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?

Square Drops Longstanding 2.75% POS Pricing for a Percentage-Plus-Fee Plan

By Jim Daly

Merchant processor Square Inc. on Nov. 1 will drop its longstanding 2.75% point-of-sale rate for a new pricing plan of 2.6% plus 10 cents.

Based on recent U.S. purchase dollar- and transaction-volume statistics from the bank card networks, Digital Transactions News calculates the new pricing plan will generate about 1% less for Square on the average card-present credit transaction but nearly 4% more on an average debit purchase. Debit now accounts for 66% of U.S. bank card purchase transactions.

The new pricing plan affects dipped, swiped and contactless purchases on the Square POS app. San Francisco-based Square announced the coming changes in a post on its Web site.

Since Square launched a decade ago, it has made transparent pricing a point of differentiation from other merchant acquirers, and the post gives an explanation to its sellers (merchants) about why the company is going from a straight percentage to a percentage-plus-fee model. The 2.75% rate dates back to Square’s earliest days.

“Like many payment-service providers and processors industrywide, we pay both fixed and variable fees to banks and credit card companies to process payments on your behalf,” the post says. “We’ve long had a fixed fee as part of the card-not-present rate (3.5% + 10¢ for manually keyed-in payments), but have not had a fixed fee in our card-present rate (2.75% for tapped, dipped, or swiped transactions). As a result, Square often incurs costs that exceed the 2.75% rate. The fixed fee of 10¢ helps to offset those costs, as well as allows us to reduce the standard variable processing rate to 2.6% per transaction.”

In an e-mail to Digital Transactions News, a Square spokesperson said “we are making this change to better align our rates with industrywide transaction costs. Our card-not-present pricing has always reflected this structure, and now our card-present pricing will as well. We are committed to continuing to deliver accessible, easy-to-use tools that help sellers of all sizes start, run, and grow their business.”

Based on Mastercard/Visa purchase transactions and dollar volumes for the second quarter, the average U.S. credit card sale is about $89. Thus, Square’s new price schedule will generate $2.414 in gross revenue on such a purchase, down 1.4% from $2.448 on a similar purchase under the old pricing. Revenue from the $40 average U.S. debit purchase will increase 3.6% to $1.14 from the previous $1.10.

The post lists a dozen services for which Square does not charge, including PCI compliance, refunds, and chargeback and dispute resolution services.

View the full article at www.digitaltransactions.net

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Don Bregin

Don is an industry professional with 30+ years of experience in finance and accounting, risk management, general business management, credit card processing and electronic payments.

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