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Square introduces monthly pricing

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Re: Square introduces monthly pricing

#71

Post by chime »

RandallBrown wrote: post #46
philip1209 wrote: post #23

I see a potential for abuse - if the cash back on certain credit cards exceeds the max rate, people could cycle money through for profit. e.g. I had a 2% cash back credit card Cashback: 21k/mo * 2%=$420 Fees: $275 Upside potential: $145/mo Not much profit possible, but with multiple accounts at roughly 2 $400 swipes per day per account, I would watch out for something like this.

My card limits my cash back to something like $300 dollars per year. If there is a card that lets you get close to $5000 dollars cash back a year, I'd LOVE to hear about it.

I don't think my CapitalOne credit card has any limit. I've gotten over $1k cash back.

Re: Square introduces monthly pricing

#72

Post by gsibble »

dangrossman wrote: post #54
gsibble wrote: post #40

Earlier quoted context omitted.

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…

I'd be surprised to hear they're operating at a loss in terms of the fees alone. Most of us are used to seeing fees quoted by PayPal, Stripe, Amazon and other processors for internet transactions. Card-not-present interchange fees are higher than card-present fees because of the higher risk. Square should be getting much better rates from their processors since they're handling in-person transactions.

That's just the news I was hearing from people who have seen their financials.

Let's say they aren't operating at a loss though. The processor typically receives 25-50 basis points on a transaction (0.25-0.5%). Let's assume Square is receiving 0.5% and generating revenue from their transactions.

At $5B/year in processing volume, that means that Square's revenue is 0.005 * $5B = $25,000,000.

$25,000,000 in revenue for a company worth $1B+? That's an extremely high valuation (40x revenue or more). And that's before figuring in all of Square's costs.

Basically, all of the people who look at the numbers don't see how Square will actually become a highly profitable company in the near future.

Re: Square introduces monthly pricing

#73

Post by lisper »

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…

> would love to share/discuss it with anyone interested. Let me know!

How? The "about" field in your profile is blank.

Re: Square introduces monthly pricing

#74

Post by philip1209 »

dangrossman wrote: post #47
philip1209 wrote: post #23

I see a potential for abuse - if the cash back on certain credit cards exceeds the max rate, people could cycle money through for profit. e.g. I had a 2% cash back credit card Cashback: 21k/mo * 2%=$420 Fees: $275 Upside potential: $145/mo Not much profit possible, but with multiple accounts at roughly 2 $400 swipes per day per account, I would watch out for something like this.

I don't know about Square's terms, but I've always been told by merchant account providers that charging your own card is one of those things that will get your account terminated immediately if they become aware of it.

You can hide it with LLCs. I had a roommate sophomore year of college get investigated by the FBI for running a similar scheme.

Re: Square introduces monthly pricing

#76

Post by GauntletWizard »

Let's do the math, here: "for small businesses processing up to $250,000 per year". So, the most you're processing is a quarter million/year, and you're paying 275/month = 3300 per year. $3300/$250000 means you're paying an effective processing fee of 1.32%. That's a big savings over their usual 2.75%, but it's still probably more than the big players are paying. And that's assuming that you use it for optimal efficiency. The breakeven point is ($3300 / .0275) = $120,000, which is reasonable, all things considered - I know a couple of small shops that do ~$200,000/year of business. I know a friend stated that his breakeven point for his small shop was $400 in sales a day, and that he was living well on ~$600. It would probably be advantageous for him to move entirely to Square, based on those numbers.

Re: Square introduces monthly pricing

#77

Post by majormajor »

tibbon wrote: post #65
Unoeufisenough wrote: post #53

Earlier quoted context omitted.

Actually most (depending on the card, the great majority) of those fees end up going right back to the cardholder. Those fees are what pays for all those airline points, cash-back discounts, guarantees and liability protections, purchase insurance etc. Another way of thinking about credit cards is a way that a large groups of customers are able to band together to collectively demand discounts, rewards and other valu…

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 there are people willing to give you free money you might as well take it. :)

Amex has also consistently given me absolutely fantastic customer service. I'm really not in any hurry for them to be disrupted...

Re: Square introduces monthly pricing

#78

Post by dangrossman »

philip1209 wrote: post #74
dangrossman wrote: post #47

Earlier quoted context omitted.

I don't know about Square's terms, but I've always been told by merchant account providers that charging your own card is one of those things that will get your account terminated immediately if they become aware of it.

You can hide it with LLCs. I had a roommate sophomore year of college get investigated by the FBI for running a similar scheme.

You might get away with it longer doing that, but the repercussions should you be caught wouldn't be lessened any by using an LLC.

The real risk you're taking when abusing a merchant account is being added to the TMF (Terminated Merchant File) and MATCH (Member Alert to Control High-Risk Merchants) lists. These are essentially blacklists for the payment card industry that all acquiring banks and processors check new applications against.

The reason the risk is not lessened is that when a merchant is added to these lists, both the company and all the company's principals' names and social security numbers are added. The list of a company's principals is something merchant account providers ask for on new account applications for this reason.

Basically, if you do something so egregious as to be added to these lists, you'll never be able to have an ownership stake in any business accepting credit cards for the rest of your life. The only way to get approved in the future would be to commit a new act of fraud to avoid the new acquirer from knowing a blacklisted person is a principal of the new company.

I don't know about you, but for any kind of entrepreneur, the prospect of a lifelong ban like that would be pretty terrifying.

Re: Square introduces monthly pricing

#79

Post by milkshakes »

philip1209 wrote: post #74
dangrossman wrote: post #47

Earlier quoted context omitted.

I don't know about Square's terms, but I've always been told by merchant account providers that charging your own card is one of those things that will get your account terminated immediately if they become aware of it.

You can hide it with LLCs. I had a roommate sophomore year of college get investigated by the FBI for running a similar scheme.

> I had a roommate sophomore year of college get investigated by the FBI for running a similar scheme.

doesn't really sound like you can hide it well then..

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