Square competes on only one of those factors.

1) Cost. They entered the market at an extremely high price point. Actual interchange rates on swiped cards are 0.05% (for most debit/check cards used as credit, since 2010) to 2%. Square charges 2.75%. Any business that currently takes Square can add 1-2% to its margins by talking to the nearest bank about a merchant account, which they've likely offered since the 1970s.

Now, merchant accounts typically come with some other costs ($20/mo or so in fixed fees, different rates per type of card accepted, more expensive terminals/hardware, etc). But if you're not a food truck or flea market vendor, your processing volume will cover those cost in no time, which is why you don't see Square outside boutique stores.

2) Ease of use. Square's dongles and apps are much more difficult to use than a dedicated card terminal. The customer doesn't get to swipe their own card, the store doesn't get to accept debit at all (which would be MUCH cheaper for them), and they're really finicky to actually get a good swipe on. Their POS software is a toy version of real POS software; it's got maybe 10% of what you need to run a retail outlet, which is why its use is limited to vendors with a catalog that fits on one or two screens and who move little enough product to do their inventory and accounting with an Excel spreadsheet.

3) Ease of signing up. This is the only place Square actually competes (and wins with a certain audience). You pick up a free dongle, install a free app, and you're in business. If you'd like to add 1-2% to your store's margins, you take 3-5 business days to fill out an application and credit check for a merchant account, wait for approval from an underwriting department, then buy POS software and a card terminal. It costs a little more up front, it takes longer, and it's intimidating. That's where Square shines.

Many of the taxi drivers (Bay Area, California) that I worked with had to pay 8.5 - 10% for their credit card charges in the bay area, they absolutely despised taking credit cards - they all quickly switched to Square, and I've never had any issues providing them with cards anymore.

The food truck by our company does about $500/day, or about $10,000/month. There has to be reasons other than the $20/mo that has encouraged them to go with Square instead of a merchant terminal.

I'm wondering if the 2% you are quoting is available to all businesses - sounds like the merchant check might be a bit more challenging for taxis/food trucks.

Totally agree with you on the Ease of Use - Square is vulnerable there. I'm surprised nobody has licensed Apple's lightning connector to connect to a more robust card terminal yet.

> Square's dongles and apps are much more difficult to use than a dedicated card terminal

Just FYI: https://squareup.com/stand

I have a relative that opened a natural "bath & body" store on the main street in his town. He started out with the Square hardware kit (stand, cash drawer, receipt printer, and a barcode scanner from Amazon). It was gone and replaced with real hardware within a month; not only was the POS software entirely inadequate, but checking people out was terribly inefficient and off-putting, costing them business. People don't like to hand over their card, they want to swipe it themselves. They want to be able to pay by debit. They want to see on the screen what's being charged before swiping. They don't want to sign a tablet with their finger or a squishy stylus. Nobody ever bothered to continue reading the screen after signing, so the cashier always had to spin it around, accept the signature, and skip the e-mail receipt screen. It's all terribly slow and strange compared to paying at any other store. The only thing the stand solves compared to the dongle is ease of getting a good swipe.

I'm quite savvy with technology and it bothers me to check out at Square merchants for much of the same reasons. First and foremost, I want to see the price of the item as I am being rung up, doubly so if the price can vary based on my selections. (Why on a varied price? It serves as a check that the person taking my order has heard me correctly.) I strongly dislike signing with my finger, something that is very inconvenient during the time of year when the weather is cold outside since I'm usually wearing gloves.

Since a lot of my small-purchase/walk-in shopping is done when I'm walking around a densely-populated area, I've found myself shying away from places that advertise "Pay with Square" or that have an iPad for a terminal. If there's something equivalent nearby, I'll just go there, especially if that store has a PIN pad.

My parents is still running a small business. None of my customers cared about handing over their cards for the 8 years I worked there.

I much prefer LevelUp's system with QR codes than Square's. Everytime I'm at a food truck my card would be swiped about 10+ times before it would go through. Totally agree about the stylus signing, no one reads the signiture anyways unless it's a fraud claim, nevermind that stylus signitures barely resembles an actual signiture (look at driver's license sig).

Transaction fees: These rates are getting pretty bad for credit cards. My parents still uses BoA terminals as a POS/processing and CC rates for AMEX was at 4%+ and about 3.5% for VISA about a year ago.

Edit: Like to point out that I actually checked signitures on back of cards and id'd people. Most people were surprised, but actually extremely happy that I did.

Every place I've gone to with Square has let me use my debit card and given me the ipad/ipod/iphone to swipe myself.

I don't believe that. Can you list 3 or 4 Square merchants that let you swipe yourself?

I own a jewelry store and we let customers self checkout. The Square Register swivels around for the customer to review, sign and print. We've had zero pushback across the board.

The Lab cafe in Ann Arbor is the only one I can remember by name but I've never had to hand my card over.

What in the world is the big deal with handing cards over anyways?

This isn't in Georgia by any chance is it? I was at a bath and body store that used the Square setup. First time I saw and as a techy person I thought it was neat but maybe just because it was different but not because it was simpler to checkout or anything.

Nope, not Georgia. You weren't at "Nourish" by chance? They're somewhere in Savannah, and helped inspire this other store, which carries their product line among others.

Yep it was Nourish right in downtown Savannah.

Dan's usually correct on payments stuff but I think he's confused on the costs here, possibly because Square's average ticket sizes are extremely low making the absence of a flat charge very cost-effective for Square merchants.

You're right, with a traditional merchant account there's a flat portion of the transaction fee. I'm paying (interchange + 0.04% + $0.10) to my current processor, which means the flat fee portion of each transaction is $0.15-$0.31. If you're selling single coffees and tacos, that's a significant percentage of the sale and makes Square's rates a very good deal. Square can also be cheaper for American Express for certain size businesses as well (if you're /very small/ AmEx has a flat rate program that's cheaper than Square, if you're too big for that but too small to negotiate better than the 2.89% rate they'll offer most small businesses, then Square is cheaper).

If you're ringing up $20+ sales most of the day, Square is much more expensive, especially for debit cards (whether swiped or PIN-authed, which Square doesn't do). Debit is by far the most popular form of in-store payment in the US, used more than twice as often as either credit or cash [1].

A few example fees using my quoted rate above --

For a swiped Visa debit card (interchange is 0.05% + $0.21):

    $5: $0.32 (traditional) vs $0.14 (Square)
    $20: $0.33 (traditional) vs $0.55 (Square)
    $50: $0.36 (traditional) vs $1.38 (Square)
    $100: $0.40 (traditional) vs $2.75 (Square)

For a basic swiped Visa credit card at a supermarket (interchange is 1.22% + $0.05):

    $5: $0.21 (traditional) vs $0.14 (Square)
    $20: $0.40 (traditional) vs $0.55 (Square)
    $50: $0.78 (traditional) vs $1.38 (Square)
    $100: $1.41 (traditional) vs $2.75 (Square)

MasterCard fees are nearly identical. Giving away $1 here and $2 there on every single sale all day adds up quickly, which is why Square can't move up to more lucrative clients while maintaining that fixed rate.

1: https://www.firstdata.com/en_us/insights/payments-101-white-...

My experience as a retail store owner was quite a bit different with only about a third of volume on debit cards. And I suspect the debit card stats are skewed by things like groceries and gas which aren't good proxies for independent retail, square's sweet spot. And I'm not sure who's offering interchange rates without any markup.

> And I'm not sure who's offering interchange rates without any markup

I'm not a payment industry insider, but I made my best effort to be accurate based on my own experience with several merchant account providers and with Square.

Those were per-transaction cost comparisons using the actual rate my CC processor charges (as I said). That's interchange plus 0.04% plus $0.10, not interchange rates without markup. "Interchange plus" pricing has seemingly become pretty common the past few years, at least in what's advertised to new businesses, and now there's a couple of ISO/MSPs offering interchange plus $0.10 flat to small businesses out there, which would be even less than those costs I quoted.

That "boutique retail" store a relative of mine opened that I mentioned in another comment -- the first MSP to walk through the door to try to sell him credit card processing offered interchange-plus pricing. None of the constantly-shifting "downgrade tiers" stuff anymore. It makes cost comparisons like this possible for once.

There's still some BS costs like "statement fees" and "daily batch fees" with some companies, but that kind of thing gets overshadowed by the per-transaction savings pretty fast. If I'm overlooking something else, I'd love to know, I don't want to be giving bad advice.

> And I suspect the debit card stats are skewed by things like groceries and gas which aren't good proxies for independent retail

The study those stats came from breaks it out by merchant category. Cards were the preferred payment method at all types of retail stores they listed (grocery, department store, drug store, discount/warehouse, etc). Cash was preferred only at fast food restaurants, coffee shops and theaters. Debit was the preference over credit at all but department stores.

Can't argue with that. The one question I would ask is if the stats were # of tons or $ volume? That's also another way that debit usage can be skewed.

This is a spot where the market Square is in contrasts with the market Box is in. Online storage has had big price drops recently. Payment processing is much more stable, and I don't think it's even possible for another company to price gouge. They'd have to cut an amazing deal with the banks, which sounds unlikely seeing as the incumbent behemoths haven't been able to negotiate better deals either.

The price is pretty efficient in this industry, what's really inefficient is the experience for both the businesses and consumers.

"Payment processing is much more stable, and I don't think it's even possible for another company to price gouge."

Another thing that makes me think "Commodity."

And the square "dongle" is anything but a good experience. I travel a lot, and I dread every time I return to the Bay Area and have to deal with Taxi Drivers and their attempts at getting credit cards to swipe on the dongle - about 5-10% of the time we just have to enter the numbers in, paying usually takes 30-40 seconds all in, and I don't get a paper receipt which adds another hassle when doing expense reports.

Compare to Singapore where my transaction time with comfort cabs is <5 seconds and I get a decent receipt. (Of course, I also end up paying 10% admin fee for using a credit card, so I pay for that convenience)

Part of this is skill - swiping the card through the square dongle takes a lot of skill - I note when I pay at a food truck (100% square in Redwood City) - they seem to be able to do the transaction in about 10 seconds.

On the other hand, the profit margins for Square's customers are generally razor-thin, so it seems like you wouldn't have to undercut them by all that much to steal a lot of their customers.

I think you mean undercutting, or predatory pricing.

Price gouging is when you use a monopolisitic position to charge an unreasonably high amount.

It may compete on those three things, but that doesn't mean a competitor that is cheaper and easier (in sign up & use) will win. Brand recognition, reputation, quality of support, switching costs, customer intertia, and probably other factors all matter. I'd rather try to create a new market than displace Square's customers, let alone compete w/ other "cheaper, easier" Square competitors.

Relevant:

http://en.m.wikipedia.org/wiki/Blue_Ocean_Strategy