101–110 of 152 posts
https://docs.google.com/spreadsheet/ccc?key=0An_-Z6kZBAXndFF...
Addition: Gopayment is also better than Square's standard 2.75% for anyone processing more than ~$1,200 per month
Quick and dirty math here: Stripe charges $275 per month for card revenues up to $21,000 per month. I took a look at http://truecostofcredit.com (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).
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This is a very good point, I wasn't entirely clear there. I meant free in the context of someone who's already using a debit (I assume processed-as-credit at most merchants) card, yet missing out on many of the benefits offered by many credit cards. I disagree about the tragedy of the commons part -- specifically that it's any tragedy. In order to keep the discussion simple I'm not going to go into the potential for…
You make good points, I agree with the benefit of cards over cash as well. And who wants to lug around a checkbook when I can just put a small piece of plastic in my wallet? There is definite value in that. Maybe even 3% value. I think CC companies may get the "unpopular incumbent" label because most people are not even aware of how credit cards work, and their costs are often times hidden. I mean hidden in the sense…
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Very interesting! Perhaps I'm a minority here, but I actually would more prefer just simple cards that are used for payment than a reward-based card (which is why i have a very basic debit card from a credit union). All the airline points and discounts just strike me as marketing more than a real benefit. US Airlines keeps reminding me of the number of points I've forfeited by not using them enough... as if that will…
I've never been into getting mileage or whatever, but rewards cards can be very handy. I basically get 1% off of everything I buy -- I've got a card through Amex with no annual fee that simply sends me a $25 gift card in the mail every time I spend $2500. It's basically effortless -- all I have to do is pay with two cards every once in a while after getting the gift card and buying something for more than $25. If the…
So if your (small) business takes $60,000 in a year, you will pay square $3300; effectively a rate of 5.5%. If your business takes $160,000 in a year, you end up paying square a rate of around 2.06%. Is this really that revolutionary? (.. am I oversimplifying the situation?)
If a merchant does at least $13,000 per month in credit card revenue, this is a good deal (read on for assumptions). Quick and dirty math here: Stripe charges $275 per month for card revenues up to $21,000 per month. I took a look at http://truecostofcredit.com (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'…
Looks like they should say "if you're doing more than $10k (or $13k if you want to bring in the competition), but less than $21k, take this deal". But of course, no one would take it.
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It's not strictly for the band of $10k to $21k per month. It's anyone that makes more than $10k a month because additional swipes after $21k are the same as the opportunity cost. This is a great deal for any company making more than $10k a day, or about $500 assuming 20 working days a month. It's starting to sound like a decent deal that should appeal to a lot of small businesses.
Unless they can find cheaper than 2.75% elsewhere.
I think what this does is retain existing Square merchants a bit longer -- ones who grew from $0 to $8k or so, are now evaluating real merchant accounts. Inertia, other advantages of Square (PWS), etc. might keep those merchants another year or two, getting them up to around $20k/mo revenue, and then Square might come out with something new for them (a Square-specific payment instrument? Pre-loaded cards using ACH per merchant or across Square with 0% fee?)
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.
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:
1.58% + $0.13 per transaction
Unless they've figured out a way around standard interchange, this is Square's approximate cost.
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.
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.
Sources: http://feefighters.com/square-calculator http://usa.visa.com/merchants/operations/interchange_rates.h...
Kudos for the "ballsy" simplicity. I don't know if people appreciate how big of a risk this is for Square. 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. Why? Because the 1.3% "sweet spot" is almost certainly well below their cost. "Interchange" is the wholesale rate that processors like…