Square vs. PayPal Comparison
So you are trying to choose between Square and PayPal. Which has the better pricing, customer service, device compatibility, and features for accepting card payments? Figuring all of this out can be a daunting task (this article took over a week to put together), but don’t worry, we’ve done the research and broken it down for you.
This article will help you compare Square and PayPal head-to-head in order to determine which of these merchant account providers offers a more competitive overall credit card acceptance package. The categories listed below will take into account all services and prices offered by both companies, including, but not limited to, the Square card reader and PayPal Here mobile processing apps. For individual reviews of each company, be sure to check out our Square review and our PayPal review.
Founded in February of 2009, Square (squareup.com, square.com) has seen tremendous growth in a very short amount of time. Square is best known for its square-shaped card reader and accompanying mobile app for smart devices. In addition to the mobile reader and app, Square also offers Square Register (a cloud-based POS system), Square Wallet (a mobile payment app for customers), Square Cash (a direct person-to-person cash transfer service), and Square Market (an online marketplace for Square-enabled merchants). In this article, these additional features will be assessed from a merchant’s perspective.
As of this writing, our review of Square awards the company a “D” rating. Square is showing over 1,000 complaints online, and the Better Business Bureau is awarding it a “B+” rating based on 725 complaints filed in the last three years.
Founded in 1998, PayPal is a wholly owned subsidiary of eBay and is heavily used for payments between buyers and sellers of eBay auctions. In 2003, PayPal founded its “merchant services” division, which allows businesses of all sizes to accept credit card payments, much like a normal merchant account. Since then, PayPal has expanded its services to include the PayPal Here card reader and mobile app, a Payflow payment gateway, and several PayPal Payments service packages with various added services.
We currently award PayPal Merchant Services a score of “B-.” The company’s massive user base is likely the reason for the thousands of online complaints filed against it, but it’s difficult to determine how many of these complaints are related to PayPal’s merchant services division. The Better Business Bureau is showing an “A+” rating for PayPal despite 6,124 complaints filed in the last three years.
|Mobile Card reader:||Free||Free|
|Contract length:||Month to month||Month to month|
|Merchant account:||Chase Paymentech||PayPal|
This section compares PayPal and Square in terms of overall compatibility, functionality, ease of use, and customer service.
Compatibility: PayPal Wins
|iPhone/iPad Support:||iOS 5.0 or higher||iOS 5.0 or higher|
|Android Support:||Version 2.3 or higher||Version 2.3 or higher|
|Other POS integration:||No||Yes|
Both Square Register and PayPal Here are available on iPads or iPhones running iOS 5.0 or higher, and both services are compatible with Android devices running Android 2.3 or higher. PayPal distinguishes itself, however, through its POS (point-of-sale) integration options and e-commerce compatibility. In addition to offering its own POS system, PayPal is pre-integrated with several other specialty POS providers, providing merchants with more options. In addition, PayPal has been offering seamless integration for online payments for years, while Square can only provide online merchants with payment acceptance through the Square Market. Generally speaking, PayPal offers more payment channels and more streamlined integration.
Reliability: PayPal Wins
|Secure data transfer:||Yes||Yes|
Both Square and PayPal offer mobile card readers that are fairly reliable, well-designed, and reportedly secure. However, Square is showing far more complaints about service interruptions and incompatibility issues than PayPal is, despite the fact that PayPal is integrated in a wider variety of machines. Square’s complaint totals are almost certainly inflated by the fact that the company offers no customer support to quickly resolve device malfunctions, but this only makes service interruptions a more serious potential problem for Square users.
Ease of Use: Square Wins
|Download and go:||Yes||Most services|
PayPal and Square both offer straightforward onscreen guidance during installation and use of all of their payment services. Both companies’ customer-facing features include customizable prompts and simple instructions, largely sparing merchants the trouble of explaining these services to customers. Although the setup for PayPal’s traditional online payment option is slightly more involved than a simple “download and go” model, its business solutions generally require nothing more than a PayPal account for the merchant or customer. Square gets the nod in this category, though, for its simple, sleek card reader and its no-frills Register application, which is clearly designed with an eye toward easy setup and use. Convenient sign-up and installation is without a doubt the primary innovation offered by Square, and it’s enough to beat PayPal in this case.
Customer Service: PayPal Wins
|Premium service tiers:||No||Yes|
This one isn’t even close. PayPal offers live phone support and email support for its merchant services, although merchants do have to pay $159/month for “Enhanced 13×7” support or $495/month for “24×7 Premium” support if they want to avoid the wait times associated with the general customer service lines. Even so, a busy, slow customer service line is still more than Square offers its customers. Square customer support is conducted entirely via email exchange and is notorious for is slow response times and unavailability. In fact, the primary factor cited in merchant complaints about Square is the company’s near-complete lack of customer support.
Features Overall Winner: PayPal
PayPal wins this section due to the company’s support for a wider range of devices and processing options. PayPal also offers live support options and appears to have better hardware and software reliability based on user reviews of both services.
This section compares PayPal and Square in terms of their transaction fees, cancellation fees, recurring fees, and other associated costs.
Transaction Fees: Square Wins
|Keyed-in rate:||3.5% + $0.15||3.5% + $0.15|
|Online rate:||2.75%||Between 2.2% + $0.30 and 2.9% + $0.30|
Square is renowned for the simplicity of its pricing: 2.75% per swiped transaction and 3.5% plus $0.15 per keyed-in transaction. That’s all there is to it; no monthly fees, setup fees, cancellation fees, or other bogus fees. Interestingly, though, PayPal Here slightly undercuts Square with a swiped rate of 2.7% and the same keyed-in rate as Square. When used in conjunction with the PayPal Payments Standard Pricing plan, PayPal Here also includes no other monthly costs.
However, Square takes a slight edge in overall transaction fees with its Square Market service, which allows Square merchants to sell their products online for the same flat rate of 2.75% per transaction. PayPal’s online transaction rates, on the other hand, run from 2.2% plus $0.30 to 2.9% plus $0.30 depending on a merchant’s monthly sales volume. PayPal also includes monthly fees of $5 and $30 for its Advanced and Pro plans, respectively. For e-commerce merchants who process under $10,000 in monthly sales, Square Market is likely to be the cheaper online payments option, while PayPal is the better choice for larger businesses that can afford to pay a monthly fee and need more e-commerce features.
Termination Fees: PayPal Wins
|Reserve upon cancellation:||Yes||Yes|
Neither Square nor PayPal charges an early termination fee for canceling service, but both providers may hold any unprocessed payments at the time of cancellation to ensure that the merchant’s contractual obligations are met. According to the companies’ cancellation policies, these withheld funds should be returned to the merchant in accordance with the merchant’s payout schedule and there are complaints filed against both Square and PayPal alleging that these holds can last much longer. However, Square is showing a much higher number of such complaints and the issue is seemingly exacerbated by the company’s lack of a live customer support department. Although both companies offer free cancellation, the potential fund holding times with a Square merchant account appear to be much higher.
Recurring Fees: PayPal Wins
|Monthly fee:||None||$0, $5, or $30|
|Total cost for $3,000 in sales in one month:||2.75% per swiped transaction||2.9% + $0.30 per transaction|
|Total cost for $10,000 in sales in one month:||2.75% per swiped transaction||2.5% + $0.30 per transaction|
|Total cost for $25,000 in sales in one month:||2.75% per swiped transaction||2.2% + $0.30 per transaction|
Square and PayPal both offer service plans with zero monthly fees, so merchants can sign up for either service without facing any recurring costs. The potential monthly costs, though, vary depending on what additional services a merchant is interested in.
Square has announced recently that it will discontinue its monthly pricing plan after January 2014. This pricing option was intended for larger merchants and cost $275 per month. Under this plan, all transaction fees were waived for the first $250,000 processed in a year, and this plan only saved merchants money if they were swiping over $10,000 per month. In the wake of its discontinuation of this plan, Square will offer its flat 2.75% (3.5% plus $0.15 keyed) to all merchants.
PayPal’s per-transaction costs vary depending on a merchant’s monthly sales volume and the method of payment acceptance. Any payments swiped through the PayPal Here reader will receive the 2.7% rate, while online payments are scaled as follows:
- Up to $3,000 in monthly sales: 2.9% plus $0.30
- Between $3,000 and $10,000 in monthly sales: 2.5% plus $0.30
- Over $10,000 in monthly sales: 2.2% plus $0.30
PayPal also offers three pricing plans with added features for each price increase: Standard (free), Advanced ($5/month), and Pro ($30/month). Overall, Square and PayPal both offer free monthly plans, but PayPal offers a greater degree of flexibility for larger merchants depending on sales volume and desired features.
Other Costs: PayPal Wins
|Monthly minimum fee:||No||No|
|PCI Compliance fee:||No||No|
Neither Square nor PayPal charges PCI compliance fees or monthly minimum fees. The only hardware costs for mobile processing are the smartphone or tablets needed to use the apps. PayPal charges $79.99 for a USB card reader that can be used to swipe card via desktop computers for use with its virtual terminal. Square does not provide such an option. PayPal wins this section due to having more processing options at a relatively low cost.
Pricing Overall Winner: PayPal
Although Square has simpler per-transaction pricing, PayPal wins this section due to more transparent cancellation reserve policies and lower costs in relation to a wider variety of services.
Policies, Provisions and Contract Conditions
This section compares PayPal and Square in terms of their reserve policies, payout schedules, and fraud policies.
Reserve Policy: PayPal Wins
|Weekly keyed-in limit:||None||$2,500|
|Reserve period:||None||30 days|
|Holds suspicious transactions:||Yes||Yes|
It is common within the industry for credit card processors to establish cash reserves as a defense against chargebacks or fraud, but these policies can sometimes cause confusion among merchants. Until November 2013, Square’s policy was to withhold all keyed-in payments above $2,002 in any rolling seven-day period for up to 30 days. The company has since discontinued this policy, stating that there is no limit for all transaction types and deposit amounts. PayPal currently has a policy that is similar to Square’s previous policy, but with a slightly higher limit of $2,500. Both processors also freeze large payments that have been flagged as suspicious according to their own internal algorithms. Both companies reserve the right to hold funds for much longer periods (up to 180 days) if transactions meet certain undisclosed risk factors.
Payout Schedule: Square Wins
|Payments processed:||1-2 days||Immediately|
|Deposited to:||Bank account||PayPal account|
|Funds accessible:||Immediately||3-day withdrawal|
This category is essentially a toss-up. Square offers next-day deposit of funds into a merchant’s bank account, while PayPal makes funds available to merchants almost immediately within their PayPal accounts. In order to withdraw money from their PayPal accounts, merchants must make a transfer request and wait approximately three days for the funds to be deposited. They may also be subject to ATM fees when making withdrawals using a PayPal debit card. Because of this, Square is the better option for merchants willing to wait a day for their money, while PayPal is the better option for merchants who don’t mind keeping most of their funds in their PayPal accounts and paying for or withdrawing money using a debit card. We’ll give this category to Square because the company doesn’t automatically impose an extra step between merchants and their money.
Fraud Policy: PayPal Wins
|Approval process:||Instant||Instant except Payments Pro|
|May cancel accounts:||At own discretion||At own discretion|
|May freeze accounts:||At own discretion||At own discretion|
|Fund hold inquiries:||Via email||Via phone|
Both Square and PayPal have very low barriers to entry and emphasize their easy sign-up processes. This ease of setup comes at the cost of a lack of underwriting and approval processes that could save high-risk or ineligible merchants the trouble of sudden cancellation or fund holds down the line. PayPal edges Square on this front, though, for two reasons. For one, the PayPal Pro virtual terminal requires an additional application process for merchants, which marks the only service offered by either company that subjects merchants to review before signup. Also, as with so many other potential issues, reliable customer service can be invaluable to merchants in the event of cancellation or fund withholding. As noted repeatedly, Square does not offer live customer service.
Policies Overall Winner: PayPal
Square has the slightly more attractive payout schedule thanks to its next-day deposit into a merchant’s bank account, but PayPal appears to do more overall to protect merchants from sudden cancellations or fund holds.
Other Payment Services
This section compares several services offered by Square and PayPal as alternatives or complements to standard credit card processing.
Square Register Beats PayPal Here
|Category||Square Register||PayPal Here|
|Receipts||Physical or digital||Physical or digital|
The Square Register POS app offers analytics and payment reports, a customizable layout, loyalty programs, Square Wallet compatibility, multiple user support, and limited hardware compatibility (for receipt printers, etc.). PayPal Here offers check scanning, integration with multiple POS systems, and PayPal Mobile compatibility. Despite the greater potential compatibility and customer support offered by PayPal Here, Square appears to supply the more robust, ambitious free point-of-sale app at this time. PayPal may be a better option in Square in this section depending on which specialty POS systems merchants choose to integrate it with.
PayPal Mobile App Beats Square Wallet
|Category||Square Wallet||PayPal App|
|Pay via debit:||No||Yes|
|Pay via credit:||Yes||Yes|
|Pay via bank account:||No||Yes|
Both the Square Wallet and the PayPal mobile payments app provide a free mobile wallet service to users. On the customer’s end, there’s very little distinguishing one service from the other, except for the fact that Square Wallet links to a customer’s credit card while the PayPal app can link to a customer’s PayPal account, credit card, debit card, or bank account. Both Square Wallet and PayPal are making inroads among merchants and gaining popularity, as Square recently signed a POS agreement with all Starbucks locations and PayPal continues to push its PayPal-linked payment card. Merchants will want to pay careful attention to the growth of both services before deciding to offer one or the other in their stores, but PayPal gets the nod for now due to its name recognition and wider array of payment options for customers.
Square Market Beats PayPal
|Free online store:||Yes||N/A|
|Site hosted:||In Square Market only||N/A|
One of the more intriguing services offered by Square is the Square Market, an online marketplace where Square merchants can establish a store profile and sell their products online for a rate of 2.75% per transaction. Although these online stores are fairly simple in layout, they may be a very desirable option for merchants who simply want to make their products available online rather than fully commit to an e-commerce operation. PayPal does not offer a comparable service at this time, although it does offer solutions for already established e-commerce merchants through various service packages. At this time, Square wins this category for offering a free online store with easy setup and transparent pricing.
Square Cash Beats PayPal Transfer
|Category||Square Cash||PayPal Transfer|
|Debit transfers:||Free||2.9% + $0.30|
|Credit transfers:||N/A||2.9% + $0.30|
|Bank account transfers:||N/A||Free|
|PayPal account transfers:||N/A||Free|
Square Cash is a new service offered by Square that allows for free peer-to-peer fund transfers from an attached debit card. Like PayPal’s traditional transfer service, Square sends payment information via email and takes about one to two days to process. PayPal’s transfer service, perhaps the best-known service of its kind, allows for peer-to-peer transfers between PayPal accounts, linked bank accounts, credit cards, and debit cards. However, PayPal charges a fee of 2.9% plus $0.30 per transaction for debit and credit card transactions. Because of this, Square just barely wins this category. For users who simply want to send money to a friend or associate, Square makes this possible through a free debit card transfer. For users who don’t mind the extra setup necessary for a PayPal account or linked bank account, PayPal is also a good option for free cash transfers.
Other Services Overall Winner: Square
PayPal’s cash transfer service, mobile wallet app, and point-of-sale solution are reliable services for merchants and customers alike, but they lack the innovation and ease of use offered by comparable Square services.
Bottom Line: PayPal Beats Square Head-to-Head
When it comes to the full suite of services and pricing models offered by both companies, PayPal is a better overall merchant services provider than Square as of this article. Thanks to its live customer support, wider range of services, time in the industry, and offerings for larger businesses, PayPal has avoided many of the problems that plague Square.
Square, on the other hand, edges PayPal in a handful of categories but ultimately cannot overcome its most glaring deficiency: poor customer support. Square’s commitment to transparent pricing and innovation for smaller merchants and individuals may someday make it an ideal payment processor for all merchant types, but not until the company builds a strong customer support system and clearer policies and practices regarding funding holds. For now, PayPal is the better option on the whole.
Which do you prefer, PayPal or Square? Tell us why in the comment section below.