How to Sell Against Square

Jeff Zimmerman


If you keep an eye on industry news, you've seen a lot of coverage of Square as a new way for processing credit cards for small business. Square and its founder, Jack Dorsey of Twitter fame, have become media darlings, and many merchants are now aware of Square as well. We are hearing from our financial institution partners that merchants are asking them about Square, and they aren't sure what to say. Hopefully I can help you speak smartly about Square and help those merchants make the right choice.

Square is similar to PayPal in several ways. While PayPal was created to facilitate e-commerce when it was new, Square is focused on the emerging market for mobile commerce. Like PayPal, Square is available to both consumers and businesses. Also like PayPal, businesses sign up for an account with Square, and then link a regular demand deposit account to it in order to access the funds.

While Square markets itself as a revolutionary alternative to merchant accounts, it is similar to a merchant account in many ways. However, there are some critical limitations of a Square account that most businesses will not accept. In my view, the biggest limitations are:

  • $1,000 weekly funding limit. By default, Square will only deposit $1,000 per week into the merchant's account. They hold the rest for 30 days. They say they work with merchants who have higher volumes, but what they do is completely out of the merchant's control.
  • Fixed pricing. Square's pricing is attractive for consumers and very small businesses, but most normal businesses will not be willing to pay 2.75% for swiped transactions.
  • No PIN-based debit. Square cannot process PIN-debit transactions because it does not support PIN pads.

Please see the chart below for a comparison of Square vs. a merchant account for processing credit cards for small business. Square is a good solution for a hobbyist with sales of a few thousand dollars per month. For any larger merchants, I do not consider Square a legitimate alternative - they need a merchant account.