Square Changes Its Credit Card Processing Rate and Fees
Square has recently posted to its website an alert that its in-person tapped, dipped and swiped pricing structure will change from 2.75% to 2.60% + $0.10 per transaction for new clients as of September 24, 2019, and for all existing clients November 1, 2019.
Much of Square’s original appeal was primarily based on the fixed percentage charged to clients. When any disruptive company shies away from one of its main Unique Selling Propositions (USPs) and reverts to the industry standard, there is cause for concern.
When a Fee Reduction Isn’t a Reduction
In our opinion Square has perpetrated some sleight of hand here in their release:
Beginning November 1, 2019, we are changing the U.S. rate for tapped, dipped, and swiped transactions from 2.75% to 2.6% + 10¢. We are making this change to better align our rates with industry-wide transaction costs. Like all payment service providers, for every payment Square processes, Square has to pay a set of fees that are both a percentage of the transaction and a flat fee.
Most people will focus on the reduction from 2.75% to 2.60%. After all, when has a credit card processor ever voluntarily reduced its base rate? We can’t recall any example in our 12 years in the industry. This paragraph doesn’t clarify that the $0.10 is charged for each transaction, though it is referenced below. The additional $0.10 seems harmless enough, but what does it mean?
What does Square mean when they state that they want to “align their rates with industry-wide transaction costs?” To the average person, it sounds like Square wants to be more competitive and reduce its pricing. What it means is that Square believes it is undercharging their clients and wants to extract at least as much as its competitors their clients.
Let’s Run the Numbers
Ultimately, a change from 2.75% and $0 per transaction to 2.60% and $0.10 per transaction means that Square is trading a reduction of 0.15% for a $0.10 transaction fee. It would be a gamble if Square didn’t know the average sale run by clients across its entire portfolio. At what point would such a change in pricing structure cause Square to break even? It’s a simple calculation: $0.10 / .15%, which equals $66.67. That means that on every client transaction above $66.67, Square will lose money with its new pricing, and on every sale below $66.67, Square will make money. To make a move like this, Square must know that the average sale transacted on its platform is well below $66.67. The lower the average sale, the more money Square will make on each sale.
For comparison’s sake, let’s do the math for a few examples of different average customer sales, or average tickets, for 100% in-person transactions:
$10 average sale – At 2.75% your previous fee was 27.5 cents per sale. At 2.60% + $0.10 per transaction, your new fee will be 36 cents per sale. This is over a 30% fee increase! If a business runs $20k in sales per month at a $10 average customer sale, your Square fees will increase from $550 per month to $720 per month.
$25 average sale – At 2.75% your previous fee was 68.8 cents per sale. At 2.60% + $0.10 per transaction, your new fee will be 75 cents per sale. This calculates to about a 9% fee increase. If a business runs $20k in sales per month at a $25 average customer sale, your Square fees will increase from $550 per month to $600 per month.
$50 average sale – At 2.75% your previous fee was $1.375 per sale. At 2.60% + $0.10 per transaction, your new fee will be $1.40 per sale. This will be a 1.8% increase If a business runs $20k in sales per month at a $50 average customer sale, your Square fees will increase from $550 per month to $560 per month.
Should You Quit Processing with Square?
Square is an excellent company, and they certainly deserve to make a profit. They’ve had many unprofitable years, so they certainly are due for a price increase. Because Square is an aggregator rather than a regular credit card processor, some risks go along with choosing them as your provider. Each case is unique, and we recommend that anyone currently using or considering using Square should contact us for advice.
Don’t Take on the Credit Card Processors by Yourself
Since 2009, IdealCost.com has helped hundreds of companies nationwide reduce their merchant account fees through identifying and fixing hidden profit, overcharges, fake fees, and billing errors. Clients have saved $300-$20,000 per month on their credit card processing fees without going through the hassle of changing their processing vendor, bank, or equipment. Switching credit card processors should be a last resort, only reserved for funding delays, poor customer service, or technical difficulties. Before switching credit card processors, see if you qualify for IdealCost.com’s monthly savings program by uploading your most recent merchant statement for a free analysis. You’ll receive an estimate within 24 business hours.
If you are opening a new credit card processing account or must switch credit card processors due to funding delays, technical issues or customer service problems feel free to contact us for a free consultation. IdealCost.com can help secure the best terms and fees based on your specific needs.