden fees. You only pay for the transactions. There’s no messing around with different rates for different cards or types of transactions.

Merchant accounts vary more in their pricing structures. Interchange-plus is the most transparent and often lowest-cost model, but some processors rely on tiered pricing. Factors such as the age of your business, the type of industry you’re in, and even the type of cards you process all factor into the rates your merchant account provider will offer you.

That said, merchant accounts typically offer you better rates than Square will. The bigger volume you do, the better rate you’ll get. (Square does offer volume discounts, but it’s a fairly recent development and not well advertised at all.)

And if you process a lot of debit cards rather than credit cards, a merchant account will be much less expensive. Square doesn’t distinguish between debit and credit — which means you don’t benefit from the low interchange fees on debit cards. On the other hand, Square doesn’t charge a per-transaction fee, either. If you have a lot of small tickets, this actually works out in your favor.

Understanding merchant account pricing can be more complicated than Square’s super-simple payment model. And if you pursue an account, you’re going to need to compare different plans. Just about every merchant account provider charges a basic monthly fee, as well, ranging from $5 to $35 per month in most cases. For sporadic or low-volume users, this could be an unwelcome expense. But if you do the math, paying the monthly fee still allows for savings in most cases when compared to Square — all except for the lowest-volume and smallest-ticket businesses.

A merchant account may also include additional fees. These include statement fees, gateway fees, PCI compliance, and more. They vary from company to company, so be sure to check with each option you’re considering.

If you want to understand more about credit card processing rates and how to draw effective comparisons, check out our guide here.

Contracts & Ease of Switching

Square was the first to offer pay-as-you go processing, and that continues to be one of its biggest draws. There’s no monthly fee, no application fee, no early termination fees for leaving, and no long-term commitments. You can stop using Square at any time, and start up again later if you need.

Merchant accounts vary much more in their contracts. It’s still (unfortunately) common to encounter 1- to 3-year contracts, some of which auto-renew unless you provide proper notification, typically at least 3 months in advance and in writing. Some have early termination fees, or ETFs, (usually in the $300-400 range) if you cancel your contract before that. Even if you don’t have a long-term contract or ETF, you might still have to provide formal notice if you plan to switch.

We can’t stress enough how important it is to read a contract carefully before you sign. Ask questions before you agree to anything, and make sure you get any statements about waiving the ETF or auto-renewing clause included in the contract. You do have negotiating power, even as a new business.

Like Square, our favorite MSPs also have month-to-month contracts with no early termination fee, so you don’t have to settle for Square just to avoid being locked into a contract. But you will have to consider the cost of having a monthly fee with a merchant account, which can significantly increase the effective rate for low-volume businesses.


For small businesses, the simplicity of Square’s setup works well. All you really need for a barebones setup is Internet access, a card reader, and a compatible smartphone or tablet with the free Square Register app installed.

The question comes down to costs. An EMV-compliant chip reader from Square will cost you just $30; you can get NFC capabilities and EMV for $49. That doesn’t include a receipt printer (an additional $200-300 expense) a tablet stand (the cost varies), or a cash drawer (cost varies). For reference, Square’s ready-made retail kits will run you anywhere from $400 to $600+, not counting a tablet. However, the list of supported equipment is quite small, especially when compared with the options a merchant account offers. (Check out the lists for Android devices, iPads, and iPhones, respectively.)

Merchant account providers such as Helcim can give you an EMV-compliant terminal with a built-in receipt printer for as little as $200. That again doesn’t cover a cash drawer or any other equipment, such as a scanner — nor does it include a POS. But you can save some money by opting for a merchant account that has a great deal on an EMV terminal/receipt printer.

Merchant accounts also offer an advantage in that most will let you bring any existing equipment you have with you, and they’ll reprogram it to work with their system. Much of Square’s equipment — the reader and the Square Stand in particular — work only with Square, so if you decide to switch, you’ll have to buy new equipment. If you have multiple registers or even multiple locations, the costs start adding up.

Just beware of merchant accounts that offer terminal leases: These almost always cost you more in the long run. You’re better off just buying a terminal outright, especially if you opt for a “future-proof” one equipped with EMV and NFC, because it should last you for several years.

A final note about equipment: Square is super convenient for mobile setups, so if you have employees who are on the go or vend at events, you have everything you need to operate. Merchant account providers vary much more widely in their mobile offerings. Some are great; some are perfectly adequate; and still some don’t have any mobile support at all.

In those cases, you’ll have to choose a processor like Square as a backup when you’re on the move. Or, you can go with Inner Fence and pay your merchant’s fees on top of Inner Fence’s rather exorbitant costs. For obvious reasons, we don’t recommend that route. Given there’s no contract or long-term contract or monthly fees, it’s hard not to recommend Square as a mobile solution if you need one.


With Square, you’re locked into using the Square Register app and Square-supported integrations. There’s some big names on the list of available apps, but the selection is still limited. Merchant account providers give you far more flexibility in what equipment and software you choose.

However, that flexibility comes with a trade-off: value. The services Square offers at no extra cost, or at a minimal cost, are a spectacular value…if you plan to use them. Let’s take a look at the full suite:

By comparison, opening a traditional merchant account allows you to use just about any POS, inventory management, accounting, loyalty, booking, or customer management software you’d like, including software that is far more powerful and advanced than anything offered by Square. While there are some compatibility limitations even with merchant accounts, you’ll have far more options for integration than Square provides. Some software may be included for free with a merchant account, but for the most part you will have to buy it separately.

As far as eCommerce goes, Square’s offering sounds great. There’s just one little niggling detail: it’s not your own website or domain — your shop is hosted on Square’s domain, which makes it more akin to selling on Etsy or eBay. If you prefer, you can build your own site with your own domain using one of Square’s two partners: Weebly or Bigcommerce.

If you’ve already built your site elsewhere, you’ll have to either switch hosting providers/shopping cart software or find another payments processor. Given how much work can go into listing products online, switching providers or software can be a massive inconvenience. Some sites do offer an “import listings” feature, though, which can pull data from marketplaces such as eBay or Amazon.

However, if you opt for a merchant account, you typically get access to a free gateway that you can link to whatever eCommerce software you choose. Then you reap the benefits of well-done SEO and strategic paid advertising and can develop a long-term presence. If you do switch down the line, it’s simply a matter of connecting the new gateway. There’s no guarantee of 100% compatibility, but you do have a greater number of options.

For small startups that don’t need the more advanced software, and first-time online sellers who just want to test the waters, Square often provides the better value. But for businesses that need a feature-rich POS, comprehensive customer management, and extensive eCommerce offerings, a merchant account is the only way to integrate with the necessary software. And if you are just starting out, you can still find great, feature-rich options for little or no cost. MailChimp, for example, offers a free email plan for entrepreneurs with fewer than 2,000 subscribers. Appointy has a basic free service, as well as a Pro Plan that starts at $19.99/month (billed yearly).

For businesses that don’t mind being locked into Square’s software ecosystem or the limited number of integrations, it’s tough to beat Square on value with so much offered for little or nothing at all. In terms of flexibility, however, a merchant account provides far more options for system customization.

Customer Service

You will never get the same level of service from a company like Square as you will with a traditional merchant account. Merchant account providers typically offer you a dedicated account manager who can address problems you’re having and provide support as needed. Square’s customer service has improved significantly over the past few years (originally the company didn’t even offer phone support), but it still can’t come close to the kind of care and concern you’ll get from the best merchant account providers.

That said, not all merchant accounts excel in the customer service department. Do your research and look for red flags. Beware of independent sales reps and deal directly with the corporate offices whenever you can.

The quality of service is a key factor in all the companies we review, and so if you’re not sure, check out our top-rated processors.


Do we recommend Square for merchants? Yes. Do we recommend traditional merchant accounts? Absolutely. So which one is better? That’s hard to say.

When it comes to payments and payment processing, there is no one-size-fits-all solution.The age of your business, its size, your industry, and even how you operate on a daily basis all factor into choosing a payment processor. There are some obvious facts: Getting a Square “merchant account” takes a lot less time — but you sacrifice stability. Customer service will always be better with a highly rated payments processor. With Square, you don’t get a choice in what hardware or software you use; merchant accounts give you many choices.

As always, the decision comes down to what’s important to you and your business. Weigh the pros and cons. If you’re still unsure what’s the best option, reach out to us and we can point you in the right direction!

Still have questions? What have been your experiences with Square or your merchant account provider? Leave us a comment — we’re always happy to hear from our readers!

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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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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.


    This has probably been asked somewhere before, but are there any (decent) companies that are similar to square, which have flat rate pricing like square but also lets you set up a Merchant Account? I know interchange rates are highly touted, but in a typical month my cc charges are $800/mo or less, so I wouldn’t really benefit that much from using interchange. I like the convenience of square, but have read too many horror stories on how they can withhold funds for whatever reason they see fit, so having a merchant account is a must for me.

      Curtis DeCora

      You’re really better off sticking with Square or a comparable platform. If you elected a merchant account, you’re going to run similar fees with batch, and statement fees.

      The real advantage lies in the form of leveraging your monthly volume for purposes of capital, equipment purchases, etc. You cannot do that with Square, nor do any of my financing partners work with Square. Also, to attest to your comment about holding funds. They have held funds for a number of folks. They ended up electing to choose a merchant account. They did leverage that monthly volume as a startup and were able to purchase new equipment, company vehicle, and the like, as well as invest into a customer-centric marketing strategy.

      Square is great if you’re running some low volume or minimal transactions. I really say it’s for hobbyist.


        The one I’ve ran into that allows this, as a merchant account provider myself, is Shopkeep.

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