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Study: For Small Businesses, Big-Name Mobile Payments Aren’t Always Best

June 5, 2013
Small Business
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As small businesses turn to mobile payments, they’re often drawn to the big names: PayPal Here and Square dominate the conversation. In fact, PayPal announced just this month that it would waive fees on PayPal Here and other devices through 2013.

But are the biggest really the best in the long run? While small business owners may be enticed by PayPal’s offer, the most common name in mobile is rarely the best option for small merchants.

NerdWallet crunched the numbers on 9 processors and plans to find the best mobile payment reader for any business, and found that unless you’re doing over $15,000 in monthly sales, your best option is probably a payment processor you haven’t heard of.

In a nutshell

Don’t just go for the big names! Small startups and tech companies can offer great value, particularly for merchants with low sales volume.

  • Breadcrumb by Groupon is best for merchants who either:
    • Key in many of their transactions,
    • Have many transactions over $400, OR
    • Do less than five figures or more than six figures in monthly sales AND
      • Have an average transaction amount over $17 and don’t take Amex, OR
      • Have an average transaction amount over $26
  • PayPal Here is best for merchants who:
    • Do less than five figures or more than six figures in monthly sales AND
      • Have an average transaction amount under $26 and take American Express OR
      • Have an average transaction amount under $17
  • Square is best for merchants who:
    • Do five or six digits in sales each month,
    • Have few transactions over $400, AND
    • Key in very few transactions

By the numbers

Here’s NerdWallet’s guide for choosing a mobile payment processor.

Monthly Sales
Transaction Amount Less than five figures 5-6 figures More than 6 figures
Less than $16.67 PayPal Here Square Subscription PayPal Here
$16.67-$25.86 and you take Amex PayPal Here Square Subscription PayPal Here
$16.67-$25.86 and you don’t take Amex Breadcrumb Square Subscription Breadcrumb
$25.86 -$400 Breadcrumb Square Subscription Breadcrumb
$400 and above Breadcrumb Breadcrumb Breadcrumb

If you key in many of your transactions, though, you’re better off with Breadcrumb. Their key-in rates are much lower than their competitors’.

A few other tips and tricks

  • Dwolla can be one of the best payment processors out there, charging nothing for transactions under $10 and just $0.25 per transaction over $10. But there’s a catch: it requires customers to have a Dwolla account linked to their bank account. Asking customers to sign up at the point of sale creates unnecessary friction. Dwolla is a good supplement: great if your customers are already signed up, but a hassle otherwise.
    • If the total volume of transactions over $10 exceeds $1,100 a month, however, Square’s $275 per month plan is ideal.
  • LevelUp also offers a variety of advertising campaigns for merchants. LevelUp charges a 40% fee on credit redeemed by customers on those campaigns, and provides reporting and analytics. Merchants that participate in both a customer acquisition and loyalty campaign can actually process their transactions interchange-free, making it ideal for growing businesses in tech-savvy areas.
  • Online donations offer more flexibility for nonprofits. Frendo, for example, charges no processing fee for bank account donations, while Visa credit cards have lower transaction fees for 501c(3)s.
  • American Express can be expensive. Groupon’s Breadcrumb payment system charges more for American Express cards, as does Bank of America’s Mobile Pay on Demand and Intuit GoPayment. There’s a reason why many small businesses refuse to take the helmeted soldier.

The bottom line: It pays to compare. Low-volume businesses benefit from programs with slightly higher variable rates and no transaction fees, while those with a small number of large transactions would prefer a lower rate and per-transaction fees.

Payment plans compared

NerdWallet analyzed nine different processors and payment plans:

Processor Non-Amex fee Amex fee Keyed-in transactions Monthly Fee
Breadcrumb by Groupon 1.80% + $0.15 2.3%-3.5%+$0-$0.15 2.30% + $0.15 $0
PayPal Here 2.7% 2.7% 3.5% + $0.15 $0
SumUp 2.75%* only accept Visa and MasterCard 2.75%
Intuit GoPayment* 2.7% (qualified)
3.7%+$0.15 (non-qualified)
2.89%-3.5% + $0.10-$0.15 3.7%+$0.15 $0
Intuit GoPayment** (subscription) 1.7% (qualified)
3.7% (non-qualified)
2.89%-3.5% + $0.10-$0.15 2.7% $12.95
Bank of America Mobile Pay on Demand 2.70% 2.30% to 3.50%, plus $0.00-$0.15 3.50% + $0.15 $0
Square 2.75% 2.75% 3.50% + $0.15 $0
Square (subscription) 0%
2.75% on transactions over $400 or volume over $250,000
3.50% + $0.15 $275
LevelUp 2% 2% 2% $0

*Qualified transactions include only debit and non-rewards credit cards; keyed-in transactions and most corporate, foreign and rewards credit cards are charged the non-qualified rate.

**With the subscription pricing, keyed-in transactions have a lower rate. Otherwise, the designations for qualified and non-qualified are the same.

We then calculated the merchant’s fees under various payment scenarios, taking into account:

  • The distribution between debit, rewards credit, and non-rewards credit card payment volume
  • American Express’ market share relative to Discover, Visa and MasterCard

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