Jack Dorsey's Square Deal For Small Businesses: 0% Transaction Fee

Instead of charging merchants per transaction, the payments processing startup wants to bill them one monthly flat fee.

Square has a proposal for small businesses that they've never heard before: Instead of taking a percentage for every credit or debit transaction, it will charge them one flat fee each month.

"It’s kind of like your cell phone bill," Square CEO Jack Dorsey tells Fast Company. "You can pay per minute or you can go unlimited. You can pay as you go at 2.75% per swipe, or you can pay $275 per month."

Dorsey says the flat monthly fee is continuation of Square’s emphasis of making credit card fees understandable, which it has until this point accomplished simply by charging the same transaction fee for every swipe.

"When a customer puts down a credit card, the merchant has no idea what they’re paying for," Dorsey says about traditional payment processing. "If it’s a typical credit card it may be one rate, if it has rewards on it it might be a much higher rate. If it’s a corporate card they’ll pay the highest rate."

A rate that doesn’t change is much more understandable than one that constantly wavers. But a monthly bill that stays the same is even more so.

The plan isn’t for everyone. Square will limit it to merchants with $250,000 of transactions per year or less. After merchants exceed that limit, they’ll be charged the 2.75% transaction rate. And some merchants—particularly those with low volume—will be better off skipping the monthly plan altogether.

But Dorsey says that "for a lot of merchants" the $275 per month fee will be a significant reduction in what they are paying Square in transaction fees now—about 1.8% of their transaction volume instead of 2.75%.

Partly because credit card companies charge merchants a percentage per transaction, almost all payment processing companies do the same (the exceptions being Dwolla, which removes credit cards from the process altogether, processes transactions less than $10 for free, and charges $.25 for the rest, and LevelUp, which doesn’t charge a transaction fee and makes up the credit card fees by charging merchants for marketing campaigns).

One reason Square is able to lower its transaction rates is because of its bargaining position as a company that handles a high volume of transactions. It can pass rate reductions it negotiates credit card companies on to consumers.

A recent deal Square made with Starbucks to power the coffee company's U.S. credit and debit card payments will significantly increase its transaction volume, and therefore its bargaining position. Which means it's in a good place to continue the trend.

"It took us another year and a half [after setting a flat 2.75% rate] to innovate pricing again and turn it into a subscription model and a utility," Dorsey says. "But we plan to keep on doing that. We’re starting with small businesses, we’re starting with this plan, but we want to evolve it."

Small business owners: Would you opt into this plan? Tell us in the comments section below!

[Image: Flickr user Ombligotron]

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  • Guest

    So I have 3 locations for a total of about $60,000.00 a month  in credit card transactions. If I sign up for three accounts and share the 3rd account, do you think Square will keep tabs if I'm always close to $18,000 - $21,000 a month in transactions. This would allow me to have the most competitive Credit Card transactions fees on the planet. Or are they just going to play the numbers game knowing that most won't be able to fall in this sweet spot. 

  • Guest

    I am small volume, am better off with the per-swipe charge.  But nice to have this option, for those with enough business to make it cheaper for them.

  • Spronck

    Many small-business artist and craft people (doing less than $20,000 a year and half that using Square) could not afford the convenience of Square which they now love.

  • Stop Spending

    How so?  It is not the yearly amount to look at but the average per swipe.  The $275 makes sense for those businesses who are much larger.

  • Emailray Fong

    I do my transactions over the phone and thus don't use my SquareUp account because the fees are too high (3.75%). If Square introduced a model for my customers to swipe or key in their own cc numbers for my transactions for the 2.75% deal I would take advantage of it. My rates are 2.25%, 2.5% and 3.5% plus fees depending upon what type of credit card my customer uses.

  • Fendy Sutji

    I think 30 dollar (1dollar a day) flat fee for small biz transaction under 10000 dollar will be boost up square potential growth to 1000 percent from now, wanna bet? That is Startups mean bring cost down to the mobile payment all over the worlds not just US and reach Worldwide user that's the secrets...

  • Kyle Murphy

    Now we know what they are going to with the $125 million or so they recently raised...capture marketshare. How long can they go this path?

  • Mk

    What am I missing? Why wouldn't merchants go through their banks for credit card vendor services?

  • David

    I don't understand what everyone is all in a tizzy about. If you have more than $120,000 in credit card transactions, sign up. Even if you do more than $250,000 in CC transactions in the year, you still get that flat rate for the first $250,000, which equates to savings of $3,575.

  • Miriam Cox

    Cool to see Square out innovating - with this news as well as the Starbucks deal.

    This will be a helpful model for many SMBs - makes it earlier to predict
    costs and could save money. Square may also want to evolve this into an
    activity-based billing model
    that takes usage into account. A simple subscription may not be enough
    for the smaller companies that don't have enough transaction volume to
    justify the monthly fee.

  • Mike Langford

    You know, another important thing of note here in that competitors are surely going to respond with flat rate pricing models. In the end Square's disruptive influence will be a good thing for merchants.

  • Emma

    Wow this is awful. And worse than Netflix's seemingly endless plan changes and snafus of yesteryear. 

    Our biz doesn't make $250K/yr but it does very well, and our current CC processing company charges us around $150/mo *including* transaction fees. I don't see how Mr. Dorsey's $250/mo plan will make much sense to most small businesses now or ever. (Especially if, as one reader alluded to, their monthly earnings vary. Transaction fees not only make sense, but are also [more] egalitarian and just.)

    We were considering dropping our current CC processing co. and using Square only, but now I can't wait to return the card reader and close our account. 

  • Stop Spending

    Emma, you do not understand how credit card processing works.  How many swipes do you average per month?

  • Tyler Gray

    Editors note: You're not seeing things. We've updated this story from its original version, because Sarah Kessler sat down with Square founder Jack Dorsey after the original news story ran. The basics remain the same, but Jack offered a little more explanation and hopefully more to keep this conversation going. For example, if Square ends up costing you .95% less in transaction fees, as Jack claims, will that be enough to make you start using Square? Guess that depends on your volume, right?