Square and Stripe both move money from your customer's card to your bank account, but they handle the journey differently
Square and Stripe are payment processors — they sit between your customer, their bank, your bank, and the card networks (Visa, Mastercard, Amex). When a customer pays you, neither Square nor Stripe holds the money. Instead, they route the transaction through the card networks, collect a fee, and deposit what's left into your business bank account.
The core difference is where they started: Square built its reputation on physical card readers you plug into a phone or tablet, while Stripe was built first for online payments on websites and apps. That history shapes how each one works today, even though both now handle in-person, online, and phone payments.
Understanding how each processor moves money helps you know when to expect deposits, what fees you're paying, and what happens if a customer disputes the charge or a card is declined.
Key Takeaways
- Square charges a flat percentage per transaction (2.6% + 10¢ for online, 2.7% + 30¢ for in-person card present) and deposits funds next business day or within two business days depending on your account type.
- Stripe charges 2.9% + 30¢ for online payments and 2.7% + 5¢ for in-person card-present transactions, with deposits rolling into your bank account every 1 to 2 business days by default.
- Both processors tokenize card data — they store a secure reference to the card instead of the actual card number — so your system never touches the raw card information.
- Disputes and chargebacks follow the same card network rules for both: the customer's bank investigates, and if the processor loses, the money comes back out of your account.
- Square's reader hardware is cheaper to start with, while Stripe's API is more flexible if you're building a custom payment experience into your own software.
How a transaction moves through Square's system
When a customer taps, inserts, or swipes a card on a Square reader, the reader encrypts the card data and sends it to Square's servers. Square never stores the full card number — instead, it creates a token, a unique reference that represents that card. Your business system receives the token, not the card data itself.
Square then routes the transaction to the card network (Visa, Mastercard, or Amex) and the customer's bank. The bank approves or declines the charge in seconds. If approved, Square holds the funds temporarily and deposits them into your linked bank account. For most Square accounts, deposits arrive the next business day. Some accounts receive deposits within two business days, depending on your history and account type.
Square's fee structure is straightforward: 2.6% + 10¢ for online payments, and 2.7% + 30¢ for in-person card-present transactions (card swiped or inserted in front of the customer). If a customer pays by phone, the rate is 3.5% + 15¢. These fees are deducted before the money lands in your account.
How a transaction moves through Stripe's system
Stripe's flow is similar but built around online and API-first payments. When a customer enters card details on your website or app, Stripe's code captures that data and sends it to Stripe's servers over an encrypted connection. Like Square, Stripe tokenizes the card — your website never sees the actual card number.
Stripe forwards the transaction to the card network and the customer's bank. Once approved, the funds sit in Stripe's account temporarily. By default, Stripe deposits funds into your bank account every 1 to 2 business days, though you can configure this to weekly or monthly if you prefer. Stripe also offers Instant Payouts (for a fee) if you need money faster.
Stripe's fees are 2.9% + 30¢ for online card payments and 2.7% + 5¢ for in-person card-present transactions using Stripe's card reader. International cards cost 2.9% + 30¢ plus an additional 1% for currency conversion if the card is issued outside the US.
Why both processors tokenize card data
Tokenization is a security requirement, not a choice. When Square or Stripe tokenizes a card, they replace the actual card number with a unique token that only works with that specific processor. Your business never stores the 16-digit card number, the expiration date, or the CVV. This means if someone hacks your database, they get tokens, not card numbers.
Tokens are also non-transferable — a token from Square cannot be used with Stripe, and vice versa. If you switch processors, you cannot reuse old tokens. You either need customers to enter their card again, or you use a service like Spreedly that can tokenize once and translate to multiple processors.
Both processors comply with PCI DSS (Payment Card Industry Data Security Standard), a set of rules that govern how card data is handled. By using their tokenization, your business avoids most PCI compliance burden — you don't have to audit your own servers for card data storage.
Deposits, holds, and when money actually reaches your bank
Neither Square nor Stripe deposits money instantly. Both hold funds for a period to cover chargebacks and disputes. Square's standard timeline is next business day for most accounts, though some see two-business-day holds. Stripe's default is 1 to 2 business days, with the option to receive payouts weekly or monthly.
Weekends and holidays extend the timeline. If a transaction settles on Friday evening, the deposit may not hit your bank until Monday or Tuesday. Some banks also take an extra day to post ACH transfers, so you might see the money 1 to 3 business days after the processor initiates the deposit.
Both processors reserve the right to hold funds longer if your account shows high risk — for example, if you have a spike in chargebacks or a sudden jump in transaction volume. Square and Stripe both publish their reserve policies in their terms of service, and both allow you to request a review if you believe a hold is unfair.
Disputes, chargebacks, and what happens when a customer says no
When a customer disputes a charge, their bank initiates a chargeback. The card network (Visa, Mastercard, Amex) notifies the processor, who notifies you. You then have a window — usually 7 to 10 days — to respond with evidence that the transaction was legitimate: order confirmation, shipping proof, delivery signature, or communication with the customer.
Square and Stripe both handle the chargeback process similarly. They forward your evidence to the card network, which decides whether the chargeback is valid. If the card network rules in your favor, the money stays in your account. If it rules against you, the processor removes the transaction amount from your account, plus a chargeback fee (typically $15 to $25 per chargeback). You also lose the original transaction fee.
Both processors track your chargeback rate. If it climbs above a certain threshold (usually 1% of transactions), they may freeze your account or require you to implement additional fraud prevention. Stripe publishes its chargeback thresholds in its terms; Square's vary by account type.
Fraud detection and declined transactions
Both Square and Stripe use machine learning to flag suspicious transactions before they settle. A transaction might be declined if the card is reported stolen, the CVV doesn't match, the billing address is wrong, or the purchase pattern looks unusual (a card suddenly used in a different country, for example).
When a transaction is declined, the customer sees an error message and the charge does not go through. No fee is charged for a declined transaction — the processor only takes a fee on successful charges. If a customer's card is declined, they can try a different card or contact their bank to ask why the charge was blocked.
Both processors also offer 3D Secure (also called Strong Customer Authentication), an extra verification step where the customer enters a code sent to their phone or email. This reduces fraud and chargebacks but can also increase the number of transactions that fail because customers abandon the extra step.
Frequently Asked Questions
Can I use Square and Stripe at the same time?
Yes. Many businesses use both — Square for in-person payments at a physical location and Stripe for online orders on a website, for example. Each processor maintains its own account and deposits to your bank account separately. You will receive two sets of statements and pay fees to both, so compare the total cost before deciding to run both simultaneously.
What happens if my bank account information changes?
You must update your bank account details in your Square or Stripe dashboard. If you don't, deposits will fail and funds will be held in your processor account until you provide a valid account. Both processors allow you to update this information in your settings without interrupting service.
Do Square and Stripe protect me if a customer claims they never received their order?
Not automatically. Both processors handle chargebacks according to card network rules, which means you need proof of delivery or a digital receipt. If you ship a physical item, use a carrier that provides tracking and signature confirmation. For digital goods, keep records of the download link or access grant. Without proof, the chargeback will likely be ruled in the customer's favor.
Why does my deposit sometimes split across multiple transfers?
Both processors batch transactions and may split deposits if you have multiple payment sources (in-person and online, for example) or if you hit a daily deposit limit. Some accounts also receive separate deposits for refunds or adjustments. Check your processor's dashboard to see the breakdown of each deposit.
Can I get my money faster than the standard deposit timeline?
Square offers expedited deposits for an additional fee, though this is not widely advertised. Stripe offers Instant Payouts, which deposits funds within minutes for a 1.5% fee per payout. Both options cost more than standard deposits, so weigh whether the speed is worth the extra expense.