Alternative ways to take credit cards. Ditch your merchant account!

Mobile hot dog vendor accepts a credit card payment with a Square reader.

Business today is too mobile and too flexible to stick with inflexible traditional merchant accounts for credit card processing. New options are here and tip the scales in favor of small businesses.


Taking credit cards used to be a big deal for small businesses. It involved setting up a merchant account, passing a credit check, leasing or buying equipment and agreeing to a multi-year commitment. That was just the getting started part. The traditional merchant processing industry standard seemed to be lots of fees, and little customer service for small accounts. It has been a source of ongoing pain for small business, but everything has changed.

A number of companies have introduced dead-simple tools to accept credit cards with nothing more than a tiny plastic reader that plugs into a smart phone. Fees are lower, and there is no commitment.

Should you convert from traditional merchant processing? I did. Here’s how I decided.

Compare Total Costs
You can’t just compare the low teaser rate that merchant processors quote. You have to consider the total effective cost for processing.

My store’s “qualified rate” was 1.55%. Sounds fine, but it doesn’t take into account all the other fees I paid. I took my monthly processing statement, added up all the fees, deductions, costs, charges, etc., and divided that by the total amount processed. I did that for several different months, and our total effective cost was 3.1% to 3.3%. I also had a leased credit card terminal for $35.67 per month. I was more than ready to eliminate that lease and put that money towards acquiring some new equipment.

What are the choices?

All these new systems share some similarities.

  • They use a small plastic reader that plugs into the headphone jack on your smartphone or tablet.
  • There is no charge for the reader, or $15 for Breadcrumb’s reader. With Square or PayPal Here, you may be able to buy a reader at a store for about $15 and ask for a refund later.
  • There are no monthly fees, so you can sign up and keep one on hand even if you only process credit cards on occasion.
  • You can use it to charge credit card sales from anywhere (as long as you can get cell signal for smartphones or wifi for tablets).
  • You can have more than one user on your account, all collecting payments at the same time.
  • They charge a percentage of transactions, under 3%. Hand-keyed transactions are higher, usually between 3% and 4%. Hand-keyed transactions may be held and not deposited to you immediately.
  • There are no (or very few) additional fees.
  • Most offer a way for customers to pay with their phone instead of their credit card.

Square has been around for several years. This is what I initially chose for my bricks-and-mortar retail business.

  • Reader: A small white square that can twist a little while swiping cards. Works with iPhones, iPads, and some Android smartphones.
  • Cost: The total effective cost is 2.75% per transaction. There is a monthly flat rate available for high-volume businesses that can drive the effective rate below 2.0%.
  • How you get paid: Funds are transferred nightly into your business checking account.
  • Mobile Payments: Square offers a mobile payment option, called Wallet. Customers create their own account with Square, then only need to bring their compatible phone with them to complete their payment.
  • Bonus: Square has an iPad app designed to use as a Point of Sale system, handy for bricks and mortar locations.

Intuit GoPayment
Intuit GoPayment  is newer than Square, but backed by accounting software giant Intuit.

  • Reader: A grey bar as wide as a phone that is stable while swiping cards. GoPayment works with iPhone, iPad, iPod Touch and many Android phones.
  • Cost: Most cards are 2.75% with no transaction fee. American Express and rewards cards are treated differently (more expensively). Higher volume businesses can choose a monthly fee and get a lower rate on transactions, potentially under 2.0%.
  • How you get paid: Funds are transferred nightly into your business checking account or onto a special Prepaid Visa card account.
  • Mobile Payments: GoPayment does not include a system for customers to pay using their phone.
  • Bonus: Transactions can be downloaded into QuickBooks software.

PayPal Here

PayPal Here is backed by online-payment giant PayPal.

  • Reader: A blue/purple triangle, with a small brace to hold it still while swiping. Works on iPhone, iPad, and some Android phones.
  • Cost: the rate is 2.7% on swiped transactions. There is no monthly pricing option for high-volume merchants.
  • How you get paid: funds are deposited into your PayPal account or can be put onto a special Debit MasterCard account. There is not an option to have funds automatically transferred to a checking account.
  • Mobile Payments: Customers can pay without cash or cards using their PayPal account via the PayPal app on their smartphone.
  • Bonus: PayPal Here can accept a wider variety of payment types. I mentioned that it can pull from a customer’s PayPal account using their smartphone. It can also generate and email an invoice to customers, so they can pay from their PayPal account. It can also accept checks by snapping a picture of the check to deposit it. There is no transaction fee at all for accepting checks.
  • Bonus: It also has an iPad app designed to use as a Point of Sale system, handy for bricks and mortar locations.

Groupon Breadcrumb

Breadcrumb was introduced by daily deals giant Groupon.

  • Reader: A black oblong shape, it offers a longer swiping path for stability. Works on iPhone, iPad, some Androids phones, and PCs/laptops. The reader costs $15. The processing service can be used with certain existing credit card terminals.
  • Cost: Visa and Mastercard rates are 1.8% + 15 cents per swipe. AMEX is higher and varies based on your industry.
  • How you get paid: funds are deposited into your bank account the next business day.
  • Mobile Payments: Breadcrumb does not include a system for customers to pay using their phone.
  • Bonus: integrates with Groupon vouchers, if your business issues them.
  • Bonus: two separate point of sale apps and plans are available, one specifically for restaurants.

Which do I choose?
That depends on your business. QuickBooks users may favor Intuit’s GoPayment. Businesses that depend on PayPal may jump on PayPal Here. But because there is no commitment or monthly fee, there is no reason a small business might not try out all of them.

Keep your eyes on Dwolla
Dwolla is based on cash instead of credit cards. I applaud that. It does require both the customer and the merchant to have an account. Then the customer initiates the transaction, instead of the vendor. It is going to take time for this to reach critical mass in my small town.

A non-traditional merchant account option
Payment Revolution is a traditional merchant processor, but without the long-term contract. It allows month-to-month service. The only monthly fee is a $10 statement fee. All transactions run at a set percentage over the interchange rates. That does mean ugly statements and lots of variation between transactions. Rewards cards get charged at higher rates, and you may have 7 different rates just for MasterCard on your statement. If you want to try traditional merchant processing without making a long-term commitment, consider Payment Revolution.

UPDATE, Dec 2013:

Wave, maker of a deservedly-popular suite of accounting and finance apps for small business, has introduced a get-paid-anywhere system. There is no hardware reader needed; just take a photo of the card. The cost is 30 cents plus 2.9% per payment. Other payment types like cash can also be accepted and receipts sent from the app. Data integrates automatically into the Wave Accounting system. Get a quick overview and link to Wave’s app here.

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  1. says

    Hi Becky, I had no idea how many solutions for small business credit card processing were out there!
    We had recently checked with our bank about their merchant services, and determined it wasn’t in our favor. We stuck with PayPal (not PayPal Here). Most of our clients pay by check, but we like to have the option of offering them the ability to pay by card if they prefer.
    But we do have clients that accept credit cards “on the go,” so I’ll be pointing them to your post! Who knows? They might be about to save some extra money every month!
    Thanks for your post!

    • says

      Thanks, Tracy. I’m sure this will be outdated soon, maybe even tomorrow! But I wanted to give a rundown of the systems I know of today. With all these options, everyone can find something that works for their business.

  2. says

    I agree this is a very helpful summary of current merchant service options.

    We’ve been using Square for ~18 months and have been very happy. In our first year-to-year comparison, we shaved 45% off our merchant service fees. While the base rates are competitive, it’s the pile of extraneous fees that conventional providers assess that really eat into your bottom line.

    What I most appreciate about these start-up services, is that they give customers (i.e. small biz owners) options that didn’t exist before. We still get cold calls from merchant service providers who offer to look at our statements and they’ll (naturally!) identify pitfalls of using Square. That’s like letting the fox watch the chickens! Informed consumers should understand their billing statements and often know more about the merchant service processors than their salesforce.

    Thanks for posting this!

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