Square is changing its in-person payment processing rates

Payment processor Square has announced it will change the structure of how to charges merchants to process payments in person.

  • Starting Nov. 1, 2019, Square will charge 2.6% plus a flat 10 cents per tapped, dipped or swiped transaction.
  • The company’s website has already been updated with this new pricing.
  • The rate change only affects “card present” (or “in person”) transactions — not online processing costs.
  • However, many ecommerce entrepreneurs also rely on in person sales — whether at permanent or temporary locations.
  • It currently charges 2.75% percent for in person transactions with no flat fee.
  • While the new percentage rate is slightly lower, the new fee structure adds a flat cost.

The new rate structure will obviously hit lower value transactions harder, since that 10 cent fee will be the same no matter how much the total bill is.

  • For example, a $5 transaction under the old model would cost a merchant just under 14 cents.
  • Under the new model, that $5 transaction would cost 13 cents using the lower percentage, but 23 cents in total — almost double the cost.
  • By contrast, a $100 transaction would cost $2.75 under old pricing.
  • The new structure brings that cost to $2.80 total.
  • While the $2.80 fee is obviously 5 cents more than before, it’s typically much easier stomach to pay $2.80 in transaction fees instead of $2.75 compared to the 23 cents vs. 14 cents in the $5 example.
  • At around $150, the new price structure starts to actually save merchants a bit.

The addition of the flat rate for in person transactions is interesting.

  • In the past, it was common for merchants to pay from 10 to 30 cents extra for online payments — because taking payment online is riskier than at a POS terminal when the person and card are in front of you.
  • While some other payment providers do charge a flat rate per in person transaction, many still don’t, including Shopify Payments.
  • Square does charge a flat rate for online or card not present transactions — 15 cents — which is still on the lower end of what most other payment providers charge.

Square’s reasoning:

  • “For every payment Square processes for you, Square has to pay a set of fees that are both a percentage of the transaction and a fixed fee. The original 2.75% rate didn’t always cover all these costs, which is why Square is moving to 2.6% + 10¢ per tap, dip, and swipe,” reads an email the company sent users.
  • In other words, Square appears to be saying it can end up losing money on transactions made with cards that charge higher rates.
  • Premium cards with high value rewards and cashback, for example, are typically more expensive to accept.
  • Under more traditional credit card processing models, businesses would pay different rates based on the brand (for example, American Express and Diners Club tended to be more expensive) as well as the account in question (for example, a Visa card with high value rewards could be more costly to process).
  • However, companies such as Square, Stripe, Payment and Shopify Payments (which is powered by Stripe) largely moved away from the model to simplify pricing for merchants — opting instead to charge a flat rate no matter what type of card was accepted.
  • That idea was largely based on picking a rate that was somewhere in middle of the highest and lowest rates cards charge and hope that, by making “extra” off payments made with less costly cards that the cost of processing payments on premium cards would be covered.
  • That said, credit card companies are under increasing pressure to offer better rewards as both alternative payment methods such as Venmo become more popular even with businesses.
  • In addition, Apple’s new Apple Card is one example of a card that, according to reports, is more expensive to process, though it’s not immediately clear how many have been issued or what affect it is having on the credit card industry.
  • Square also tended to be on the lower end of spectrum of what credit card processors charge.