Tuesday, October 8, 2019
Square, which got its start offering cut-rate credit card processing for small merchants, may be losing its allure. The financial technology firm is moving to a pricing scheme that more closely mirrors traditional card acceptance fees, and it’s drawing the ire of representatives of smaller merchants in the process.
Square disclosed in late September that it is dropping its flat rate charge of 2.75 percent for tapped, dipped or swiped transactions, and will now charge 2.6 percent plus 10 cents per transaction. The new fee structure takes effect immediately for new clients and on Nov. 1, 2019 for existing merchants.
The change is expected to usher in huge price hikes for merchants that use Square to process small-ticket items. A coffee shop ringing up a $5 cappuccino, for example, will now have to pay 23 cents to run that transaction through a Square terminal, compared to 14 cents under Square’s original pricing structure. That works out to a 67 percent price hike.
On the other hand, merchants with large-ticket items – $66.66 and above – will see their cost of card acceptance fall under the new Square fee structure.
“We are making this change to better align our rates with industrywide transaction costs,” Square officials told Bloomberg News. Square added that its costs often exceeded the 2.75 percent rate it had been charging, and the fixed, 10 cents per transaction will help to better offset costs. In addition, the new pricing structure “takes into account the full cost of operating our business and all market forces,” the company stated.
News of the fee increase comes on the heels of a less than stellar profit report from Square. The company’s profit margin fell to 1.06 percent in the second quarter of 2019, from 1.08 percent in the second quarter of 2018.
The coffee news site Sprudge speculated that the pricing change will almost certainly help Square increase its margin among smaller merchants, but for patrons of independent coffee shops and other small businesses, two possible scenarios are likely: either the cost of products will increase, or these businesses will find it more difficult to stay afloat, Sprudge stated.
James Shepherd, founder and CEO of CCSales Pro, said the change in pricing creates an opportunity for merchant level salespeople (MLSs) to solicit business from Square merchants. Even when the “core promise” of simple, flat pricing was in effect, that was not always the case.
“You may be surprised to find that the Square register, which is what most physical location merchants are using, is not 2.75 percent. Neither are any of their solutions after the recent price increase,” he said. “Complications such as a per-item fee and non-swipe fees have been added. These changes not only undermine their claim of simple flat-rate pricing. They also remove the advantage Square had with small-ticket merchants.”
Then there is Square’s lack of merchant training and support. “There are no [Square] representatives in the field to train merchants in using the technology,” Shepherd noted. MLSs can compete by providing POS systems that do more than just card acceptance and by offering to work with merchants to get the most for their investments. “Show the merchant a system like Clover of Poynt, and explain specific benefits that you would help them to implement,” Shepherd advised.
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