In this strong post from the Wall Street Journal’s eMoney columnist Tricia Duryee, she reports on pricing innovations from the payments startup Square. Square has eliminated its 15 cent transaction fee, a move that will make merchants who sell low value items particularly happy.
Square’s decision to become more price competitive is risky as it is just getting up to speed in the complicated payments industry. And it’s gutsy as the Internet-rooted company looks to build its base of merchants. The network effect does matter. It has value. And Square’s leadership, as well as its VC backers, seem to leaning on that network effect experience to help build the business.
Square’s rates will fall to a flat fee of 2.75 percent per transaction instead of charging 2.75 percent plus an additional 15 cents. (The rate for when a credit card number is keyed in, rather than swiped, will remain the same at 3.5 percent plus 15 cents.)
Square’s new rates will resonate well with merchants.
It means that for a $100 purchase, they will now pay $2.75, rather than $2.90. The impact will be much greater for smaller purchases, like a $3 cup of coffee that will now cost the merchant 8 cents, down from previous 23 cents.
There’s also a benefit when a customer visits a coffee shop twice in one day, for example.
Under the old rates, the merchant would have to pay 30 cents for a customer who visits twice a day in transaction fees alone. But under the new rates that goes away and the merchant will only be charged a percentage of both transactions.