Honestly though, it feels to me like the financial industry has a lot to lose in this aspect as well.
If this system gets a lot of traction, financial institutions (such as Visa and Mastercard) suddenly open themselves up to quite a bit of new competitors, or don't they?
Disclaimer: I'm not from the US, not too familiar with the US system
This may be a dumb question, as I'm not very familiar with how these things work. Why do they charge less when the transaction is a physical swipe 2.75% vs 3.5% + 15¢ if you enter numbers manually? Does it actually cost Square less when you swipe? If not, what is the idea behind this encouragement of physical swipe?
Is this verifiable? Is there extra information on your magnetic strip? Could you not just push the same signal as the credit card numbers into the iphone's microphone jack?
You can always lie and send the code saying it's a swiped transaction without swiping a card. The risk there is losing the ability to ever accept credit cards for the rest of your life. If you violate a policy like that, you're added to the Terminated Merchant File. Not only is the business's information placed in the file, but the names and social security numbers of every principal of the business. MAPs will check the list before approving a new account. None of the business's owners will be able to accept credit cards again, even if they form new companies.
If you have the card physically in hand then there is less risk that the transaction is fraudulent (for a start, the card holder is presumably present)
Yes it does cost them a lot less. The biggest expense Square faces is the interchange rate that it must pay to Visa/MC and they are much lower for swiped transactions.
Interchange (set by Visa/Mastercard) is different if swiped. The reason is simple - much lower chance of fraud if swiped (much easier to steal numbers without someone knowing than stealing the physical card)
This is a gamechanger if your transaction price is lower than $5.45 (EDIT: the tipping point where the 2.75% accounts for a larger portion of the fees than the $0.15). The further above this price you go, the more negligible the $0.15 savings per transaction becomes (compared to having a lower % of the total transaction).
For eg. I sell a service (in the offline world) at $50 and avg about 9-10 sales per day. With the removal of the transaction fee, I would save about $1.50 per day. With a lower % of the total transaction, say 1.75%, I'd save about $7 a day.
What about an option for business owners to pay a transaction fee but get charged a lower % of the total transaction?
I think your math is a bit off... How did you come up with $5.45?
Play with different scenarios - for smaller merchants with low tickets (<$15) Square can make a lot of sense:
http://feefighters.com/square-calculator
$5.45 is the tipping point where the 2.75% accounts for a larger portion of the fees than the $0.15. (EDIT: added to original comment)
There are merchants who do a small # of transactions a day w/ each transaction being significantly higher than $5.45. For these merchants, dropping the per fee transaction results in negligible savings. A lower % is what matters to them.
Basically, Square is great. It'd be even better if they offered another option.
I can't say I speak for Square and I definitely don't know the details of their contacts with the credit card processors, but 2.75% is probably limited by what they get charged to process the credit cards. I would hazard a guess that they got between 2 and 2.5% and are skimming the other .25 - .75% off the top for themselves.
My father in law runs a small business and has shopped around for credit card processing in the past. He has a deal around 2% at the moment. If you are diligent about shopping around and being part of merchant groups and such, 2-2.5% is doable. If you are not diligent, a business will probably get 2.5-3% per transaction. If the business is huge (national chains) with lots of negotiating leverage, they can do even better. Mind you, this number off the top of my head are ballparked from anecdotal experience.
My guess is Square negotiated a percentage when they started. They have since proven their business and are processing enough transactions that they were able to renegotiate a better deal. Then they passed on the savings. I am sure they would like to drop to 1.75% if they could, they still have to pay the credit card processors and make some money. But that is all conjecture.
I got this one through Charles Schwab Bank. I'm not sure if they're still offering it, but they definitely still offer a debit card that reimburses 100% of all ATM fees.
This is absolutely huge. Having gone through the suffering of getting a merchant account recently, the amount of subterfuge, hidden fees, etc in the industry is staggering.
If Square acts as a gateway and merchant account with a flat, easy fee at pricing comparable to PayPal, they could make a big impact in the industry.
One of the blockers to launching my side-startup is the financial investment required to form the business and setup a merchant account. Money is tight for me, and I'd like to keep my costs to a minimum until there is some positive cashflow.
If Square offered an API, I could launch and start accepting money now, holding off on the business formation beyond sole-proprietorship until paying customers have validated my idea. Hell, they can keep the extra $0.15 for that.
So what's stopping Square from doing that? Could they build that out, or are they blocked by, e.g., regulations? (I know nothing about operating a payment gateway)
It's obvious that building an API is easier than 1) building and shipping physical devices that work well enough to qualify for card present transactions and 2) obviating the need for a merchant account (only PayPal really gets you there, although Amazon Payments and Google Checkout kinda sorta do).
Square decided to do the hard stuff first. And they pulled it off! That's what's so amazing about this company. I just hope that when they build their API that they do a PCI compliant vault that adheres to the Data Portability Standard. (Or, at the least, integrate with Recurly, who could handle the subscription logic and provide the PCI compliant vault.) And, of course, their chargeback management processes need to not suck.
If they do, there would be no reason to ever, ever pick anything other than Square for any side project all the way up to a fairly large (>$100K/month) web app.
It looks like an API is on the way, as one of their roadmap items. It should be no surprise that they're going to do an API, given that their CEO is the creator of Twitter. Twitter is basically the textbook example of explosive growth due to API usage.
I'd really love to know what the ETA is on a webservice API, even if it's just a rough ballpark. I sent them an email asking about it, hopefully they'll be able to provide further details.
Much of what I do at my day job involves development of our enterprise eCommerce platform. We've had our share of PayPal issues in the past, and I'm pretty set against using them at this point.
[Edit] If it came down to it, I might consider an approach like Lanyrd: launch with a donate button, and all donors get special perks and some extra free time when it's time to roll out a proper payment system.
> The $1 limit on credit cards is annoying if you want to sell something at $0.99 though.
Why do you think selling something for $0.99 is legitimate? I know it's common, but it is the practice of confusing the buyer "Oh, it's just 90 cents" when they are actually paying a dollar.
I would be extremely happy if Square (or for that matter, everyone) would only let you charge (say) at 10 cents increment for prices up to $5, at 50 cent increments up to $50, and at $5 increments above $100.
The merchant should actually have to pay for it (to the tune of $4.99) if they advertise a product at "less than $100". They shouldn't be able to charge $99.99.
There's nothing confusing or deceptive about this practice. The price is right there. Why would someone interpret something clearly advertised as $0.99 instead as costing $0.90? The reason merchants do this is because of different emotional reactions and buying behavior.
Whether or not it's effective for what you're selling or the type of people you're selling to is another question but it's a legitimate practice as far as I'm concerned.
> There's nothing confusing or deceptive about this practice.
This is a matter of opinion, of course, but in my opinion, it is deceptive.
The only reason _anyone_ is doing it is that it has been shown time and again that mentally $4.99 registers closer to $4 than to $5 (and $199.99 registers closer to $150 than to $200).
It doesn't register that way with me, because I trained myself to ignore it - I grew up in another country, where this practice was not widespread while I was growing up. When it started appearing, most people trained themselves to ignore it, but the younger generations are vulnerable to it.
Now that I am living in the US, I see that most people my age are also vulnerable to it.
Furthermore, in that country I grew up in, the law says that any advertised price must be: (a) inclusive of all taxes, charges etc. (that is, in a cash or credit transaction for the item advertised, the charge must never be more than the advertised price under any circumstance), and (b) in the same font/style/weight and at least 20% larger than any other descriptive price of the item (before tax, finance charges, etc).
Do you consider advertising a $1 27" television with a super small fine print saying "+$900 shipping, handling, state tax; included even if you pick up in store" false? I do, and I think it's in the same class.
All the info is there in both cases, and both cases are designed to leave the impression of a lower price than the item really costs.
The big reason a lot of stores do this is so that, if you pay cash (highly likely if item is $0.99), the cashier will have to give you the one penny of change. This means he has to open the register and thus the transaction is logged. If he price is $1, you hand him the dollar and walk away, he pockets it. Basically it's a simple tool to have the customers police the employees. Most theft in retail is employees.
One of the main reasons I've been rooting for Durbin's interchange fee amendment to be implemented is because interchange fees stifle pricing innovation. For debit card transactions, the interchange fee is -- on average -- 1.8% . This goes to the bank, and becomes the bare minimum for swipe fees.
Assuming that the Fed goes ahead and implements their proposed rules, interchange fees will drop to less than $.12 for most debit transactions. Square and other progressive providers can pass these savings on, if they so choose.
The Durbin amendment is terrible for consumers though. If banks that issue debit cards can't make their money on interchange fees, then it will be harder and more expensive for consumers to have debit cards. If fewer people have debit cards, then this is ultimately not a net win for merchants.
Short version: price controls are still bad economics.
This is a bigger deal than it seems at first: until now, Square has only been competing with other card processors on simplicity. Now they're competing on price, too.
My point is that Square only makes sense for a merchant who:
1. Already has an iPhone or Android; and
2. Takes the order him or herself.
Reason #2 alone already excludes the huge majority of businesses. Inside that minority, reason #1 excludes small-size vendors who cannot afford a smart-phone.
Sure, Square has its place as a niche, but it's hardly revolutionary.
My first reaction was "what's 15 cents?" But a quick calculation shows how it can really add up for a small business operator. Example, 50 transactions per day, that's $7.50 saved per day. Just weekdays alone, that adds up to $150 per month. Nothing huge, but every bit helps.
15 cents is huge if you are only charging a few dollars per transaction. The Square reader is awesome for small merchants at farmer's markets and swap meets. Most of those transactions will probably be under $10.
Wait? Why didn't Square increase their fee to 30%? I hear that's all the rage!
P.S. Thank you Square! I will be (as always) recommending this to my family members who run their own business where a large portion of their revenue comes from trade show sales.
Saw the article, got excited. Read the news, felt even better. Read the FAQ and saw that it's not available in Canada. This would be ideal for so many people I know, ouch.
This is a substantial game-changer in this market. The sub-$15 merchants should use Square over a merchant account. My guess is that square is looking to build critical mass but is losing money at the lower end of the spectrum (quick math says on transactions below $6.83), unless they have managed to negotiate a deal with MC/Visa (unlikely).
This is a badass game-changer.
FeeFighters launched an updated calculator with Square's new pricing...
Check it out to see what makes sense at different price points http://feefighters.com/square-calculator
I just signed up so we can sell our software at conferences. It's not something I'd ever considered doing via cash, because very few people carry $100+ in their pocket. Our products sell for $139-$999; even if we discount for these events, it's still too much to consider it feasible.
You're assuming that people carry around $100 to spend on something.
The sweet spot of Square is people who are selling things that cost more than what is in most people's pockets at any given time, and want to be able to do it from anywhere.
My sister, her husband, and his brother are in a band. I recently went to one of their concerts. During a break, I mentioned Square, and showed them my reader. My sister handed me her phone, I installed the square app, registered an account for them and 5 minutes later they were taking credit card payments.
Anecdotally, they sell 10-12 more CDs at a show when they are able to take credit card payments.
Agreed. Ever go to a farmers market and run out of cash? That sucks. And Square is helping to fix that problem. Sure, some farmers might still prefer cash only (since the market entity usually already takes a cut off the top), but at least it gives farmers who aren't selling out of certain items the possibility of increasing their sales.
Other use cases??? Flea markets, artists, street vendors, school functions (fairs, car washes, etc.), fund-raising or charity things, paying a cover at a party or at an art/music venue, masseuses and the like, gambling debts and poker games... I could go on. One thing I'm curious about is whether Square forbids min charges or charge-ups the way credit cards do ("you owe me $100, but I don't want to pay the fee, so pay me ~$103 instead"). Not that they could really enforce it any better than credit card companies...
If I recall correctly, CC companies do not allow businesses to charge an extra fee to take card, but businesses are not forbidden from raising the base price and offering a cash discount. During my time in the US, I saw many gas stations showing a "CASH PRICE" next to the regular price.
I can confirm Visa does not allow you to charge a premium/pass on fees but a discount is allowed for cash and check. MasterCard, American Express and Discover let you charge any sort of fee basically. My employer does not accept Visa due to the terms (and it's really annoying - Visa is what all the banks in town issue).
My one feature request - payment only logins, so people in the field could take payments into a central account, but not manage that account.