Square Adjusting Pricing Structure for Credit Card Transactions

Over the past several years, small business owners and their customers have become well aware of the FinTech company Square. Initially known for their card readers that turned cell phones into cash registers, the company’s point of sale products have now become ubiquitous at coffee shops, restaurants, and other independent retailers. Unforunately many of these merchants may soon see their profits dwindle as Square has announced a major change to their credit card transaction fees.

Last week Square announced that it would be adjusting its pricing structure for credit card transactions. Previously most transactions incurred a flat 2.75% fee that would be deducted from the merchants’ payout. Now the rate will drop to 2.6% but a 10¢ per transaction fee will also be added. These changes are effective immediately for new customers but the updated structure will roll out to all users on November 1st.

As Sprudge points out, this structure is particularly impactful for businesses that traffic in smaller transactions. For example, while a $5 purchase currently results in a 14¢ fee, that price will increase to 23¢. In fact, in order for a business to come out ahead under the new terms, the transaction would need to be larger than $66.67.

Defending their decision in a blog post, Square notes some of the benefits their customers enjoy when compared to other card processing option. These include charging one rate for all credit cards as opposed to some processors that raise fees for rewards cards. Square also boasts that they have no startup fees, statement fees, refund fees, chargeback fees, etc.

Despite that, some small businesses owners are obviously unhappy with the change. Among them is coffee shop owner Maxwell Mooney who told Sprudge, “Square’s business was built on [specialty coffee shops]… They were the first ones to really listen to what we needed. But now that they’ve extracted every bit of social capital they needed out of us, they are directly targeting our businesses that have high transactions and low ticket values by introducing this horrendous new pricing structure.” He added, “We’ve already paid them $14k this year alone in fees as a single shop… I’m forecasting that under the current pricing model, we’ll be at $19,400 in fees by the end of the year.” In response Mooney has created a petition for other small business owners to voice their opinion on the matter.

Given Square’s popularity with small businesses — and especially those with low average transactions — this new pricing structure is sure to sting. In turn it wouldn’t be surprising if some merchants are forced to pass on these additional costs to their customers. While it’s not an ideal situation, hopefully business owners will be able to weather the disruption and continue to prosper.


Also published on Medium.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

Marqeta Expands Credit Program with New APIs and More

A FinTech that specializes in creating credit card experiences is rolling out some new features. This week, Marqeta announced what it calls a "significant expansion" of its credit platform. This includes more than 40 new credit APIs that will further help clients craft and launch their own credit card products. Additionally, the company notes an updated intuitive dashboard. Using this platform, businesses can create unique card options that can not...

PayPal Launches Small Business Credit Card with Flat 2% Cashback

The popular platform PayPal is rolling out a new product built specifically for small businesses. Today, the FinTech announced the launch of The PayPal Business Cashback Mastercard. The new card will be issued by WebBank and marks the first time PayPal has offered a business credit card. With the PayPal Business Cashback card, business owners will be able to earn 2% cashback on all purchases. This earning rate is not...

Wells Fargo Unveils New Autograph Rewards Visa Card

A new rewards credit card is on the way from Wells Fargo. Today, the bank introduced its Autograph card, which expands the company's refreshed card portfolio. In terms of rewards, the Wells Fargo Autograph Card will earn 3 points per dollar spent in a number of categories. These include restaurants, travel and transit, gas stations, select streaming services, and phone plans. All other purchases will earn 1x points. Beyond the...