Payments processor Square announced Friday that it will discontinue its monthly flat-rate pricing option in February 2014 and move all its customers to a 2.75%-per-swipe fee. This appears to be part of a strategy to bring larger merchants into the service.
It’s actually 2.75% but less for higher volume merchants — more on that later.
The company also announced it was working on new features aimed at larger businesses: “We are hard at work building features for larger businesses, because we know growth comes with its own set of unique needs. You can look forward to several useful new features in the coming weeks.”
The company’s stated reason for eliminating the fee, which it said has no plans to restore, was lifting restrictions from customers: “Caps and limits in the program were inhibiting growth — at a certain point, rates went back up the more you sold,” read a statement on the company’s site. The processing cap was apparently $250,000, after which swipes were again charged at 2.75%.
Cherian Abraham, the mobile commerce and payments lead for Experian Global Consulting, observed on Twitter that the move “could mean difficulty in moving upmarket. Merchants using Square for one-off payments aren’t its future.” Commenters on Abraham’s post pointed out that Square’s original “one-off” market of micro-merchants is not profitable for processors, and Square is coming to realize this just as other processors did before it.
Vantiv CEO Charles Drucker, speaking at an investor event in September, pointed out that Square’s 2.75% rate is not competitive with what Vantiv and other large processor routinely offer larger merchants. The 2.75% fee is not the only fee Square charges, but is instead the maximum will Square will charge for a swiped transaction. Larger merchants will receive a discount, though on what basis and to what extent is not publicly available.
Square’s pricing for keying in cards rather than swiping them is 3.5% plus $0.15, so if $100.00 is charged, the merchant receives $96.35 in his linked bank account.
These are interesting times for Square. The company recently released a widely-praised P2P solution, Square Cash, and also floated plans for a 2014 IPO. Part of the skepticism around this IPO concerns profit — Square’s profitability has been much questioned by analysts in the wake of the IPO news.
The company ca be expected to make moves going forward to increase profitability and warm investors up to its IPO. Does eliminating monthly pricing fit the bill? Certainly working with larger merchants does.
Nick Holland, senior payments analyst for Javelin Strategy & Research, pointed to Square’s apparently troubled relationship with its flagship client Starbucks as another catalyst for seeking other large merchants to carry it forward.
“Square is going to have to evolve pretty fast,” Holland said. “They’re going to rapidly need to add larger retailers to their roster in the next few years.” Because of looming EMV disruption in the point-of-sale market, Holland says, the move to software-based solutions is the order of the day. Google is walking this path with its Gmail P2P solution, as is Square with Square Cash. The commoditization of the mobile POS space (see dongle gallery for evidence) has players scrambling to acquire users on file. A larger roster of users (and their cards) on file sweetens the pot for retailers to sign on to its service.
Holland said, “Square needs to start acting like a big-boy payment processor.”