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.

Jack Dorsey’s Square Deal For Small Businesses: 0% Transaction 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]

About the author

Sarah Kessler is a senior writer at Fast Company, where she writes about the on-demand/gig/sharing "economies" and the future of work.