Square introduces flat-rate monthly pricing for small business transactions
Square is rolling out a new flat-rate pricing option for small business users, enabling merchants who process up to $250,000 per year to pay a monthly fee of $275.
Square--which enables businesses to accept credit and debit purchases by swiping cards through the startup's signature reader, a small dongle that plugs into a smartphone or tablet audio jack--has historically charged a flat fee of 2.75 percent on each transaction, promising no contracts, monthly fees or hidden costs. Small businesses may now choose between the standard 2.75 percent fee and the monthly $275 charge, which includes a 0% processing fee and no additional fees or contract. If a merchant exceeds $250,000 in annual transactions, the 2.75 percent fee will automatically go into effect.
Square hopes that simplifying its pricing structure will boost small business adoption. "The main reason people don't participate is because they are bewildered by it," Square COO Keith Rabois told The New York Times. "Most people have no idea what 2.75 percent per swipe will amount to. They'd rather be making cupcakes for their customers instead of trying to parse all this stuff."
Business Insider reports that in some instances, Square may lose money on merchants who adopt the flat-rate rate option. On average, Visa, MasterCard and American Express claim 1.65 percent of all credit card transactions, tacking on a 10-cent processing fee. According to Square, its average transaction is $75--if a merchant processes $10,000 a month at $75 per sale, Square earns $275 per month from that user, meaning that after the 1.65 percent/10-cent card processing charge is applied, Square earns a profit of $97 per month on that merchant. But if a small business processes closer to the $250,000 flat-rate limit--an average of $20,833 a month at $75 per transaction--Square will pay about $370 per month in card fees, losing $95 a month on that merchant. Business Insider adds that Square's break-even point is $15,000 per month.
As of June 2012, more than 2 million businesses and individuals are using the Square service, up from 1 million just six months earlier, with users processing more than $6 billion in payments on an annualized basis. Earlier this month, Square announced a new partnership with Starbucks--beginning this fall, the coffeehouse chain's 7,000 company-owned U.S. will begin processing all credit and debit card transactions using Square's mobile commerce technologies, a move to slash operational costs. Starbucks also will invest $25 million in Square's Series D financing round, and CEO Howard Schultz will join Square's board of directors.
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