Kudos for the "ballsy" simplicity. I don't know if people appreciate how big of a risk this is for Square.<p>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.<p>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:<p>1.58% + $0.13 per transaction<p>Unless they've figured out a way around standard interchange, this is Square's approximate cost.<p>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.<p>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.<p>Sources:
<a href="http://feefighters.com/square-calculator" rel="nofollow">http://feefighters.com/square-calculator</a>
<a href="http://usa.visa.com/merchants/operations/interchange_rates.html" rel="nofollow">http://usa.visa.com/merchants/operations/interchange_rates.h...</a>
There are limits (it's still _revolutionary_ for an industry that loves to nickle & dime, though)<p>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.<p>$21,000 * .0275 = $577.5 in fees.<p>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.
The next step for Square, in my opinion, is developing a reader for the EMV cards (<a href="http://en.wikipedia.org/wiki/EMV" rel="nofollow">http://en.wikipedia.org/wiki/EMV</a>), which is hugely dominant in Europe - and also more secure. See a this useful Quora post, from 12 months ago: <a href="http://www.quora.com/How-does-Square-intend-to-translate-their-business-to-UK-Europe-where-the-Chip-and-Pin-process-is-the-standard" rel="nofollow">http://www.quora.com/How-does-Square-intend-to-translate-the...</a><p>Going international, or making such a reader, opens up an enormous market and the potential is huge.<p>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. <a href="http://news.ycombinator.com/item?id=4392763" rel="nofollow">http://news.ycombinator.com/item?id=4392763</a><p>Also, an interesting firm from Sweden, which is worth following now is iZettle (<a href="https://www.izettle.com/" rel="nofollow">https://www.izettle.com/</a>) which has developed an EMV reader.
Noticably their, "how much do I pay to use iZettle" page is intresting. <a href="http://help.izettle.com/customer/en_us/portal/articles/530952-how-much-do-i-pay-to-use-izettle-#" rel="nofollow">http://help.izettle.com/customer/en_us/portal/articles/53095...</a>
So two things that I've never understood.<p>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...<p>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?
Pretty cool, but it's definitely a gamble for a small business that doesn't have proven revenue yet:<p>- At $10k / month $275 is 2.75%<p>- At $5k / month $275 is 5.5%<p>- At $2500 / month $275 is 11%<p>It doesn't say if there's a commitment or if there's a way to switch back and forth depending on volume.
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.<p>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%).
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.<p>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.
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.
If a merchant does at least $13,000 per month in credit card revenue, this is a good deal (read on for assumptions).<p>Quick and dirty math here: Stripe charges $275 per month for card revenues up to $21,000 per month. I took a look at <a href="http://truecostofcredit.com" rel="nofollow">http://truecostofcredit.com</a> (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).
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.<p>e.g. I had a 2% cash back credit card<p>Cashback: 21k/mo * 2%=$420<p>Fees: $275<p>Upside potential: $145/mo<p>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.
So if your (small) business takes $60,000 in a year, you will pay square $3300; effectively a rate of 5.5%.<p>If your business takes $160,000 in a year, you end up paying square a rate of around 2.06%.<p>Is this really that revolutionary? (.. am I oversimplifying the situation?)
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.
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.
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.
This benefits only those processing $15.5K - $30.0K per month. Otherwise, Intuit's Gopayment at $12.95+1.7% is best.<p><a href="https://docs.google.com/spreadsheet/ccc?key=0An_-Z6kZBAXndFF5TE1zSEpUNjRpUHhCLXJEVnUxeHc" rel="nofollow">https://docs.google.com/spreadsheet/ccc?key=0An_-Z6kZBAXndFF...</a><p>Addition: Gopayment is also better than Square's standard 2.75% for anyone processing more than ~$1,200 per month
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!
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.
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.