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Summary:

In a shot across the bow of Intuit and Verifone, mobile payment startup Square is dropping the transaction fees it charges businesses. It will now rely solely on a 2.75 percent flat fee and will waive the 15 cent per transaction fee that it previously charged.

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In a shot across the bow of Intuit and Verifone, mobile payment start-up Square is dropping the transaction fees it charges businesses. It will now rely solely on the 2.75 percent flat fee on purchase amounts and is waiving the 15-cent-per-transaction fee it previously charged merchants who used Square. The move ratchets up the competition between Square and rivals such as Intuit and Verifone, which have their own mobile payment services for businesses.

Square General Manager Keith Rabois told TechCrunch the move was aimed at simplifying the process for merchants and removing surprise fees. By dropping the fee, Square is able to better position itself against Intuit’s GoPayment service and Verifone’s Payware Mobile. Both those services currently take about 2.75 percent of purchases and also about 15-17 cents per transaction. Intuit last month began offering its GoPayment service for free with transaction fees, a move it later said it would continue indefinitely.

These developments reflect the growing competition in the mobile payment space as companies look to profit off the increased willingness of consumers and businesses to transact by mobile devices. Square’s decision also highlights the growing confidence of the start-up, which was launched by Twitter founder Jack Dorsey. The company received $27.5 million in new funding last month and boasted that 50,000 businesses were using Square’s payment system. Now it looks like the company, possibly valued at $240 million, is reportedly signing up 100,000 merchants a month and is on pace to do $40 million in transactions in the first quarter.

This is also a good sign that some of the existing fees that stand in the way of adoption of mobile payments are getting whittled away. We’re seeing a similar situation with carrier billing, which has brought down fees to the mid-teens, making it more appealing to merchants. As the fees get minimized, it opens the possibility for mobile payments to take their place alongside credit cards. I expect we’ll see more counter-moves in this space from Square rivals soon. It means combined with all the movement on NFC and carrier billing, 2011 is increasingly looking like the year mobile payments finally break out into the mainstream.

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  1. The best thing about this is the impact it will have on interbank fees on credit and debit cards. Those parasites will lose a lot of merchant business to these companies, and will be forced to lower their rates.

  2. Nice! I guess this is good for the end consumer…

  3. this is a good call for consumers witch is always been hits by processing fees a final consumption product..now the real thing is those fess are for something never been monitoring.
    nice move.

  4. this is great news! use this nifty calculator to see how Square’s new pricing compares to a merchant account

    http://www.feefighters.com/square-calculator

  5. Links 2-22-11: Blockbuster for sale, Why save PBS?, Nearer my PS3 to thee, Yahoo the startup killer | Aram Zucker-Scharff Tuesday, February 22, 2011

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    [...] small payments cost-effective. Of course Square’smotivation is to buy market share and it presumably has calculated that the majority of sales will be for larger amounts. But the move opens up intriguing [...]

  7. Ken, first of all there are no “Interbank” fees, they’re called Interchange fees and they are very necessary. Many of these same “Interchange” fees that you complain of are the fees that reward you as a consumer each time you use that special rewards card… Why don’t you just refuse your rewards the next time your card company tells you that you’ve earned free travel or that free IPod (tell them “no Visa you can keep your IPod because your fees suck”) Secondly Square is marketed towards the very VERY small merchant that can wait several days to receive their money (this is more than likely not a full-time business person). There will always be a place for real Visa/MC merchant accounts so trust me when I say that Square dropping their 15 cents isn’t going to “force” anything. Many merchants still do appreciate the wide range of services and options that real merchant accounts provide. Square is a brand new app that hasn’t seen all the possibilities yet of what they’re doing and how much it will cost, when they see how much combatting fraud costs along with providing support to merchants that only use the service twice a year I would bet you that they will have to find additional ways to make money, as with all new servics they are starting out as low as they can right now.

  8. Doesn’t Square hold the funds longer than a traditional credit card processor?

  9. Square Drops Flat Transaction Fee « Near Field Communications Friday, February 25, 2011

    [...] increasing numbers of Square users (reportedly about 100,000 new users per month) and the increased willingness of consumers to use their mobile [...]

  10. Have you read squares legal agreement merchants are bound to?

    The Mafia has better terms! Chargeback account scamarino!

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