HMS Versus Square: Part 1

October 9, 2012

This week, the Official Merchant Services Blog will delve into a three-part comparison of the services offered by Host Merchant Services and Square. We will begin by giving a basic overview of both and then compare how the two companies set up a merchant account. We will then move on to a comprehensive look at the pricing and security aspects, over the next few days.

Mobile Payment Processor Square has been pushing its brand heavily this past year. The startup lets merchants process credit and debit card transactions through their mobile devices, including iPhones, Android smart phones, and even the iPad. The company picked up a lot of attention in August 2012, when it announced a partnership with Starbucks to provide mobile payment ability to 7,000 locations nationwide.

Host Merchant Services has been reporting on the Mobile Payments market for the entire time Square has been making its splash in the industry. HMS has also been marketing its own mobile payment processing solutions — giving its customers the option of accepting credit and debit card payments through iPhone, iPad and Android as well.

So how does the suite of Host Merchant Services Mobile Payment solutions stack up against Square? Today we find out in Part 1 or our three part series, Host Merchant Services vs. Square: The Merchant Account.

The Merchant Account

The first major difference between the two mobile payment processing providers is the most basic: The Merchant Account.

Square does not actually provide a merchant account to its customers. Square provides its customers with processing services, but not a traditional merchant account. Instead, Square acts more like a payment aggregator.

Typically, Merchant Aggregators or Payment Aggregators are service providers through which e-commerce merchants can process their payment transactions. Aggregators allow merchants to accept credit card and bank transfers without having to setup a merchant account with a bank or card association. The Aggregator provides the means for facilitating payment from the consumer via credit cards, stored value accounts or bank transfer to the merchant. The merchant is then paid by the Aggregator.

This is a pretty basic description for how PayPal began — and is also a really solid description for how Square works with its customer base.

Aggregation enables businesses that may be too small or risky to obtain a traditional merchant account to accept credit and debit card transactions anyway. The practice gets controversial among the more traditional sectors of the payment processing industry because it makes it harder for networks to monitor just who generates transactions and, most importantly, the attendant risk.

Some of the drawbacks of Square’s aggregation, such as caps on transaction size and delayed fund dispersal, will be reviewed in Part 2 of our series.  Host Merchant Services’ traditional merchant accounts do not place caps on transactions or delay funds for any merchant.

Host Merchant Services offers a traditional merchant account to its customers. This is a noteworthy difference in practice for the merchant. The account is in the merchant’s name, giving the merchant more rights as well as more responsibilities. The traditional merchant account also holds Host Merchant Services to the merchant with added oversight on the transaction process. This is bolstered by Host Merchant Services’ customer service goals, creating a relationship where Host Merchant Services goes all-out for each merchant. The approval process through Host Merchant Services is more extensive up front, however the security and service provided gives merchants more peace of mind and more value for their effort.

In conclusion, Square and Host Merchant Services offer two very different types of merchant accounts.  Although both companies allow merchants to accept credit cards, Square does not offer a true merchant account. Host Merchant Services creates a traditional merchant account, and the customer has actual control over aspects of the account.  HMS directly links the merchant and their account, without any type of aggregation. This practice allows easier tracking of authorizations and transactions, a streamlined chargeback process, and less risk over all.

Continue Reading – HMS Versus Square, Part 2

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