What Square’s New Pricing Means for Your Business (and How to Lower Your Costs)

Last week, Square announced a major update in its pricing structure: it’s changing its US rate for tapped, dipped, and swiped transactions from a flat fee of 2.75% to 2.6% + 10¢. 

Why the change? According to Square, they want to better align their rates with average costs across the industry. 

“Like all payment service providers, for every payment Square processes, Square has to pay a set of fees that are both a percentage of the transaction and a flat fee,” the company wrote in a blog post. Our card-not-present (keyed-in) transaction pricing has always reflected this structure, and now our tapped, dipped, and swiped rate will as well.

The change went live on September 24, 2019 for new merchants, while existing Square merchant services will see the change go into effect on November 1, 2019.

How Square’s New Pricing Affects Merchants

How this affects your business depends on your average transaction value and your credit card processing volume. 

The new pricing structure may favor merchants that process large transactions. But businesses that process low-ticket transactions (think coffee shops and quick-serve establishments) will take a hit. 

As Sprudge points out:

On a $5 transaction for your favorite cappuccino, Square would take $.14 in their old pricing model. Under the new model, they will take $.23, which is just under a 67% increase. In fact, in order for a business to not see a rate increase, their credit card sales would have to average $66.67 per swipe.

This is a big deal for merchants that sell low-ticket items. Many of these businesses are already working on low profit margins, so Square’s rate change puts them on huge disadvantage. 

What Other Merchants Are Saying

Needless to say, many merchants aren’t happy. Chatter around the web reveals that Square’s pricing update means that many businesses would end up paying literally hundreds of dollars more per month. 

“I did some quick math for us. Would cost us an additional $7,200 / year,” wrote one merchant, in a thread in the Baristas Guild of Washington State Facebook group.

Other members had similar concerns. One merchant said they would see an average fee increase of $674.83 per month ($8,097 per year), while another Square merchant said they would be paying around $5,000 more.

What You Can Do About Square’s Rate Increase

If your business is negatively affected by Square’s pricing update, the best thing to do is find an alternative to Square. Here are some steps you can take to make this process easier:

Know Your Numbers

Calculate exactly how much more you’ll be paying with the new pricing. If you’re an existing Square customer, there’s a calculator that you can access in your account to figure out how this update would affect your fees.

Also, consider calculating your effective rate, which is simply the rate that you pay when you factor in all your processing costs. You can find your credit card processing effective rate using the formula: 

Effective rate = ( total credit card processing fees / total amount processed ) * 100

This will make it much easier to compare different merchant services providers. 

Talk to Other Payment Processing Providers

Once you know where your business is at with rates and fees, it’s time to shop around for other payment processors. Every business is different, so there’s no one-size-fits-all provider that works for all types of merchants. But you can follow these tips to find the right one for you:

Ask about their effective rate. Since the effective rate factors in all credit card processing costs (including interchange and markups), it’s an excellent way to get an apples-to-apples comparison of different providers. 

Some payment vendors, for instance, may advertise “low qualified fees” but if you factor in their markups, plus the transaction costs of non-qualified transactions, you may find that you’re actually paying more. 

Being aware of your effective rate will help you figure out if you’re really getting a better deal.

Factor in other fees. Some providers may charge additional fees on top of their payment processing costs. Be wary of these fees, as they can add up. Here are some of the common fees that payment processors may charge:

• Upfront fees (application fees, set-up charges, installation costs, etc.)
• Monthly fees 
• PCI compliance fees 
• Cancellation fees 

Read merchant reviews. Do your homework and research what other merchants are saying about the provider. What’s their BBB rating? What are people saying on Yelp? Aside from customer comments, there are several websites that offer unbiased merchant services reviews that you can check out.  

Curious about what other merchants and industry experts are saying about Payment Depot? Here are some Payment Depot reviews you should check out.

Square vs Payment Depot

We’d be remiss if we didn’t talk about how Payment Depot stacks up compared to Square. While Payment Depot’s fees were already looking pretty good even before Square’s rate changes, this new update means that our rates are even more favorable for smaller businesses. 

Consider the following breakdown:

Square: $0 per month, 2.6% + 10¢

Payment Depot: $49 per month, interchange + $0.05 per transaction*

If you process $20,000 in monthly sales with a $10 average transaction and a total of 2,000 transactions, here are the approximate fees you would pay with each processor:

Square: $720 

Payment Depot: $511 (using Visa’s average interchange rate)

As you can see Payment Depot fee structure is a lot more favorable, and the savings are even more substantial as your credit card volume and order values increase. 

Unlike Square, Payment Depot doesn’t take a percentage out of your sales. You pay wholesale interchange costs, and there are no pricey markups on our end. Instead, Payment Depot charges a monthly membership fee based on your transaction volume.

*We can offer low-ticket merchants a special rate of 5 cents per transaction instead of 15 cents. Give us a call today to discuss!

Real Statement from a Coffee Shop Using Payment Depot

To better illustrate Payment Depot’s advantage over Square, here is an actual payment processing statement from a coffee shop using Payment Depot and Clover Station:

Total Processing – $19,602.18 

Total Transactions – 1,469

As you can see, Payment Depot’s fee structure is clearly a lot more favorable compared to Square’s new pricing.

Looking for an Alternative to Square?

If Square’s new pricing structure doesn’t fare well with your business, contact us to discuss if Payment Depot is a viable alternative. We’ll give you unbiased advice on how to lower your processing rates, and we’ll be completely upfront about whether or not we’re a good fit for your business. 

Get in touch with the Payment Depot team today! We’d love to hear from you!

Looking for an alternative to Square processing fee? Payment Depot can help you save thousands of dollars per year with our merchant-friendly rate. Get in touch today!