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.
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¢
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:
Square: $720
Payment Depot fees are a lot more favorable, and the savings are even more substantial as your credit card volume and order values increase. Check out our transparent pricing model.
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 rates. Get in touch today!
Quick FAQs about New Pricing Structure by Square
Q: What is the new pricing structure announced by Square?
Square has announced that its US rate for tapped, dipped, and swiped transactions will change from a flat fee of 2.75% to 2.6% + 10¢.
Q: Why did Square change its pricing structure?
Square stated that it wants to better align its rates with average costs across the industry.
Q: When did the new pricing structure go into effect?
The new pricing structure went live on September 24, 2019, for new merchants, while existing Square merchant services saw the change go into effect on November 1, 2019.
Q: How does Square’s new pricing structure affect businesses?
The impact of the new pricing structure on businesses depends on the average transaction value and credit card processing volume. The structure may favor merchants that process large transactions but can negatively impact businesses that process low-ticket transactions.
Q: How can businesses cope with Square’s new pricing update?
Businesses negatively affected by Square’s pricing update can consider finding an alternative to Square. They should calculate how much more they’ll be paying with the new pricing and compare the rates and fees with other payment processing providers.
Q: What is the effective rate, and how can it be calculated?
The effective rate is the rate paid when all processing costs are factored in. It can be calculated using the formula: Effective rate = (total credit card processing fees / total amount processed) * 100. This rate helps in comparing different merchant services providers.
Q: How can I find out if Payment Depot is a good fit for my business?
You can contact Payment Depot to discuss whether the service is a viable alternative for your business. They provide unbiased advice on how to lower processing rates and are upfront about whether or not they’re a good fit for your business.
Q: What other factors should be considered when choosing a payment processor?
Businesses should consider the effective rate, additional fees, and merchant reviews when choosing a payment processor. They should be aware of potential markups and transaction costs for non-qualified transactions, and they should research other merchant’s experiences with the provider.
