Square vs. Stripe

Square is easy to use, with no startup fees or recurring costs, and transaction fees are lower


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Square (SQ) and Stripe have emerged as two popular payment processing services for small and growing businesses. Square focuses largely on in-person payments while Stripe was designed for online transactions. As the services have become widely used, their simple fixed-rate payment processing fees have drawn in big-name supporters, such as Starbucks (SBUX), to use and promote their systems. For investors and business owners, it’s important to understand how these companies operate to make smart financial decisions in the rapidly shifting payment processing industry.

Key Takeaways

  • Stripe and Square are payment processing companies for all types of businesses.
  • The companies are disruptors in the space, which has long been dominated by large banks.
  • Founded in 2009, Square is known for its adapters that plug into mobile-device phone jacks.
  • Stripe is predominantly used for online debit and credit card transactions, but also has API and business management capabilities
  • While Square raised money through an initial public offering in 2015, Stripe remains a private company.

Square Pros & Cons

  • Lower rates per transaction

  • Convenient payment processing adapters

  • Additional person-to-person payment platform

  • Heavy focus on in-person businesses

  • User reports of system freezing

How Square Works

Co-founded by Jack Dorsey, a founder of Twitter (TWTR), in 2009, Square began as a mobile payment processor for small businesses that operate on the go. The company initially set out to help make payments easier and became popular thanks to its free and convenient adapters that operate through a phone’s headphone jack, a flat rate of 2.6% plus a $0.10 processing fee per transaction, and no monthly recurring service fee.

Square has been widely adopted by mobile and brick-and-mortar businesses alike. To further extend its reach among the latter, Square released a physical Square Stand in May 2013 that transforms iPads into traditional cash registers.

The company has also built out its software suite to better handle diverse product sales from a predefined menu or inventory. Thought there have still been some reports of this system freezing. Later product additions include inventory management, appointment management, analytics, invoicing, online ordering, gift cards, and capital management tools.

In October 2013, Square launched Square Cash as a person-to-person payment platform. Square Cash was later renamed Cash App. The company had an initial public offering (IPO) in 2015 and raised $243 million, with shares trading on the New York Stock Exchange under the ticker symbol SQ. That same year, the firm launched Square Payroll, a tool for small businesses to process payrolls. In 2019, Square began offering an application programming interface (API) to allow merchants to customize the Square platform.

Stripe Pros & Cons

  • Can integrate a variety of online tools and plugins

  • Discounts for high-volume businesses

  • Additional point of sale payment platform

  • Higher rates per transaction

  • Greater fraud risk

How Stripe Works

What Square is to mobile payment processing, Stripe is to Internet payment processing. Stripe, which was founded in 2010 by two Irish entrepreneurs, charges 2.9% plus $0.30 per transaction with discounts available for high-volume clients. Like Square, Stripe doesn’t have any monthly service fees and only charges business owners when a payment is processed.

Stripe, which was designed with online developers in mind, makes it easy to integrate a variety of online payment processing tools and plugins through its API. Sites on common platforms like WordPress, Drupal, and Joomla can use Stripe for invoice payments, ticket sales, and physical goods sales, among other applications.

Stripe wasn't intended for in-person payments and focused on online transactions. These payments have a higher probability of fraud than in-person methods, which explains Stripe’s higher cost per transaction. However, in 2018, the firm launched a point of sale solution called Terminal, which provides credit and debit card readers that work with Stripe.

In 2021, Stripe raised $600 million putting the company's valuation at $95 billion. In contrast to Square, Stripe is still a private company.

Square vs. Stripe: Transaction Fees

Both companies target all businesses that do not want to pay monthly transaction fees and do not want to be burdened with expensive payment processing equipment or complex contracts. Both companies offer similar, automated direct deposits within a few days of processing each transaction, so clients will have fast access to cash after each payment takes place.

Square does still offer slightly lower costs, at a rate of 2.6% plus $0.10 per transaction, while Stripe charges a flat rate of 2.9% plus $0.30 per transaction. This difference in fees relates to the difference in products. Online payments have a greater risk for fraud than in-person transactions, meaning Stipe has increased costs when it comes to protecting against this possibility.

Square vs. Stripe: Point-of-Sale Comparison

Square was designed specifically for in-person, on-the-go transactions, using a payment processing adapter that acts as a card reader and can plug into phones, tablets and other devices. The company also offers some Internet payment processing options through its online platform Cash App. However, this is focused on person-to-person payments rather than online business transactions.

Stripe, on the other hand, was designed specifically to make processing Internet transactions easier. The company is able to bring together many different online processing tools and plugins to work for a variety of Internet-focused businesses. It also now offers an in-person payment tool, Terminal, but online payments still remain Stripe's main focus.

Square vs. Stripe: Payment Information

Another major difference between the two payment processors is how the payment information is acquired. Square is primarily used for in-person payments where the card is present and can be physically swiped through a card reader. In 2015 the company began offering an EMV chip reader. Prior to the launch of Terminal in 2018, Stripe was used primarily for Internet transactions where the card isn’t physically present.

Industry Impact

Square and Stripe are major disruptors in traditional payment processing, a space long dominated by large banks. Overturning the traditional monthly merchant account fees and transaction fees allows many more businesses to access credit and debit customers, further shifting the competitive landscape from traditional businesses to startups and growing small to medium-sized companies.

As these companies continue to innovate, consumers and business owners can expect further changes that will make payment processing easier and more accessible. As cash becomes less prevalent and consumers continue to shift towards plastic en masse, these electronic payment processing companies can be expected to grow and more competitors are likely to enter the space.

Final Verdict

For those businesses looking to simplify their in-person payment processing, Square is the best option. It has been in business since 2009 and offers adapters that turn any device, from a phone to a tablet, into a payment processing tool. The company also created a person-to-person payment platform called Cash App. In addition, Square's fees are lower, with a $0.10 charge per transaction and a flat fee of 2.6% compared to Stripe's $0.30 fee per transaction and 2.9% flat rate.

However, for online-only businesses, Stripe may be a better choice since it was designed to focus entirely on Internet payment processing.

Frequently Asked Questions

What Do Square and Stripe Offer?

Square and Stripe offer payment processing services. These services are specifically designed for use by small and growing businesses.

How Do Square and Stripe Work?

Square works, predominantly, through a small adapter that plugs into a cell phone or other device. It can process card payments and handle a wide range of product sales. There is a $0.10 processing fee per transaction and a flat rate charge of 2.6%.

Stripe, on the other hand, focuses on helping businesses more easily process online transactions. It also recently created Terminal, an on-site debit and credit card reader that works much like Square's device. There is a $0.30 fee per transaction and a 2.9% flat rate charge.

Who Should Use Square vs. Stripe?

Square is geared toward in-person transactions so it is the best option for business owners who need to process payments on the go. Stripe focuses mainly on Internet transactions, therefore it's the best option for those who conduct the majority of their business digitally.


Investopedia examined multiple data points from both companies, such as fees, ease of use, company history, and intended purpose of their services, to make this comparison. In addition, we examined each company's role and impact on the banking and payment processing industry overall.

Article Sources
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  1. Square Seller Community. "Crashing and Freezing on Square Register."