Just Days After Its Debut, Square Changes Its Processing Fees

Square Inc., the new payment system from Twitter co-founder Jack Dorsey, has adjusted its merchant pricing less than three weeks after its debut. Merchants will pay more on card-present transactions under $100 and less on bigger sales compared with the original plan. Card-not-present transactions, however, will cost more until a sale is far into large-ticket territory. A Square spokesperson did not respond to a Digital Transactions News inquiry, but a posting on the Square Web site indicates that the pricing that came out the weekend of April 3 was the result of “beta testing” and apparently not final. Those rates were 2.9% for card-present (swiped) transactions, and 3.5% for card-not-present (key-entered) transactions (Digital Transactions News, April 5). The new rates are 2.75% plus 15 cents for card-present sales and 3.5% plus 15 cents for card-not-present transactions. “Early adopters of the Square application may have noticed a change to our card-processing fees recently,” says Square's posting. “You may have previously seen the card-processing fees for our beta testing. We are now happy to announce Square's official fees for accepting payment cards. We're constantly working to minimize our transaction fees and keep them upfront, transparent, and simple.” A date adjacent to the posting says April 14, though when Square actually made the change could not be confirmed. On a $25 card-present transaction, the merchant now pays 84 cents, up 15.5% from 73 cents under the beta pricing. Costs between the old and new plans are equal at $100. On a $200 card-present sale the merchant pays $5.65, down 15 cents or 2.6% from the test pricing. Key-entered transactions, however, will cost more under the new pricing until the transaction exceeds $3,000. A $25 sale would cost 88 cents under the old plan and $1.03 under the new one, an increase of 17.1%. Square is aiming itself at small, mobile merchants and person-to-person payments and will accept Visa, MasterCard, American Express, and Discover credit, debit and prepaid cards. George Peabody, director of the Emerging Technologies Advisory Service at Maynard, Mass.-based Mercator Advisory Group Inc., says Square might not be done with its price changes. “I wouldn't be surprised if we see more,” Peabody tells Digital Transactions News. “Given their proposition that they're assuming as the merchant of record for all of the Square users, they're charging very competitive processing rates. There's a lot that we don't know, but it's still got to be darn narrow margins for them.” By standing in for its merchant users, Square is emulating a model used by other alternative-payment systems, especially PayPal Inc. with some of its merchant offerings. Square also is eyeing the person-to-person payments market. The company took the payments world by surprise when it came out first with an application for Apple Inc.'s new iPad device instead of, as widely expected, one for Apple's iPhone smart phone. Many processors are turning the iPhone and its iPod touch cousin into portable payment terminals through new software applications and hardware. Square says on Apple's App Store that “iPhone/iPod touch version [is] coming soon.”