
Square introduces monthly pricing - MIT_Hacker
https://squareup.com/pricing/per-month
======
abalone
Kudos for the "ballsy" simplicity. I don't know if people appreciate how big
of a risk this is for Square.

Square is placing a big bet on the numbers working out in the long run. If
their analysis is just a little bit wrong, they're going to burn through
millions of dollars in losses.

Why? Because the 1.3% "sweet spot" is almost certainly well below their cost.
"Interchange" is the wholesale rate that processors like Square pay to card
networks. Visa & Mastercard publish their rates and as far as anyone knows
they're not negotiable. According to FeeFighters which did a lot of public
research around rates, the average interchange rate for a typical card mix is:

1.58% + $0.13 per transaction

Unless they've figured out a way around standard interchange, this is Square's
approximate cost.

Remix that into a 2.75% flat rate and you'll find that Square already charges
less than that cost for purchases below ~$6 (even considering that there's a
special, lower small ticket interchange rate). And now for businesses that hit
the sweet spot around $17-21K/month, Square's probably also taking a loss.

No doubt Square is betting on a mix of merchants that fall in the profitable
peaks between those troughs. All in the name of simplicity.

Sources: <http://feefighters.com/square-calculator>
[http://usa.visa.com/merchants/operations/interchange_rates.h...](http://usa.visa.com/merchants/operations/interchange_rates.html)

~~~
EvanKelly
Are these numbers truly non-negotiable? If that's the case, what's the
incentive for a company like Costco to have exclusivity with American Express
(who normally charges a higher than average fee)?

I've always assumed (maybe erroneously) that Costco received a lower
processing fee in exchange for the exclusivity which pushes more transactions.

~~~
shuzchen
I don't disagree (in fact, I think it probably is the case that they get a
lower rate for being exclusive), but just to add: Costco also has a
partnership with amex issuing their Costco branded credit cards (which isn't a
store only card, it works out in the wild), and Costco gets some portion of
the revenue whenever that card is used. Restricting you to amex also has a
benefit of increasing the likely-hood that consumers will sign up for the
Costco cc.

~~~
EvanKelly
That makes a lot of sense, and it's also clear that transparency regarding
rates isn't exactly in the vendor or the credit card companies' best interest.

------
stevencorona
There are limits (it's still _revolutionary_ for an industry that loves to
nickle & dime, though)

Up to $400 per any single transaction and up to $250,000 in total transactions
per year—or approximately $21,000 per month. Swiped transactions over these
limits simply cost 2.75% per swipe.

$21,000 * .0275 = $577.5 in fees.

I would love to see more Square adoption. In Charleston, lots of cart vendors
(hot dogs, popsicles) use Square, as well as many vendors at the farmers
market.

~~~
phjohnst
Don't forget the up-front fee of $275, so max savings are more like $300.
Break-even is $10k per month.

It's a nice idea, though I don't know how many companies are in the
$10k-$21k/month revenue bucket that would see a benefit. All companies
processing over $250k per year can save a max of $300 per month by signing up
to the fixed rate plan and then paying the normal fee thereafter.

The new fee band gives savings to those processing more than ~$10k/month, but
provides no savings for smaller users.

~~~
charlesju
It's not strictly for the band of $10k to $21k per month. It's anyone that
makes more than $10k a month because additional swipes after $21k are the same
as the opportunity cost.

This is a great deal for any company making more than $10k a day, or about
$500 assuming 20 working days a month. It's starting to sound like a decent
deal that should appeal to a lot of small businesses.

~~~
sharth
Unless they can find cheaper than 2.75% elsewhere.

~~~
rdl
Which is basically anyone for Visa/MC, and even some people for Amex. Once
you're reliably processing $20k/mo, your options for merchant accounts expand
a fair bit.

I think what this does is retain existing Square merchants a bit longer --
ones who grew from $0 to $8k or so, are now evaluating real merchant accounts.
Inertia, other advantages of Square (PWS), etc. might keep those merchants
another year or two, getting them up to around $20k/mo revenue, and then
Square might come out with something new for them (a Square-specific payment
instrument? Pre-loaded cards using ACH per merchant or across Square with 0%
fee?)

------
lordlarm
The next step for Square, in my opinion, is developing a reader for the EMV
cards (<http://en.wikipedia.org/wiki/EMV>), which is hugely dominant in Europe
- and also more secure. See a this useful Quora post, from 12 months ago:
[http://www.quora.com/How-does-Square-intend-to-translate-
the...](http://www.quora.com/How-does-Square-intend-to-translate-their-
business-to-UK-Europe-where-the-Chip-and-Pin-process-is-the-standard)

Going international, or making such a reader, opens up an enormous market and
the potential is huge.

I'm waiting, excited, as I see Square disrupting this business. As tibbon
asked earlier in the comments: "why has no one disrupted this market before".
I'll think it is a good question, I have no answer, but find it is about time.
Ref. <http://news.ycombinator.com/item?id=4392763>

Also, an interesting firm from Sweden, which is worth following now is iZettle
(<https://www.izettle.com/>) which has developed an EMV reader. Noticably
their, "how much do I pay to use iZettle" page is intresting.
[http://help.izettle.com/customer/en_us/portal/articles/53095...](http://help.izettle.com/customer/en_us/portal/articles/530952-how-
much-do-i-pay-to-use-izettle-#)

~~~
buro9
iZettle would not get a lot of adoption in it's current form.

For merchants the biggest issue around chip and pin cards is this:

If the merchant takes a signature, then they are liable for loss incurred by
bad transactions.

Which simply means, very few merchant accept signatures and only in
exceptional circumstances.

So any EMV reader in Europe, to achieve adoption by merchants, will need to
offer a PIN entry method.

However here is the other part of the deal.

A PIN entry keypad must be secure. In fact, the keys themselves cannot be
implemented in software that exposes the key presses to any other software.

Usually this means that the hardware keyboard itself doesn't send keypresses
to the OS, it is a dedicated piece of hardware (with screen) that only
transmits the hash of the PIN to any external system.

In effect, Square would need to re-design their device to include a PIN entry
keypad and screen.

~~~
njs12345
Of course, all of this is absurd security theater, given that chip-and-PIN is
already broken:
[http://www.cl.cam.ac.uk/~sjm217/papers/oakland10chipbroken.p...](http://www.cl.cam.ac.uk/~sjm217/papers/oakland10chipbroken.pdf)

~~~
buro9
I'm not disagreeing at all.

But then the security theatre results in a change of liability that merchants
are unwilling to accept, then you are in a position where to get adoption you
have to prevent that shift in liability.

------
tibbon
So two things that I've never understood.

1) Why is it just now that someone's actually providing competitive service in
this space? We've had people selling CC machines and service for years...

2) Where (in general, not just with Square) does the money actually go? It
seems that prior to Square announcing this, getting under 2-3% or so was
nearly impossible. On the scale of the US economy alone, that's HUGE money.
What are the fixed per-transactions costs? Its just pushing around bits in a
system right?

~~~
gsibble
Hi tibbon!

To answer 1:

Almost all of the fee structure goes to players much higher up the chain than
Square. The networks take a chunk, but in fact most of the fee goes to the
originating bank (the bank that issued the card). This is a major source of
income for most banks these days and can generally be arbitrarily set by them
since merchants not only have no other options except cash, but also cannot
tell what their interchange fee would be prior to accepting the charge (except
with a flat rate system like Square). So, because processors (Square) do not
control the rates, there is no way for entrants to create any real competition
around them.

Not to mention that 2.75% is actually kind of high as an overall average and
that the rumor is that Square actually operates these fees at a loss
currently.

Now, as for 2:

As I said above, most of the fees go to the bank that issued the card
(1.5-2.0%), another part goes to the network (VISA/MC), and the rest to the
processor (Square). This is indeed HUGE money. It is literally hundreds of
billions of dollars of revenue and profit controlled by a handful of banks. A
high-ranking employee at a major US bank once told me that if you break down
their corporate profits by division, interchange fees alone account for a
significant portion of the entire bank's profits!

So, suffice it to say, if we (the entrepreneurial world) can figure out how to
create an interchange free system, its inventors could possibly be some of the
wealthiest people in history. I happen to have a strong business plan along
these lines and would love to share/discuss it with anyone interested. Let me
know!

edit: typo

~~~
Unoeufisenough
Actually most (depending on the card, the great majority) of those fees end up
going right back to the cardholder. Those fees are what pays for all those
airline points, cash-back discounts, guarantees and liability protections,
purchase insurance etc.

Another way of thinking about credit cards is a way that a large groups of
customers are able to band together to collectively demand discounts, rewards
and other valuable protections from merchants in exchange for their business.

The banks compete amongst themselves to win your business as a cardholder by
trying to negotiate higher discounts from merchants. (the fees paid by
merchants are called MDR or merchant discount rate).

~~~
tibbon
Very interesting!

Perhaps I'm a minority here, but I actually would more prefer just simple
cards that are used for payment than a reward-based card (which is why i have
a very basic debit card from a credit union). All the airline points and
discounts just strike me as marketing more than a real benefit. US Airlines
keeps reminding me of the number of points I've forfeited by not using them
enough... as if that will make me want to use them more and still not get free
flights.

~~~
majormajor
I've never been into getting mileage or whatever, but rewards cards can be
very handy. I basically get 1% off of everything I buy -- I've got a card
through Amex with no annual fee that simply sends me a $25 gift card in the
mail every time I spend $2500. It's basically effortless -- all I have to do
is pay with two cards every once in a while after getting the gift card and
buying something for more than $25.

If there are people willing to give you free money you might as well take it.
:)

Amex has also consistently given me absolutely fantastic customer service. I'm
really not in any hurry for them to be disrupted...

~~~
ImprovedSilence
Not to be the debbie downer, as I use rewards cards as well. But there is not
such thing as free money. This money you are getting is coming from somewhere.
The banks are clearly raking in a$$ loads of cash from the merchant when you
use your card. I think it's safe to assume the merchant increases the cost of
their goods to offset the fees he pays for transactions. So, the merchant sets
his prices 3% higher than he would have to, you pay that extra 3%, get 1% back
and think "oh, goodie me, free money", and the merchant breaks even. Sure, you
come out 1% above people not using rewards, but it's a net gain of -2%. Credit
card companies win.

Like I said, I use rewards cards as well, it's a bit of a tragedy of the
commons if you will, everyone just trying to offset their costs for a little,
but this just causes the hidden costs to continue to rise.

~~~
majormajor
This is a very good point, I wasn't entirely clear there. I meant free in the
context of someone who's already using a debit (I assume processed-as-credit
at most merchants) card, yet missing out on many of the benefits offered by
many credit cards.

I disagree about the tragedy of the commons part -- specifically that it's any
tragedy. In order to keep the discussion simple I'm not going to go into the
potential for abuse (which is a serious problem) and the charge-vs-credit card
distinction, but overall I find cards to be enormously beneficial compared to
cash: I can buy pricier items without having to travel to the bank to take out
cash in advance or mess around with checks (an annoying, less-secure system
that rather scares me fraud-wise), I can buy gas without going inside the
building, I can buy things online with ease, I can dispute charges in case of
fraud or if a merchant trys to pull a fast one or never ships me the item (and
I've been able to do this successfully), and I wouldn't really be out any
money if someone stole my wallet, I'd just need to make a few phone calls and
get some new cards overnighted to me. For free. It's tremendously convenient,
and to me, completely worthwhile.

It's amazing how quickly the world can change these days: it's an industry
that's about a hundred years old that pretty thoroughly changed the world and
has already made it to the "unpopular incumbent" stage.

~~~
ImprovedSilence
You make good points, I agree with the benefit of cards over cash as well. And
who wants to lug around a checkbook when I can just put a small piece of
plastic in my wallet? There is definite value in that. Maybe even 3% value. I
think CC companies may get the "unpopular incumbent" label because most people
are not even aware of how credit cards work, and their costs are often times
hidden. I mean hidden in the sense that we don't realize the price increase of
goods this convince is costing us. I bet if the apple store started selling
mac pros at 3% under retail price for cash, more people would inconvenience
themselves to pay in cash. But many people are not properly informed, and
therefore do not act as rational players. Many jewelers seem to play in this
realm of cutting prices for cash buyers. (I know, there may be other reasons
for that, but it's an example of merchants incentiveizing buyers to use cash)

~~~
infinite8s
Most merchant agreements prohibit offering a discount for cash purchases.
Those jewelers who do it are probably betting that they won't get caught and
have their CC processing yanked. What this means is that in effect everybody
pays slightly higher prices in to cover the fees for accepting credit cards.

~~~
njs12345
This is not quite true. They can offer a discount when paying in cash, but
they can't charge an extra fee when a credit card is used after the agreement
to purchase.

Source:
[http://usa.visa.com/personal/using_visa/checkout_fees/index....](http://usa.visa.com/personal/using_visa/checkout_fees/index.html)

------
tehwebguy
Pretty cool, but it's definitely a gamble for a small business that doesn't
have proven revenue yet:

\- At $10k / month $275 is 2.75%

\- At $5k / month $275 is 5.5%

\- At $2500 / month $275 is 11%

It doesn't say if there's a commitment or if there's a way to switch back and
forth depending on volume.

~~~
ConstantineXVI
Quoth the page:

> "we’ll bill you $275 on the first of each month. Change pricing plans at
> anytime from Square Dashboard."

So no commitment. If your volume drops too low, seems you can just drop back
to their usual rates. And since their "overage" rate is just the standard
rate, there's no reason not to do it if your volume's higher than their cap
($250K/yr, max $400/swipe).

~~~
tehwebguy
Ah thanks, didn't see that!

------
persona
Maximum savings for a business is capped at $3,575/yr and if they sell less
than $120k/yr, businesses will actually be losing money.

It sounds more like a safe customer acquisition strategy for Square (with
acquisition cost maxed at that value) then a huge savings for small businesses
(min swipe cost would be at 1.32% compared to 2.75%).

------
biot
Through the use of elementary arithmetic, Square is charging every company the
average expected transaction fees for the month, regardless of whether the
actual transaction fees would be higher or lower than this. So half the
companies save money while the other half lose money.

This is being spun as an innovation when, in reality, it's likely to net
Square more revenue as there are probably more merchants between $0 - $10K
than there are $10K - $21K.

~~~
eridius
No they're not. They're only charging companies that sign up for this fee
structure. Anyone who signs up for this when they're not making $10k is bad at
math.

~~~
biot
Most people who sign up for a fixed monthly fee gym membership are bad at math
rather than paying a smaller drop-in fee. It makes for good revenue for the
gym though. And for those who workout a lot, it is a good deal.

------
rodly
Is it illegal to chop up payments that exceed $400? If not, I'd say this is a
nice way to save a bit of money if you do more than $10,000 in business every
month. Not sure if it's worth the hassle to implement though.

~~~
Firehed
The pricing only applies to swiped payments, not keyed - so it's not an
option.

And if it was possible, it's definitely a TOS violation (though not illegal,
unless someone thinks you're laundering money)

------
jsherry
If a merchant does at least $13,000 per month in credit card revenue, this is
a good deal (read on for assumptions).

Quick and dirty math here: Stripe charges $275 per month for card revenues up
to $21,000 per month. I took a look at <http://truecostofcredit.com> (courtesy
of FeeFighters) and the merchant fees per transaction vary widely based on the
type of merchant as well as card type. For the sake of argument, let's say the
average Visa/MC transactions costs the merchant 1.75%. And let's say that the
average AmEx transaction costs the merchant 3.5%. Now let's assume it's an
80%/20% distribution between MC/Visa and AmEx transactions, respectively,
bringing a blended rate of 2.1%. Assuming that the merchant is charged 2.1%
per transaction by their credit card company, the tipping point is $13,095 of
revenue per month. Anything above and beyond that and this is a good deal.
Below it, it's not (aside from the fact that's a fixed cost versus a variable
one which is worth something).

~~~
rexreed
That's a very narrow window of value. If < $10k means you're better off going
with the per-transaction rate, >10k but less than $13,095 means you're better
off with a regular merchant account and > $13,095 but less than $21k means
you're better off with the flat rate, then how many firms would really benefit
from this?

Looks like they should say "if you're doing more than $10k (or $13k if you
want to bring in the competition), but less than $21k, take this deal". But of
course, no one would take it.

~~~
nnnnnnnn
Not "less than 21k." There is no upper bound on the value. You always save
money, provided you process upwards of $10k/mo.

A merchant processing 50k/month on square paying 2.75% would save money by
switching to the new plan. At least, if I'm reading this correctly.

~~~
wadetandy
Except that merchant can't switch to the plan if they process that much, since
it is limited to merchants under $250,000/year.

~~~
nnnnnnnn
No, it isn't limited that way. It's 0% under 250k, and reverts to the regular
2.75% if you process above those limits.

------
philip1209
I see a potential for abuse - if the cash back on certain credit cards exceeds
the max rate, people could cycle money through for profit.

e.g. I had a 2% cash back credit card

Cashback: 21k/mo * 2%=$420

Fees: $275

Upside potential: $145/mo

Not much profit possible, but with multiple accounts at roughly 2 $400 swipes
per day per account, I would watch out for something like this.

~~~
dangrossman
I don't know about Square's terms, but I've always been told by merchant
account providers that charging your own card is one of those things that will
get your account terminated immediately if they become aware of it.

~~~
philip1209
You can hide it with LLCs. I had a roommate sophomore year of college get
investigated by the FBI for running a similar scheme.

~~~
dangrossman
You might get away with it longer doing that, but the repercussions should you
be caught wouldn't be lessened any by using an LLC.

The real risk you're taking when abusing a merchant account is being added to
the TMF (Terminated Merchant File) and MATCH (Member Alert to Control High-
Risk Merchants) lists. These are essentially blacklists for the payment card
industry that all acquiring banks and processors check new applications
against.

The reason the risk is not lessened is that when a merchant is added to these
lists, both the company and all the company's principals' names and social
security numbers are added. The list of a company's principals is something
merchant account providers ask for on new account applications for this
reason.

Basically, if you do something so egregious as to be added to these lists,
you'll never be able to have an ownership stake in any business accepting
credit cards for the rest of your life. The only way to get approved in the
future would be to commit a new act of fraud to avoid the new acquirer from
knowing a blacklisted person is a principal of the new company.

I don't know about you, but for any kind of entrepreneur, the prospect of a
lifelong ban like that would be pretty terrifying.

------
Iaks
In case anyone from square is reading this - you're page loads absolutely 0
content with JS disabled. Just some feedback, take it or leave it.

~~~
dangrossman
Considering the webapp itself doesn't function with JavaScript disabled, that
sounds like a feature instead of a bug. It keeps people that will never be
their customers out and away from their support queue.

~~~
metellus
At the very least it should have a message explaining that Stripe requires js.

~~~
ceejayoz
Stripe?

------
lwhi
So if your (small) business takes $60,000 in a year, you will pay square
$3300; effectively a rate of 5.5%.

If your business takes $160,000 in a year, you end up paying square a rate of
around 2.06%.

Is this really that revolutionary? (.. am I oversimplifying the situation?)

~~~
Aleran
This is revolutionary because it is the first time that merchants have been
ever been given the option to pay a flat fee per month in lieu of paying a
percentage fee on each transaction. While that may not seem like a big deal
you, merchants really love the simplicity of it.

A business that processes 60K a year is below the size that is targeted by
this pricing structure. They are better off continuing to pay 2.75% per
transaction.

~~~
lwhi
It's a differently packaged variable rate fee IMO.

------
Cyranix
Coming back from Portland and pleasantly surprised at the number of cabs using
Square. Not an expert in the world of taxi companies, but at first glance the
monthly pricing seems like a potential match for them.

------
allforJesse
And now, let's watch as Square gets implemented at bars everywhere.

------
GauntletWizard
Let's do the math, here: "for small businesses processing up to $250,000 per
year". So, the most you're processing is a quarter million/year, and you're
paying 275/month = 3300 per year. $3300/$250000 means you're paying an
effective processing fee of 1.32%. That's a big savings over their usual
2.75%, but it's still probably more than the big players are paying. And
that's assuming that you use it for optimal efficiency. The breakeven point is
($3300 / .0275) = $120,000, which is reasonable, all things considered - I
know a couple of small shops that do ~$200,000/year of business. I know a
friend stated that his breakeven point for his small shop was $400 in sales a
day, and that he was living well on ~$600. It would probably be advantageous
for him to move entirely to Square, based on those numbers.

------
hboon
OT, but any one knows why square.com redirects to squareup.com instead of the
other way round?

------
Simucal
Square is really opening the door for credit processing in a lot of places
that it wasn't practical before. I just went to a "Food Truck Friday" event at
a local park and every single food truck was accepting credit cards via
Square.

------
MIT_Hacker
Press Release: [https://squareup.com/news/releases/2012/square-introduces-
on...](https://squareup.com/news/releases/2012/square-introduces-one-monthly-
price-for-small-businesses)

------
username3
Square should automatically wave fees after collecting $275 per month.

~~~
RandallBrown
That would be a pretty awesome thing to do from a customer service
perspective.

It would be like the phone companies charging you for the cheapest phone plan
based on your usage for the month.

~~~
sp332
Ting does this. They're a virtual operator that runs on Sprint's network.
<https://ting.com/plans>

------
conductr
This benefits only those processing $15.5K - $30.0K per month. Otherwise,
Intuit's Gopayment at $12.95+1.7% is best.

[https://docs.google.com/spreadsheet/ccc?key=0An_-Z6kZBAXndFF...](https://docs.google.com/spreadsheet/ccc?key=0An_-Z6kZBAXndFF5TE1zSEpUNjRpUHhCLXJEVnUxeHc)

Addition: Gopayment is also better than Square's standard 2.75% for anyone
processing more than ~$1,200 per month

~~~
Tortoise
You're being naive. Read the fine print on Intuit's offer. Their rate only
applies to "qualified" transactions. Rewards cards, among others, aren't
"qualified."

------
jdelsman
I honestly wish they had some kind of affiliate program. I'd make so much
money pimping Square out to local businesses, especially the ones I truly care
about. I am so sick of being told: "Sorry, we don't accept AMEX" or simply
"Sorry, we don't accept credit cards." Are you kidding? It is 2012!

------
tejasmi5
A business doing $250k in annual business most likely has their own point of
sale system. The 1.3% cost would be more attractive if there was an API that
businesses could then just integrate into the existing POS system.

------
grandalf
This is very cool but not a free lunch. The fees have to come from somewhere.
How about no fees for chargebacks too?

~~~
BadCRC
learn to read:
[https://help.squareup.com/customer/portal/articles/11861-wha...](https://help.squareup.com/customer/portal/articles/11861-what-
are-square-s-fees-)

~~~
grandalf
Ahh upon further investigation I discovered that the catch is that businesses
wishing to do over $21K in sales per month are ineligible.

So the product is only for businesses who meet all three of the following
criteria:

1) small enough to not need over $21K per month of credit card charges

2) low enough chargeback risk that Square accepts/keeps them as a client

3) are currently paying more than $275 in fees per month with their current
provider.

So bottom line this is a great marketing pitch but not really useful to the
vast majority of companies in the real world. The odds of #2 and #3 both being
true are basically nil for businesses small enough to meet #1.

~~~
rektide
Your initial reading is incorrect. Past 250,000/yr, you go back to the normal
2.75% rate; you remain eligible up to that point, and that point is not
determined monthly but annually.

~~~
grandalf
What about chargebacks after 250,000/yr?

------
ChiperSoft
I'd love to see a payment gateway offer this, like Stripe. It'd be HUGE for
micro-payments.

------
trustfundbaby
If Stripe follows suit, I might just wet myself.

------
BallinBige
this is going to cost small - mid cap merchants more money!

~~~
nnnnnnnn
No it won't. It's optional. If you prefer to pay 2.75% per swipe and no
monthly fee you can.

It saves a ton of money for merchants who make over $10,000 per month. Those
are the people who will sign up for the new plan.

------
bluekite2000
Now I m waiting for Stripe to do the same thing

------
BryanB55
That sounds pretty awesome at first but I guess it would require some math to
figure out if you really are saving much compared to normal CC processing.

~~~
idunno246
Break even is at $10k / month

