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Higher Transaction Costs with Square

At first glance Square dropping it’s long standing pricing appears beneficial to merchants. Long story short, it will benefit some, hurt others with much higher cost per transaction prices. This is also a sign Square is searching for avenues to generate greater profits. Common thought process would be, “great… a price reduction from 2.75% down to 2.60%. What’s 10 cents, no big deal.” This analogy is common thought process until the numbers and true affects are shown in black & white side by side at various average transaction levels. See illustrations below how this “price drop” affects various merchants based on average transaction sizes. Whether cards are debit or credit makes no difference under this illustration due to determining cost based on average transaction sizes. Average transaction size clearly drives costs of card processing.

Average Transaction       Added 10 cents Cost Effect          New Processing Cost                   Old Cost vs New Cost

$5                                           200 basis points = 2.00%               2.60% + 2.00% = 4.60%                  2.75%   vs   4.60%

$10                                         100 basis points = 1.00%               2.60% + 1.00% = 3.60%             2.75%    vs  3.60%            

$15                                         67 basis points   = 0.67%                2.60% + 0.67% = 3.27%                  2.75%    vs   3.27%

$20                                         50 basis points   = 0.50%                2.60% + 0.50% = 3.10%                  2.75%   vs   3.10%

$25                                         40 basis points  =  0.40%                2.60% + 0.40% = 3.00%                  2.75%   vs   3.00%

$30                                         33 basis points  =  0.33%                2.60% + 0.33% = 2.99%                  2.75%   vs   2.99%

$35                                         29 basis points  =  0.29%                2.60% + 0.29% = 2.89%                  2.75%   vs   2.89%

$40                                         25 basis points  =  0.25%                2.60% + 0.25% = 2.85%                  2.75%   vs   2.85%

$45                                         22 basis points  =  0.22%                2.60% + 0.22% = 2.82%                  2.75%   vs   2.82%

$50                                         20 basis points  =  0.20%                2.60% + 0.20% = 2.80%                  2.75%   vs   2.80%

$55                                         18 basis points  =  0.18%                2.60% + 0.18% = 2.78%                  2.75%   vs   2.78%

As you can see above if your average transaction is $55 or below this new pricing affects your costs.

Where does your organization fit in?

How does this new pricing plan affect your bottom line?