Mobile credit card payment provider Square announced a big shake-up today: instead of paying a per-swipe charge for taking credit cards (of 2.75%), you can now opt to pay $275 per month and pay literally nothing per swipe. This is pretty big news, but just how big is it?

First off, Square limits the total transaction volume in a given year to $250,000. It also limits you to $400 per transaction. That puts it out of reach for a software company like us who is sometimes asked if we take credit cards. (The answer: yes, if you want to pay another 3.1%.)

It also should put it immediately out of reach for anyone processing under $120,000 in volume in a given year: that’s the cut-off point for the new scheme to still bring you value. If you’re processing under $120,000 in a given year, you’re better off paying their standard 2.75% swipe fee, which is still offered with no additional per-transaction charge.

Let’s examine how the rates play out at different volumes:

Volume/year: Rate: Processing Cost Difference: % Cost Difference (of sales):
$50,000 6.6% $1,925 3.85%
$75,000 4.4% $1,237.50 1.65%
$100,000 3.3% $550 0.55%
$120,000 2.75% $0 (Break-even) 0.0%
$150,000 2.2% $825 0.55%
$175,000 1.88% $1,512.15 0.87%
$200,000 1.65% $2,200 1.1%
$225,000 1.46% $2,887.50 1.29%
$250,000 1.32% $3,575 1.43%

 
Put simply: If you’re earning over $120,000 a year on Square (with sub-$400 transactions), it’s a no-brainer to switch. If you’re not sure and you’re merely on the cusp, it might make sense to hold off. Once you hit the $250,000 limit, new transactions revert back to the 2.75% pricing, which is still quite competitive, and when you consider that you’ve paid 1.43% for your first $250,000 of volume, it’s still a great deal. One more benefit: Consistency. You’ll now know exactly what your credit card/merchant expenses will be every single month, and that every penny you’re charging is going straight into your bank account.

Most rates with traditional payment providers begin around 2.2%-2.9%, but it’s very difficult to completely grasp what your total costs are: for one, different cards charge at different rates. You also don’t necessarily know the real damage until you receive your statement. And the volume necessary for significant discounts is usually some point quite higher than $250,000 and I still think you’d be hard-pressed to find someone able to offer anything close to 1.43% for that volume.

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Posted in: Tech News