Shopify Cuts Credit Card Processing Fees To Take On Square

In an effort to woo merchants to its platform, the e-commerce platform has also reduced the time it takes for funds to reach business owners.

When Shopify, an e-commerce platform that helps merchants establish stores online, debuted a point-of-sale register last summer, it took a big leap into the world of brick-and-mortar stores. Its move to offline shopping was also a first step toward directly taking on payments company Square. On Monday, Shopify followed up by announcing it has cut credit card processing fees for merchants.

The new pricing structure will charge vendors 2.15% to 2.7% with no swipe fees, depending on their subscriptions, which range from $49 to $199 a month. The lowest-tier plan has removed limits on the number of registers a store can use. Shopify has also reduced the time it takes for business owners to receive funds to three days, down from a week.

Prior to these changes, merchants paid 2.1% to 2.5% with a 30-cent charge per swipe.

In comparison, its competitor Square charges a standard 2.75% fee for swiped transactions and 3.5% plus 15 cents for manually entered transactions. In February, Square discontinued a monthly fee in favor of a pay-per-swipe structure.

"This is saving merchants hundreds, if not thousands, of dollars a month," Shopify vice president of product Adam McNamara told Fast Company. He said the Ottawa, Canada-based startup was able to "fight for lower rates" with banks by highlighting higher transaction sizes and fewer instances of fraud among its merchants. Shopify also touts a 70% to 80% success rate with chargebacks, or disputed transactions, compared with the industry average of 30% to 40%, thanks to an automated system that provides banks and credit card companies with receipts and other documentation in the event of a dispute. The rates it has negotiated are in line with what larger retailers, such as Amazon and Walmart, pay, McNamara added.

These changes aim to help Shopify catch up to Square when it comes to point of sale in physical stores. Though Shopify has close to 100,000 vendors using its platform to host online stores and manage inventory, it only has "multiple thousands of users" on its point-of-sale service, said McNamara. Overall, the company processed $1.68 billion in sales in 2013. Square, on the other hand, processes "tens of billions" of dollars in transactions annually, according to a representative. Last May, Square CEO Jack Dorsey said the amount was $15 billion annualized, excluding its partnership with Starbucks.

Still, McNamara said Shopify's overall user base gives the company leverage to negotiate with banks because Shopify doesn't tend to serve stores that process smaller transactions, such as coffee shops, bakeries, and food trucks—a core part of Square's base.

At the end of the day, McNamara emphasized Shopify's end-to-end experience for merchants. "It's not a digital wallet. It's not a consumer payments company," he said. "Shopify's infrastructure is to help small- and medium-sized businesses, whereas Square is focusing on payments."

[Image: Shopify]

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8 Comments

  • spivats

    We have a new cafe opening up soon. At first it will be "food & drink" only. The POS needs to talk with the line (print orders wirelessly). Square has this now, and "speaks to food based businesses about it's capabilities better.

    But next year we will have a neighboring b&m shop with lifestyle retail offerings. This will be tightly integrated with our online shop and website.

    I'm a UX/brand designer by trade, so I'm torn between Square's superior interface and intuitive shopping experience, and Shopify's more platform agnostic approach.

    My gut tells me that Shopify will catch up soon on the interface + design. When it does, having our cafe POS, retail store POS and online store fully integrated would make QBO and everything else more streamlined. It's one system vs two.

    Or, maybe we should I keep them separate; using Square for cafe, and Shopify for retail shop/online? Aka, what they are best at, respectively.

    Any thoughts or advice would be much appreciated! :)

  • Matt Martelli

    Shopify is a better business solution. We have had a great experience using their system for our business and for our clients.