The rate increase - from one user to another

[cmusicshop]

As someone barely affected by the rate increase due to ocassionally selling higher ticket items that offset the difference I wanted to open a dialog to hear more specifics and not so much 'that's it, I am done with Square' posts.  I am a fellow user, not affiliated with Square in any way but as a user.

So, the interest rate is lower but with a new 'per transaction' fee which, if I am understanding it, is where the problem is.  Is this correct?

If so, those that are posting that the change will cost you $3K, $4K and even $10K per year is this all due to an additional 10 cents per transactions?  That's a lot of transactions!!!  Just trying to sort through it as a fellow user.

PS.  Let's keep this thread more about facts, solutions, etc. and not a "F Square, I'm leaving".  OK?

[VanKalkerFarms]

Yes, that is the issue at hand, the 10¢ per transaction.  We have about 11,000 transactions per year but are only seasonal.  Imagine a coffee shop with 150 customers a day, thats 54,750 transactions a year, or $5,475 in "swipe" fees.  Now that is partially offset in the .15% lowering of the fee.

From a personal view, the problem is that Square's business model, like so many of silicon valley's startups (Uber is a great example), are not financially solid and hemorrhage money.  They were and still are losing money on every transaction under $10 or so with all the fees that Square has to pay the Credit Card networks etc..  They did a great job of disrupting the credit card payment industry because they specifically did away with this fee.  The problem is it is needed to make the transaction process financially feasible.

Now, this fee won't affect my business as we have an average transaction cost of close to $90.  For Square, It was businesses like ours that were supposed to offset the "coffee shop" small transactions that lost money.

Now if this rate change did affect me how would I handle it?  I would look after my bottom line. I would raise prices, now my fancy coffee thing would be $3.99 instead of $3.79 etc to more than compensate for the fee.  Unfortunately prices go up all the time, for example on one that affects our business currently these new Tariffs are ripping my profits to shreds and in fact, turning half of the sales into losses when you start getting 30 to 150% tariff increases on products we have sold for 20 years.

Do I like a company raising its prices that affect me? No, but it is going to happen.  Square has to do something to stop the losses on the sales of low sale transactions.  I know it looks like Square being greedy, but in reality, there are so many fees upstream of Square that they are only keeping like .2% of the 2.75%.  You can read all about their fees in their Quarterly Financial reports.

I hope everyone finds what will work for their business, Be it Square or another company.  Just beware that the other companies can and likely will also switch away from the pure percentage-based fees, especially after Square took the heat for doing it first.  Read all the info on other companies, I know I see a lot of people posting about switching to PayPal, because of 2.7%, but they list a micropayments fee chart if your average sale price is under $10 of 5% +.05¢.

[VCB]

@VanKalkerFarms hit the nail on the head, exactly.  As of Nov. 1st, we loose $5-6k per year at one coffee shop, without any additional return on the investment.  We have 2 and are looking at a 3rd shop.  We have the sales to warrant a rate review/negotiation, but coffee shops are blocked by Square due to the argument that they can't negotiate with tickets under $15.  I don't believe this, Square has been conducting business for years and somehow surviving.   We tried to come to terms with the increase by asking them to "upgrade" our 2 locations with the latest Square POS terminals ($700'ish).  "I wish we could" was the reply.  News alert, you can.

There's so many things Square could have done differently, but chose not.  The day after the release of their notice, Square stock went to a "buy" rating with many of the brokerages. Well played Square, very Uber'ish.  Square has every right to charge a fee that supports their business, but it would be a lie to say coffee shops didn't play a big part in their product awareness and support.  Could they have capped the "per transaction" fee?  Could they have structured 2 rates and allow businesses to choose the one that "best suits", ie. 2.6%+ 0.10 OR 3% flat?  I'm sure there was something that could have been done to make this less painful.  They should be leveraging the banks, not us.  We pay per transaction, for payroll, and for loyalty.  Square can't do anything...bull**bleep**.  If we had $5k to burn, I would have given myself a raise.

Everyone privately/offline is  talking and looking at options, many will switch to merchant accounts and say good bye to Squares sales reporting tools.  If Square played their cards right, no damage to them.  If they got it wrong, the annual reports will let the investors know. There's talk of "cash only" month to boycott and send a signal.  I'm sure that could not be ignored.

Waiting patiently and watching.

[HeatherM]

Whatever someone decides, please be careful if you switch to a normal merchant account.

I dealt with them for years, and my average effective rate with them was from 6% to 9%. The charges with a merchant account add up quickly.

These are some of the charges I tolerated with a merchant account before I switched to Square...

1. Statement fee
2. Merchant location fee for MasterCard
3. Visa acquirer processing fee
4. NYCE debit network
5. Visa network ACQ process fee signature DB
6. MC network access brand usage fee
7. MasterCard assessments
8. Visa assessment
9. MasterCard rate 2 chkcard
10. Visa rate 2 chkcard
11. Visa rate 1 chkcard
12. Visa/MC per item auths (charged for both declined and successful trans)

Those were all on TOP of the discount percentage. Plus add in a yearly PCI compliance fee and some other annual compliance fee.

And I'm sure there were other fees, but I only have one statement nearby to look at. But on this particular statement, it works out to be a little less than a 6.5% effective rate per transaction.

[VanKalkerFarms]

A lot of people aren't good at following the details and see the flashy 1.9% fee a traditional processor is advertising and don't take into account the dozens of fees that are charged like you listed out.

[LocavoreStore]

It adds up for sure! It looks like Square is adopting a more conventional merchant pricing structure. The original 2.75% is high, but not so high considering that there were no swipe fees.

While the decreased rate is of course nice, the $0.10/swipe fee (while not uncommon) is kinda high. BUUUUT, considering product (hardware and software)/services/support that Square offers, it is not a bad value at all when you think about it.

You can get your own merchant processing account through a local company or bank and get a lower rate, and a similar swipe fee. But it comes with a lot more hassle, and hardware. I'm honestly not trying to sell Square here... Just some honest feedback.

Merchant processing is always going to be expensive. It's nuts that we pay ~10K a year just so we can accept people's money! That's why cash is king right!

[cmusicshop]

Thanks for the input so far.  As someone mostly unaffected I felt I was in a great position to be neutral.  I looked at some of the suggested replacement companies and even worked with Paypal for quite a while.  Other than Paypal, every single one I could find had a plus X cents fee, which is why I asked about its affect.  Heavens forbid they check into some of the people who call me regularly - monthly fees plus .29 transaction fees.

I would love to hear some more actual input from affected users, very enlightening.

[HeatherM]

While I'm not a big merchant such as at least one that posted a reply, I've used both PayPal and a standard merchant processor for years.

Using PayPal as a POS option costs an additional fee from the POS software companies. I've seen the cost as high as $300 a month. As a result PayPal was never an option for me as a brick and mortar store. It is fine for online sales, but not brick and mortar.

Direct merchant processing comes with a lot of fees that people usually take for granted, but some are unreasonable. For example the processor I was using before switching to Square had a PCI compliance fee of $100/yr plus another compliance fee of $90/year. Then you add in per item auths, brand usage fees and a ton of other fees, it was in reality more than the percentage plus 10 cents that I pay with Square Register.

Now, I was also one of those that had a sign saying "$5.00 Minimum Credit Card Purchase". Despite what some people think, those are legal. You can legally go up to $10.00 if you want. But with square I've removed that sign and will gladly process a $1.00 transaction if someone actually wants to use their card for that small amount.

Why? Because my profit margins allow it thanks to Square's rate with the Square Register.

I'm not sure why people are complaining about what amounts to be a 10 cent increase. If their profit margins aren't there to absorb a 10 cent increase per transaction, perhaps they should raise their prices. Now that may seem a bit harsh, but I had a rude awakening ages ago about my profit margins. I was trying to keep my prices below everyone else and my margins were quite low. Once I woke up and realized what they should be to start with, I am able to absorb certain price increases and keep my prices stable. That doesn't mean I won't raise prices, it just means I have a cushion to hold them stable for most small increases.

Anyway if it were me, I would raise my prices to reflect the loss of profit. And if you're an established business, an increase from say $3.89 to $3.99 would most likely go unnoticed by your customers. I've been there, done that and haven't had any complaints.

I hope all of my drivel makes sense. 🙂

[straycatbrew]

As a small coffee shop, that rate does make a difference on the small transactions. I’m considering rating my minimum purchase to $2-3 as a result. Mainly, when I sell something for $1, currently, I lose 3¢. Not bad. Next month, it will be 13¢.  If it was a candy bar, that’s half of my margin. And yes, dozens of people will whip out their debit card for a candy bar if offered the option, including myself. 

Problem with this?  Now I lose the customers who would have charged their $1.65 small hot coffee. 

According to their calculator, my fees will be going up about 40% or more. This is a major impact, and given that I just raised my prices to cover a massive minimum wage increase here in NJ (July went up about 20%, and will be going up annually for the next five years) I don’t know if I can pass another increase to my customers yet without losing them. 

[HeatherM]

Forgive me, I'm not in the food/coffee business and I don't understand the concept.

Why would you ever sell something at a loss (currently or in the future)?

Isn't that a pricing problem to begin with?

[cmusicshop]

I can understand some items being 'loss leaders' but those typically are meant to drive more sales and traffic.  Not sure if a candy bar would do that.  @straycatbrew are you sort of a convenience store or more of a shop that people go out of their way to shop?  Just wondering if are competing with grocery stores or Starbucks or what.

Another thing that we haven't touched on it reducing costs - can your suppliers give you a better break?  A dime of every candy bar would solve the price increase from Square for example.  I'm not saying I have answers because I don't know your industry.

[straycatbrew]

Since you are not familiar with food service, the most important thing to remember is that, in a restaurant, the most expensive part of running the place is the employees. Not the food, not the utilities. So the only way to counteract fee increases is to usually cut staff. (For example, see what happens when minimum wage increases)

[straycatbrew]

I don’t mean we lose 3¢ or 13¢ as a loss in profit, I mean that we pay those in fees, it’s a reduction of the gross profit we make. So for those $1 items, for example, our fee has increased about 300%. We make less profit and have to consider raising a price to cover a credit card fee, at the expense of our cash customers. Lose-lose to us, we either annoy a customer with price increases or lose profit. 

[cmusicshop]

@straycatbrew thanks.  I wonder if that is why you see a lot of bundling in shops for low end items - 2 or 3 items at once equals only one transaction fee.

How are your prices compared to the closest competitor (of your type)?  

[Gart]

My effective rate for merchant services just jumped by over 25% and my monthly Teams fee went up nearly 7x.  I didnt receive any increased services or support, it just amounts to a massive price hike.  The whole reason I joined Square was for the fixed Merchant Service rate and reasonable fees.  Now that that has changed why should I bother staying with Square?  Seems every competitor I've called for quotes is raking in new clients as a result of Squares increase.  Must be time to jump-ship.  Can anyone identify a reason why I shouldn't leave?

[nika]

Hi @Gart. Thanks for joining the Seller Community and sharing some input on the new processing rate.

I moved your post to this thread that @cmusicshop started a few weeks ago. It has some really good conversation and is full of sellers who would be happy to share what has worked for them and what has not.

Here's the original post about the new processing rate if you're interested in scrolling through some of those comments. It also explains the why behind the new rate.

Thanks again for your engagement here in the Community. Feel free to reach out if you have other questions or thoughts.

[Gart]

Here's a breakdown.

Example 1: 2.75% flat rate with $0.00 per transaction - with 40 transaction in a day averaging $10 per transaction that implies $400 processed.  At 2.75% thats an $11 fee.

Example 2: 2.6% rate with $0.10 per transaction - with 40 transaction in a day averaging $10 per transaction that implies $400 processed. At 2.6% + $0.10 per transaction that's a $14.40 fee, which then amounts to a 3.6% effective rate (a 31% increase in fees).

If the person in Example 2 wished to maintain an effective rate of 2.75% after the price increase they would need to have an average transaction amount of over $67.

This means that Square's price increase disproportionately affects and discriminates against smaller business with lower $$ per transaction, while simultaneously providing a price decrease for businesses with high $$ transactions.  A 31% increase from ANY vendor without a commensurate change in services would be considered a slap in the face to ANY business an an invitation to go elsewhere.  Penalties for small $ businesses and rewards for high $ businesses means Square is fundamentally trying to change their customer base towards those with higher $ per transaction.  It's pretty dang offensive to us small $ guys who bust our butts to make a profit, knowing that the whole reason Square is doing it is so they can pad their own profits off the backs of the most vulnerable businesses out there.

That's why I'm leaving.

[HeatherM]

Assuming all visa transactions and using the fees charged in the post I made earlier in this thread about a merchant processor I used, the same $10, 40x transactions would have run me 50 cents per transaction or $20.00. And that doesn't include statement fees, PCI compliance fees, etc..

I wish you luck with whatever you decide to do.

[straycatbrew]

You're missing the previous poster’s point, which is that the fees increased without any improvement in service or added gain. The question remains — what are we getting for the 40-80% increase?  

they charged extra for add-on services, hoping that people would sign up for them and balance out their lower card fees. But less people signed up for them, because they were horribly overpriced, so now they have to adjust the card fee. So, they should adjust the overpriced add-ons to compensate. 

for example — Loyalty. A product I won’t use because it would make it harder to switch later, but still... I have a small coffee shop, and based on the number of punch cards we use, it would cost us over $100 a month to use their loyalty product. Huh?!?  Something that encourages more purchases, which helps Square make money on transaction fees, and they charge that much?  And we’re low volume. 

Same for Marketing. Also horribly overpriced. But they hoped people would pay for it, to subsidize their card fees. 

[HeatherM]

I wasn't missing that. 😉

I've never had the flat 2.75 rate, and have always been a percentage + 10 cents. I'm perfectly happy with that arrangement since it saves me money.

But I do question the logic of the increase in rates entitling people to an increase in services. If the rates being charged to Square have gone up or changed, it just seems proper to me that the rate increase would be passed on to their customers. And in turn that increase would be passed on to the customers, customers.

Any time I see an increase in anything that I can't absorb, I pass it on to my customers. Now I'm not in the food industry so I can't speak to how it affects them, but even a small increase on all products a business sells would likely more than make up the percentage increase from Square. Something like a 2 cent increase on every product (just an imaginary number so don't pick on it).

[cmusicshop]

I use Invoicing (higher rate if paid online) and Marketing as Square add ons besides the card processing.  I'm currently trying to work with the Beta team on Invoices to get some fixes and features but I'd be ticked off if that rate went higher without seeing those much needed improvements first.  As for Marketing, I'm still on the fence but a rate hike might get me to drop it.  So I do understand how quality of service goes somewhat in hand with price.

However, I also know that prices go up, not because of some nefarious scheme to harm users but because that is how the world goes.  And when it does you can absorb it (less profit), counter it (raise prices) or look for a better deal.  What is perplexing to a couple of us is when you stop saying it is a 30%, 40%, etc. price hike and start looking at it as .10 per transaction the method to deal with it seems a lot simpler and therefore it becomes a doorway to rethink your pricing and profit margins.  I've said it before, I would kill for that type of traffic, especially knowing that for each sale, one dime could offset thousands of dollars!

I started this thread to hear the stories and details without just a bashing of Square.  I appreciate everyone's input.  I hope the exchange of different viewpoints helps.