Today’s Official Merchant Services Blog post will wrap up our on-going series comparing Host Merchant Services and Square. In part 1 of our series, we reviewed how the two companies differ in how they set up merchant accounts. In part 2, the different pricing schemes offered were analyzed, as well as the time differences between fund dispersal. In Host Merchant Services Versus Square: Security and Conclusion we will offer a side-by-side comparison of the security and customer protection each company offers and wrap up the series with a final verdict on which offers superior merchant services.

Don’t be a ______

Everyone is concerned with credit card security these days.  Merchants want to operate securely, and customers want to feel secure when they make purchases.  The only way to be sure your credit card data is safe is to use devices that process credit card data in a secure manner.  It may be cheap and easy to take the magnetic tape reader from a cassette player and attach a microphone input, but is it safe?  Is it secure?  Hackproof?

According to Verifone, and the hackers at Black Hat, the Square application is susceptible to audio hacking and the insertion of stolen credit card data via a TRRS cable (also known as an iPhone audio cable).  Hackers have even created programs that can take credit card numbers and convert them into audio signals, which allow you to feed them into square through the audio port.

Many argue that this is no different than keying the card number in, the Square application doesn’t require CVV, why not just key them in?  Here comes the scary scenario.  With a simple cell phone application and this Square credit card reader, it makes skimming card data that much more easy for the malicious.  Imagine leaving your credit card with the waiter/waitress and on the way to the POS terminal in the restaurant, and your server casually skims the card on the way.  The hacker may be able to record the sound of your credit card and share the audio file with others or use it themselves to feed it back into Square.

Many people argue that this isn’t new nor is it the fault of Square that credit cards are so insecure.  The problem is that since Square gives them out for free without any type of application, you have lots of potential card skimming devices in the market.  Most consumers didn’t have access to a credit card reader in the past, but that has changed. The Square reader has been recently updated from the original design; you can see what the original Square looks like inside here.

Host Merchant Services differs from Square in many ways. HMS offers card readers through ID Tech, notably the UniMag II two-track mobile mag-stripe reader. This device works across Apple and Android platforms, being just as flexible as the Square reader. The ID Tech swipers that Host Merchant Services offers can work on the various iPhones, iPads and iPods, as well as a host of Android smart phones — a list can be found here.

These card readers are much more secure than the Square device as the Unimag swipers don’t work as input devices. This means you can’t upload a .txt file to get it to input, closing one of the holes in Square’s security.

Conclusion

Square is a viable and useful payment processing solution for a select group of merchants. Square’s marketing has always pushed that it is small business friendly. Digging through the details of what they offer however, it starts to become apparent that even a lot of small business owners can do better with other merchant services providers. If you’re going over the limits that Square sets in its fine print — especially if you find yourself having to be flexible and take card not present transactions on your mobile device — you’re losing out on the savings that you were promised. Those merchants are then paying fees at prices that are not all that competitive. Which means those merchants can find better savings and deals elsewhere.

I’ve always felt that Square is really a sign of the times, giving payment processing the same flexibility and potential that desktop publishing and online printers have given the vanity publishing industry. Desktop publishing has been opened up enough by computer software like Gimp and online printing and online distribution options to allow everyone to easily upload, produce and then publish books, brochures and other printed media — giving rise to micropublishers. And much like that shift in the publishing industry, Square has created viability in the payment processing industry that wasn’t there before. That is to say, Square works best with micromerchants — the kind of merchants you’d find on Etsy.com.

Square offers a payment-processing plan to merchants hawking their individual goods from place to place, giving them the ability to take plastic in what was once just a cash only endeavor. The people I think of in that plan are merchants constantly on the go, selling one or two items — maybe some concert t-shirts out of the back of their car, or their own sketches at a comic book convention. These are the merchants that could potentially save with Square.

Host Merchant Services offers a plan that can be customized to work with any size merchant. Specialized pricing with individual statement analyses mean that merchants come out on top with the most savings possible. HMS also keeps merchants compliant with the PCI Compliance Initiative, and keeps customers card data safe by offering the latest and most secure equipment, even for mobile payments.

Square has its shortcomings in terms of how merchants may grow and expand. By setting limits on card not present transactions, and setting up flat fees, Square is simple and straightforward. But it is also locked into a pricing structure where the fees cease to be competitive as a business begins to function on a more consistent basis. This is where a payment processor like Host Merchant Services begins to shine. Their pricing structure is flexible enough that it can offer competitive rates that save even Square merchants money if they switched. Host Merchant Services can also guarantee stable payment of funds; the merchant has their own merchant account, and helps the merchant seamlessly transition into transactions beyond just mobile with no change in rates or pricing.

Once you step up to the next tier of merchants, a small business merchant doing regular monthly transactions on their mobile device — a merchant with even just a tiny but steady stream of business through the device — HMS gets a clear edge when stacked up against Square. After comparing the two processors in terms of merchant account set up, pricing, disbursal of funds, and security in this series, the final verdict is that Host Merchant Services offers the most complete and straightforward merchant services, while still saving merchants money on fees.

HMS Versus Square, Part 1

HMS Versus Square, Part 2

Today the Official Merchant Services Blog will begin the second segment in our three-part HMS versus Square matchup.  Yesterday we briefly reviewed aspects of both companies, as well as delved into the differences between the merchant accounts they set up.  If you missed Part 1 of this series, check it out here.  In part 2, Host Merchant Services Versus Square: Pricing and Payment, we will take an in depth look at two of the most important aspects of any merchant services company, the rates offered and the payment of the merchant’s funds. First up are the pricing plans for both Square and Host Merchant Services.

The Pricing Plan

Square offers a very well publicized pricing plan. It began with the flat rate of 2.75% on swipe transactions. They recently upgraded to the “simple pricing” plan of $275 per month flat fee, with 0% charge for swiped transactions.

That’s easy enough to remember, right? Their advertising is really quite amazing because of how simple that plan is to promote.

But take a look at the fine print.

The Simple Pricing, or One Price Per Month, plan that Square announced has a limit. If you exceed $400 for a single transaction, or $250,000 in annual transactions, Square flips you over to the One Price per Swipe plan. That is Square’s original plan, the 2.75% per transaction plan.

And then there’s different pricing for card-not-present transactions, or transactions that you have to manually key in to your device. Square heavily promotes the rates on swipe transactions, but merchants have to deal with the wide variety of consumer needs, which will necessarily include card not present transactions. There will be times where even the tiniest of micromerchants needs to key in a transaction.

When that happens, Square’s pricing structure transforms to resemble the most expensive in the industry. Transactions that you have to manually key into your device cost you 3.5% + 15 cents per transaction.

Host Merchant Services offers its HMS Guarantee, combined with the Interchange Plus pricing model. It’s individualized pricing system, which in practice is designed to save merchants the most money possible.

Host Merchant Services starts with the basics of Interchange Plus pricing. Interchange Plus pricing is based on the “interchange” tables published by both Visa and MasterCard. Because the credit card giants publish these tables, the pricing is extremely transparent. Anyone can access the tables and see what the basics of the pricing starts with. On the whole, this transparency keeps the total cost of this pricing plan lower than the tiered pricing plans that are used by other traditional merchant account providers.

Added to the interchange rate is the discount rate, or markup. This flat markup fee is the “plus” in Interchange Plus pricing, and for Host Merchant Services the discount rate eliminates the need for hidden fees that tiered pricing plans utilize.

You’ll note that there hasn’t been any mention of specific numbers. Unlike Square, which plays up its flat fees and specific 2.75% or $275 per month, Host Merchant Services utilizes a far more organic approach. HMS takes each merchant on a case-by-case basis. The company looks at what the merchant is currently paying, or would pay as the industry baseline if they were brand new, and then cuts savings into that pricing structure.

This is the HMS Guarantee. The company guarantees to offer each interested merchant a pricing plan that saves them money on their processing fees. The flexibility lets Host Merchant Services find savings for companies where none may exist for other merchant services providers. This creates an equally powerful marketing message for Host Merchant Services when compared to Square. In fact, it allows HMS to approach Square users and still offer those users savings over Square for virtually any card type.

By not locking themselves into a flat rate plan, Host Merchant Services can relentlessly seek out the best pricing plans for each and every merchant, guaranteeing those merchants savings and finding the service and peace of mind that merchants need from their payment processor.

Also, it’s been widely publicized that Square’s rates aren’t the most competitive rates in the industry. Square is tailor made for e-commerce transactions because it is a mobile device credit card reader. The average interchange rate in 2011 for e-commerce was around 2.06%, which falls well below Square’s highly publicized 2.75% per transaction rate. This underscores how much flexibility Host Merchant Services has to compete against Square. Host Merchant Services also offers many of the same added perks Square offers — including a free swiper.

In fact, even the free swiper can be an easier process through Host Merchant Services. Square charges $10 for the swiper if you buy it in a store and then offers those who do purchase it that way a $10 redemption code which will be linked to your bank account. Host Merchant Services just provides its merchant with a free swiper — which is an extension of its HMS Guarantee that provides traditional brick and mortar merchants a free processing terminal. No fussing around with redemption codes.

Payment of Your Funds

Now we get to the next big sticking point — payment of funds.

Square has given a very healthy portion of the spotlight to its next day funding capability. This is a very big plus for merchants. Getting paid as soon as possible is always important to a business, and so next day funding is very popular with merchants.

Host Merchant Services provides next-day funding to its customers, meaning there’s one day of time elapsed from when the transactions happen and when the merchants get their funds. And once processing, merchants have a steady flow of deposits to their bank account.

There’s a limit on how funding works within Square’s framework. Because Square is a payment aggregator, receipt of your funds is at Square’s discretion. This comes into play with Square’s handling of manually entered payments, or card not present transactions. Square has a $2,002 weekly deposit limit for card not present transactions. Square states its merchants can accept more than $2,002 in manually entered payments during a single week, but when a merchant does that Square will defer depositing those funds for a full 30 days.

Square offers to work something out with merchants that have to do this regularly, but even then it doesn’t end up being next day funding — one of Square’s biggest selling points.

Host Merchant Services has no such caveat. You get next-day funding, and you get it for all of the kinds of transactions you end up processing through Host Merchant Services. With HMS, you don’t end up in a situation where card not present transactions (a typical form of transaction in e-commerce) end up putting you in a situation where you don’t see your funds for a month.

In conclusion, it is easy to see why Host Merchant Services is superior to Square in terms of pricing and payment of funds.  Square holds its rates firm for every merchant, from 2.75% – 3.5% and also reserves the right to hold merchants funds for 30 days.  Host Merchant Services offers an individualized pricing plan, custom fit to each merchant to maximize savings as well as a true next-day funding policy for all merchants.

Continue Reading – HMS Versus Square, Part 3