Is Square Becoming Just Another Run-of-the-Mill Payment Processing Company?

October 5, 2019

October 5, 2019

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When Square first launched, it was a new kind of payment processing company. There were a lot of things that made Square stand out. For one, they offered affordable and easy to use all-in-one payment gateway, POS hardware, credit card processing solutions for merchants. For small business owners, their service and hardware made it incredibly […]

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When Square first launched, it was a new kind of payment processing company. There were a lot of things that made Square stand out. For one, they offered affordable and easy to use all-in-one payment gateway, POS hardware, credit card processing solutions for merchants. For small business owners, their service and hardware made it incredibly easy to get set up and accepting payments.

The Magic of Square: The Fee Structure

Another thing that made the Square POS different was the Square fee structure. Square charged merchants an incredibly straightforward 2.75% fee, regardless of the transaction size. This model made the fee calculation process easy for merchants, with no need to figure out interchange rates and other details. That meant that if you were primarily dealing with small transactions, Square was an amazing deal. However, the company has been losing money on this policy. Larger transactions were worth their while, but for small ones, the 2.75% fee proved to be too low. With lots of merchants processing transactions at these lower amounts, Square has now decided to update their fee structure. This new structure comes into effect on November 1st, 2019.

What Happens Next

The result of the change is that Square will became a lot more like any another run-of-the-mill payment processing and point of sale company. Their new fee structure will be a 2.6% fee for every transaction, plus $0.10. With this change, by their own admission, they’ll be bringing their fee structure more in line with “industry standards.” In other words, the great deal they once offered is ending. However, Square will still have lots of great aspects, and plenty to offer large and small business owners alike. Features like contactless payment, an easy to set up Square terminal, an integrated ecommerce platform, an included merchant account, payroll features, and the ability to accept mobile payments with an app makes it still a great choice for many businesses. However, their new fee structure will hit hardest on small businesses that mainly sell low-cost products or services. For a convenience store selling a pack of gum, the new fee structure will cost a lot more money.

Is Square’s New Fee Structure Worth It?

Was Square’s original model too good to be true? Perhaps. It isn’t clear if Square knew they wouldn’t be able to continue to grow with their original fee structure, and had planned all along to raise their prices after gaining market traction, or if they had hoped to be able to continue offering their original rates indefinitely. Whatever their intent, their profit on each transaction recently declined from 1.08% to 1.06%, and probably would have continued to decline under the current model. It may have been a case of being a victim of their own success: with a lot of Square’s growth being due to an increase in larger sellers who can offer lower pricing than smaller ones, Square found that its current fee structure was simply throwing away too much money. With almost 50% of their accounts still centered around smaller merchants, however, Square can now recoup more lost revenue opportunities with their new pricing model. With the new model, merchants who use Square as a payment gateway will soon be paying more on each transaction they process.

Final Thoughts

Whether or not Square is still a good deal, even with their new payment structure, probably depends on what kinds of transactions you process most. They are still competitive with other credit card processing and POS platforms, and they still offer great software, a solid e-commerce platform, swipe card readers, Square registers, and other hardware, and excellent customer service. However, their new fee structure is likely to affect your bottom line. If you can find another service with similar features and lower fees, go for it! For many merchants who started with Square, however, it might be too much time and expense to start from scratch with a new merchant services provider. In addition, other providers may have fees that are just as high as what Square charges, or may have hidden fees. It’s up to you to do the math on the transaction fees and other aspects of the pricing structure, compare features, compare hardware, and make sure Square point of sale is still right for you.  

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