HMS Versus Square: Part 2

October 10, 2012

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

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