In my opinion, the best way to disrupt an oligopoly or monopoly is to create a product that makes the original offering irrelevant. Square is doing just that - making the credit card processing industry irrelevant with simple technology and pricing.
http://www.charterworld.com/images/framework/3272/VISA%20-%2...
That being said, the fixed cost of doing a digital transaction is NOT zero. They have to pay interchange, which is the largest portion of the fees which merchants pay to accept credit cards: http://feefighters.com/blog/infographic-what-is-interchange/
There are hundreds of different rates, and it is very likely that square is losing money on many of their transactions: see here: http://www.quora.com/Square-company/Can-Square-make-money-wi...
I consider myself a smart person, but figuring out the multi-variable equation in figuring out which processing service would be the best was nearly impossible. They wanted to know a ton of information about our business, which hadn't even opened its doors yet.
- What would our average transaction total? We had no idea. We hadn't figured out ticket prices yet, and didn't know how many the average person would buy.
- How many debit vs credit transactions would we have? How many would use a pin, how many would be manual swipe, how many would be over the phone? Again, we had some projections, but it really wasn't something we could accurately say in the short or long term.
They wanted to lock us in, have us buy a machine, had various types of statement fees and monthly fees, transaction fees, overage fees, fees for using too few transactions, higher fees for Amex vs Visa, etc.
Simply put, figuring out the exact % of our incoming money that this would take was impossible. And they all seemed like companies that I didn't feel I could trust the customer service. Frankly, it all felt like a scam of some sort. The application process to each was also very in depth.
In contrast, I signed up for a Square. I didn't know what I'd use it for specifically, but it turns out that I joined a few bands right after, and it turned out to be massively useful. "I'd totally buy your CD, but all I have is a card." - no longer a problem. Some of the bars we played didn't even accept cards, and we did. Application process was easy, and understanding what it could cost me was super easy.
Why in the world other credit card processors can't do similar just seems to equate to nothing but greed on many levels. The fixed cost to them of doing a digital transaction is almost zero, yet they act like they have a fixed floor on it that can't be bypassed. Where this money goes, I'll never know.