Small Business News

Square Adjusting Pricing Structure for Credit Card Transactions

Over the past several years, small business owners and their customers have become well aware of the FinTech company Square. Initially known for their card readers that turned cell phones into cash registers, the company’s point of sale products have now become ubiquitous at coffee shops, restaurants, and other independent retailers. Unforunately many of these merchants may soon see their profits dwindle as Square has announced a major change to their credit card transaction fees.

Last week Square announced that it would be adjusting its pricing structure for credit card transactions. Previously most transactions incurred a flat 2.75% fee that would be deducted from the merchants’ payout. Now the rate will drop to 2.6% but a 10¢ per transaction fee will also be added. These changes are effective immediately for new customers but the updated structure will roll out to all users on November 1st.

As Sprudge points out, this structure is particularly impactful for businesses that traffic in smaller transactions. For example, while a $5 purchase currently results in a 14¢ fee, that price will increase to 23¢. In fact, in order for a business to come out ahead under the new terms, the transaction would need to be larger than $66.67.

Defending their decision in a blog post, Square notes some of the benefits their customers enjoy when compared to other card processing option. These include charging one rate for all credit cards as opposed to some processors that raise fees for rewards cards. Square also boasts that they have no startup fees, statement fees, refund fees, chargeback fees, etc.

Despite that, some small businesses owners are obviously unhappy with the change. Among them is coffee shop owner Maxwell Mooney who told Sprudge, “Square’s business was built on [specialty coffee shops]… They were the first ones to really listen to what we needed. But now that they’ve extracted every bit of social capital they needed out of us, they are directly targeting our businesses that have high transactions and low ticket values by introducing this horrendous new pricing structure.” He added, “We’ve already paid them $14k this year alone in fees as a single shop… I’m forecasting that under the current pricing model, we’ll be at $19,400 in fees by the end of the year.” In response Mooney has created a petition for other small business owners to voice their opinion on the matter.

Given Square’s popularity with small businesses — and especially those with low average transactions — this new pricing structure is sure to sting. In turn it wouldn’t be surprising if some merchants are forced to pass on these additional costs to their customers. While it’s not an ideal situation, hopefully business owners will be able to weather the disruption and continue to prosper.