This will outline some of the potential drawbacks or reasons why Square and Paypal may not be the best option for certain business or individuals when it comes to processing cards or handling transactions.
- Marketing vs. Cost: It suggests that companies with large advertising budgets like Square and PayPal often recoup their marketing costs from their users. Essentially, a part of the transaction fees users pay could be going towards covering these marketing expenses.
- Ticket Price Considerations: If your average transaction (or ticket price) is below $10, Square and PayPal might be good options because they charge a flat rate that can be affordable for small transactions. However, if your average ticket price is over $10, these platforms might become cost-prohibitive due to the same flat rate structure.
- Volume of Transactions: The volume of your transactions matters too. If you process more than $2,500 per month in credit card transactions, you might be better off looking at other options that provide volume discounts or lower rates for high-volume businesses. The flat-rate fee structure of Square and PayPal may not be as beneficial for high-volume businesses.
- Mobility vs. Online Processing: Almost all major platforms offer mobile and online processing. Having said that, the kind of transactions you handle also matter. Square specializes in mobile credit card processing, turning your mobile device into a card swiper, which is great for businesses that operate on-the-go, like food trucks or market stalls. PayPal, meanwhile, caters to both mobile and online credit card processing which may be more suitable for businesses that operate online or offer remote services.
- Payment Method Considerations: The statement suggests considering POS systems (point-of-sale) that not only accept credit cards but also other forms of contactless payments, such as Apple Pay or mobile wallets. This can offer convenience to your customers and potentially increase sales.
- Payfac: Square and Paypal are what are called "Payfacs", or payment facilitators. What this means is that Square and Paypal have one merchant account and just distribute "terminals" to their customers to run transactions under the one massive account. The downside to this, is that every account's risk profile is the same as the riskiest in the portfolio. Which means your honest business could have your funds withheld because something that is in place for a gun store, is being applied to your auto repair business.
In summary, while Square and PayPal are well-known and widely-used, they may not necessarily be the best choice for every business. It's important to consider your individual business needs, transaction volume, average transaction size, and the types of payments you want to accept when choosing a payment processing system.