Math Shows How Overpriced Square Is for Larger Merchants


This post comes from Jon at TableCrunch. We’re adding some of our own commentary but the analysis is his.

As we’ve previously stated, Square has struggled to turn a profit. Yes, they’re investing in new software products like marketing, loans, and cash, but their core business of payments processing for micro merchants is a loser.

Micro merchants are a risky bunch. Many institutions won’t underwrite their processing because they are apt to going under or disappearing. Square, via distribution with its massive marketing engine, can acquire these merchants in seemingly endless droves, but it still hasn’t proven it can turn a profit.

In an effort to turn that ship they’re chasing larger and more stable merchants. But Square doesn’t understand how to ship product that’s not built on their processing. Translation: if you’re a hammer, everything looks like a nail. Processing is Square’s hammer, and they’re focused on earning all their revenue from its various incarnations.

When looking at the rates Square is proposing to larger merchants, Jon undertook some analysis.

“We always encourage restaurants to shop their new point of sale system based off of their individual needs. Often times a more expensive system will bring more value through potential increased revenues or saving the business owner(s) time. That said, we find many price sensitive shoppers opting for Squares’ services because they don’t understand an important caveat which is the payments processing fees.

Simply put, if you own a coffee shop or a quick service restaurant processing under $250,000 with an average ticket under $12, Square is likely your best option. On the other hand, if you own a restaurant doing over $250,000 in annual sales with an average ticket over $12, you likely stand to pay significantly more with Square.”

Jon lays out the processing rates Square has publicly published. Square’s approach is one of flat fees whereas larger merchants are used to different tiers.

Swiped Credit and Debit Cards: 2.75%

Hand-Keyed Transactions: 3.50% + $0.15

Web-based Transactions: 2.90% + $0.10

Jon believes interchange is Square’s enemy.

“Today, Square is trying to move upstream and go after larger merchants processing over $250,000 because they have lost a ton of money catering to food trucks and other micro merchants that have interchange rates that exceed the 2.75% causing Square to eat the difference in fees.”

In order to go after bigger merchants, Square has admitted they will be flexible on their laughably-high processing rates. Jon’s point, however, is that Square only appears more competitive. After launching their new Square cash register and restaurant software, the company has been targeting restaurants processing over $250,000. They announced they will build custom quotes for merchants that meet the volume requirements, but Jon has learned that those quotes generally entail a 2.50% plus $0.10 per transaction.

While Square is cheaper on the percentage, the transaction fee could actually make them even more expensive.

The average TableCrunch client has 3 point of sale terminals and processes over $100,000 per month with an average ticket of $35. Jon’s clients pay an average monthly fee of $99 for their POS software and Jon’s payments processing generally ranges anywhere from 2.00% – 2.30%, all-in.

Here are some numbers addressing Jon’s monthly software fees to arrive at an effective rate for their payments and POS services.

As you can see from the above chart, a TableCrunch customer with 3 point of sale terminals processing $100,000 per month with an average ticket of $35 should anticipate paying nearly $500 more in monthly fees by going with Square. That’s $6,000 more annually!

Too many merchants don’t bother to understand how much money they’re losing on this commodity service. It’s like they budget some really high amount for processing and don’t ever think to revisit it even though the money is coming right out of their pockets.

Many new operators, especially the younger ones, just get online to find their POS. They aren’t getting educated on the payments industry and prefer to purchase a bundle with everything included from an online vendor, regardless if the price of their bundled system is flagrantly more than the cost of a new POS system elsewhere.

Our job as merchant technology advocates is to ensure merchants have accurate facts to make educated decisions. Too many greedy jackasses are killing merchants before they get a fair shot at success.