Small businesses increasingly look to Square, other upstarts to save on credit card processing

In one year of owning K Street Café and Bagel, Eun Hopkins has gone through four different credit card processors. When she first took over the Washington, D.C. business, the previous owner left her a machine from Mercury Payment Systems – since then, Hopkins has tried Axiom Card Services, Merchant Financial Services, and finally Bank of America.

Every few months, representatives from card processing companies drop in or call Hopkins to coax her to use their payment service, she said. Each representative requests to see which system she is using, and then suggests she would save $150 to $200 a month by switching to theirs.

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“Meanwhile, I’m not saving anything,” Hopkins said. Each time, she said she has been shocked by the hidden costs, leasing fees and contractual agreements required to use the device.

Such dissatisfaction has opened the door to a group of upstarts that are trying to undercut the big credit giants on fees with systems that make use of the technology many small business owners already own.

Hopkins, for instance, said a representative from a San Francisco-based newcomer called Square, Inc . approached her three weeks ago with an offer to try its technology, the most popular of which is a credit card reader that attaches to the earphone jack of a smart phone or tablet.

In contrast to most card processors, which typically charge businesses a percentage of each transaction as well as a flat fee of, say, 15 cents per sale, Square charges a flat fee of 2.75 percent per swipe.

Hopkins was intrigued. Now 200 to 300 of her customers each day use the Square reader attached to her iPad to swipe their credit cards. They sign for the purchase on her tablet’s screen, using their finger, and a receipt can then be e-mailed or sent by text to their phone.

Hopkins is still trying to adapt to the new technology. While she can easily process customers’ credit cards, she has not yet figured out how to use the Square Register app to offer promotions and discounts to Square customers, key features of the system.

“I wish we had more training, and more information on how to use it,” Hopkins said.

A representative from Square noted that Square does provide an online help site and welcome e-mails to each user.

Hopkins is one of 7,000 individuals and businesses in the D.C.-area using Square to accept payments, according to the company. Square-rival PayPal also recently developed a card reader attachment called PayPal Here, which charges businesses 2.7 percent per swipe.

With systems like Square, “at least you know what you’re walking into,” Hopkins said. But before she stops using her Bank of America register, she plans to compare the costs to see if she’s really saving money. (Bank of America representatives declined to comment on the competition between traditional card processing systems and systems like Square and Paypal.)

Though Square’s flat percentage fee might seem cheaper than the fees from traditional card processors, the ultimate bill can depend on the volume and size of a business’s sales, according to Burt Ely, an Alexandria-based banking consultant.