How to Accept Credit Card Payments for Next to Nothing

Last Updated Feb 28, 2011 4:49 PM EST

When you run a small business, every penny counts. And one of the most maddening costs for a business owner is credit-card transaction fees. Well, I'm happy to report that one of the best merchant deals on the planet just got a little better.

I'm talking about Square, the smartphone-based credit-card payment system. The reader is free, and you pay only a competitive per-transaction rate and fixed fee.

Or, at least, that was the deal. As of last week, Square no longer charges a 15-cent fixed fee on payments accepted with the Square reader. Now, you pay only the 2.75% per-transaction rate. (Hey, 15 cents may not sound like much, but it adds up! If you enter a card number manually, however, the 15-cent fee still applies.)

In case you're wondering, the industry standard for credit-card processing is around 2.95%, plus 30-45 cents per transaction. Many banks will also charge you a hefty merchant-account application and/or setup fee, which Square does not.

Indeed, I recently set up my own Square merchant account, and my total out-of-pocket cost was zero. The free card-reader (which measures all of one inch square) arrived by mail -- again, free of charge -- in about a week. I plugged it in, fired up the free Square app (currently available for Android, iPhone, and iPad), and instantly processed my first payment.

The whole thing was ridiculously easy -- quite a contrast from the endless hoops I had to jump through years ago when I launched a magazine.

In other words, this is by far the fastest and easiest way to set up a merchant account I've ever seen, and it has the advantage of being completely portable. I still love the fact that the reader plugs into your headphone jack; it's not some bulky custom case the works only with select models.

Early last month I named Square one of the best business gadgets of 2010. Now that it's available for Android and costs even less per transaction, it's in the running for 2011 as well. My only complaint, and it's tiny, is that the reader itself has no diagram indicating which way to swipe (and face) the card.

But that's easy enough to remember after a few successful swipes. Ultimately, I can't recommend this thing highly enough for the cost-conscious business owner -- especially if you require the kind mobility a cash register won't allow.

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    Rick Broida, a technology writer for more than 20 years, is the author of more than a dozen books. In addition to writing CNET's The Cheapskate blog, he contributes to CNET's iPhone Atlas.

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