New flat rate signals need to take Square seriously

Square Inc. continued its aggressive entry into the payments world when it introduced a monthly flat processing fee for small businesses Aug. 16, 2012. Square said merchants who process up to $250,000 in card transactions a year can now choose a flat monthly processing fee of $250 with no additional fees or contracts. Merchants will still have the option of continuing to pay a fee of 2.75 percent of every transaction instead.

Square said its new flat monthly fee is the first pricing option that gives small businesses a lower processing fee than bigger merchants.

"For 62 years, merchants have suffered complicated, expensive fees," Jack Dorsey, Square Chief Executive Officer and founder, said. "Square is the first company to rethink electronic payment pricing with the merchant in mind. We are giving merchants affordable, predictable pricing. With one monthly price, merchants know that the sales they've processed in a day is the same amount deposited in the bank."

The new pricing comes just a week after Square revealed that Starbucks Corp. invested $25 million in Square, and the coffee company will use Square technology to process card transactions in its network of 7,000 stores.

Mobile payment consultant perspective

Todd Ablowitz, founder and President of the global electronic and mobile payment consulting firm Double Diamond Group LLC, said Square's new pricing and the Starbucks partnership show Square should be taken seriously as a competitor in the payments industry.

"This is the signal that Square is not just about the micro-merchants they were going after," he said. "They are interested in that sweet spot between the micro-merchant and the huge retailer in the level 2 and level 3 tier where the acquiring industry traditionally is."

Ablowitz noted Square is willing to disrupt pricing and disrupt technology to make a space for itself in payments. He added that ISOs will have to give merchants new reasons to continue to use their services, and offering better service is one way ISOs can compete. However, he pointed out that the best service is removing the need to get service. "The best way to do that is to remove the need for services at all," he said. "Square is doing that."

The consultant believes it is time for the payments industry to take Square seriously as a competitor. "I wonder how much longer the non-believers can keep dismissing it when it keeps working?" he asked.

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