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Square introduces monthly pricing

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Re: Square introduces monthly pricing

#121

Post by gsibble »

zeroonetwothree wrote: post #111
maxerickson wrote: post #83

Earlier quoted context omitted.

The 1% payout you describe seems to be about the max that customers end up with. Maybe some store specific cards are slightly higher, and maybe the right airline miles.

There are several cards that give 2% flat on all purchases. You can also do much better if you use specific categories across multiple cards, for example there are cards that give 5% for restaurants.

Most of those very high reward rate cards come along with significantly higher interchange fees (4-5% or even higher). Merchants abhor them.

Re: Square introduces monthly pricing

#122

Post by EvanKelly »

abalone wrote: post #109

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…

Are these numbers truly non-negotiable? If that's the case, what's the incentive for a company like Costco to have exclusivity with American Express (who normally charges a higher than average fee)?

I've always assumed (maybe erroneously) that Costco received a lower processing fee in exchange for the exclusivity which pushes more transactions.

Re: Square introduces monthly pricing

#123

Post by shuzchen »

EvanKelly wrote: post #122
abalone wrote: post #109

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…

Are these numbers truly non-negotiable? If that's the case, what's the incentive for a company like Costco to have exclusivity with American Express (who normally charges a higher than average fee)? I've always assumed (maybe erroneously) that Costco received a lower processing fee in exchange for the exclusivity which pushes more transactions.

I don't disagree (in fact, I think it probably is the case that they get a lower rate for being exclusive), but just to add: Costco also has a partnership with amex issuing their Costco branded credit cards (which isn't a store only card, it works out in the wild), and Costco gets some portion of the revenue whenever that card is used. Restricting you to amex also has a benefit of increasing the likely-hood that consumers will sign up for the Costco cc.

Re: Square introduces monthly pricing

#124

Post by [deleted] »

abalone wrote: post #109

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…

[deleted]

Re: Square introduces monthly pricing

#125

Post by EvanKelly »

shuzchen wrote: post #123
EvanKelly wrote: post #122

Earlier quoted context omitted.

Are these numbers truly non-negotiable? If that's the case, what's the incentive for a company like Costco to have exclusivity with American Express (who normally charges a higher than average fee)? I've always assumed (maybe erroneously) that Costco received a lower processing fee in exchange for the exclusivity which pushes more transactions.

I don't disagree (in fact, I think it probably is the case that they get a lower rate for being exclusive), but just to add: Costco also has a partnership with amex issuing their Costco branded credit cards (which isn't a store only card, it works out in the wild), and Costco gets some portion of the revenue whenever that card is used. Restricting you to amex also has a benefit of increasing the likely-hood that cons…

That makes a lot of sense, and it's also clear that transparency regarding rates isn't exactly in the vendor or the credit card companies' best interest.

Re: Square introduces monthly pricing

#126

Post by wadetandy »

nnnnnnnn wrote: post #115
rexreed wrote: post #106

Earlier quoted context omitted.

That's a very narrow window of value. If 10k but less than $13,095 means you're better off with a regular merchant account and > $13,095 but less than $21k means you're better off with the flat rate, then how many firms would really benefit from this? 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…

Not "less than 21k." There is no upper bound on the value. You always save money, provided you process upwards of $10k/mo. A merchant processing 50k/month on square paying 2.75% would save money by switching to the new plan. At least, if I'm reading this correctly.

Except that merchant can't switch to the plan if they process that much, since it is limited to merchants under $250,000/year.

Re: Square introduces monthly pricing

#127

Post by barmstrong »

gsibble wrote: post #40
tibbon wrote: post #24

So two things that I've never understood. 1) Why is it just now that someone's actually providing competitive service in this space? We've had people selling CC machines and service for years... 2) Where (in general, not just with Square) does the money actually go? It seems that prior to Square announcing this, getting under 2-3% or so was nearly impossible. On the scale of the US economy alone, that's HUGE money. W…

Hi tibbon! To answer 1: Almost all of the fee structure goes to players much higher up the chain than Square. The networks take a chunk, but in fact most of the fee goes to the originating bank (the bank that issued the card). This is a major source of income for most banks these days and can generally be arbitrarily set by them since merchants not only have no other options except cash, but also cannot tell what the…

"figure out how to create an interchange free system"

In my view, this is the potential of bitcoin...an open platform for payments that doesn't require trusted third parties. I don't think a single company (or even country) could pull it off, but a new open protocol (like SMTP but for payments) that runs on the internet could do it.

I'm making a bet in this space (see profile).

Re: Square introduces monthly pricing

#128

Post by lwhi »

zabraxias wrote: post #105
lwhi wrote: post #86

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?)

Yes but if your small business only does $60k in CC transactions it's likely on its last legs to begin with. You would need more to cover your expenses also...unless your business is very cash-heavy. At $200k in transactions that $3300 yearly fee is 1.65% which is a lot lower than what most retailers are getting (which is in the area of 3% to my understanding).

Last legs, or first legs .. it's a matter of opinion ;-)

I just get the feeling square are offering a similar deal to a lot of other payment gateways, but packaging the deal differently - i.e. they're not really being that disruptive.

Re: Square introduces monthly pricing

#129

Post by JumpCrisscross »

[deleted] wrote: post #124
abalone wrote: post #109

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…

[deleted]

Assuming you can't back in and out of wholesale ($275) versus retail (2.75%) pricing, it doesn't matter how volatile your earnings are - doing 0 for eleven months and x in month twelve is equivalent to doing x/12 for twelve months whether you pay 2.75% or $275 each month.

Re: Square introduces monthly pricing

#130

Post by Firehed »

bgentry wrote: post #26
tibbon wrote: post #24

So two things that I've never understood. 1) Why is it just now that someone's actually providing competitive service in this space? We've had people selling CC machines and service for years... 2) Where (in general, not just with Square) does the money actually go? It seems that prior to Square announcing this, getting under 2-3% or so was nearly impossible. On the scale of the US economy alone, that's HUGE money. W…

There are virtually no fixed costs to actually performing the transactions. The fees are levied by the not-so-competitive Visa/Mastercard/AMEX trio that would love to keep their fees artificially high.

The networks get very little (IIRC a small flat fee per transaction on the order of 5 to 10 cents, but I don't have our pricing in front of me and it's some of the most opaque pricing you'll ever see) - most of interchange goes to the issuing bank.

Blame the banks issuing credit cards for the high rates, not Visa and MC (both AmEx and Discover are, effectively, their own issuing banks - so go ahead and give them their fair share of the blame)

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