Upstart credit card processing company Square—which has disrupted the credit card payments industry by giving away credit card readers that pop into smartphones—says it is now processing the equivalent of $2 billion a year in credit card transactions from customers, and now has a customer base of some 8.2 million merchants, most of whom had never previously accepted credit cards. Square’s COO Keith Rabois describes that as equal to about 10 percent of the customer base covered by Visa and MasterCard—and now the company is removing transaction limits for new customers, making it easier for business to get on board.
That rate of adoption means Square is pulling in $55 million in transaction fees alone, on an annualized basis. The company recently raised $100 million in new financing.
Since launching last year, Square has limited payment processing for new customers to $1,000—transactions over that amount could be held up for as long as a month unless the company went through additional verification processes. Now, new customers will be able to receive all their funds the next business day; Square says they’ve now been operating long enough that they can catch anomalous and fraudulent activity, and doesn’t need a 30-day hold on new accounts.
Although Square how has major backing from Visa and other investors, the startup has proven very disruptive in the mobile payments industry. Square gives away credit card readers that pop into audio jacks of smartphones and other devices, enabling customers to handle point-of-sale credit card transactions with just a phone and an Internet connection. Square takes 2.75 percent of each swipe, and handles Visa, MasterCard, American Express and Discover.
Although credit card industry initially attacked the Square reader for being insecure and little more than a tool for card-skimmers—and recent activity at the Black Hat security conference exploited the Square reader’s current lack of hardware authentication, amongst other things—Square’s offering has proven popular with many businesses—particularly small businesses and individual merchants for whom the cost and overhead of a traditional merchant account and traditional secured card reader were too burdensome. Square says readers with hardware encryption are coming later this year.
Square is a great story and its founder is a great entrepreneur, but merchants need to look beyond the hype and into the numbers. The question you should be asking yourself is “Does it make sense for me to accept credit card with Square?” For some the answer will be “yes” (as for the cupcake baker in our story: http://blog.unibulmerchantservices.com/cupcakes-credit-card-processing-and-square) but for quite a few the answer will be “no.”
Simply put, Square is a good match for merchants with low monthly processing volumes (because it comes with no monthly or any other fixed fees) and for merchants whose average transaction amount is very low (because Square charges no fixed transaction fee). However, for everyone else its 2.75% per-transaction rate is simply way too high, as the industry average hovers around 1.70% plus $0.20 per transaction.
Thats fine but most SMB Businesses don’t get those lower rates, try paypal et al…