Once again Square is trying to shake up the credit card processing Industry.

First it was Square that came out with Flat Rate pricing for mobile credit card processing.  While the plan is simple and many businesses like the simplicity of knowing they have one rate to pay for the credit card processing, that doesn’t really save a business money… especially a business that does a lot of volume or “non-swiped” transactions for which Square will charge a whopping 3.50% plus 15 cents! (Such as phone orders).

Now Square has announced a new One Monthly Price plan that on the surface seems like a good deal.  And for some businesses in a narrow range it may well be.

But let’s examine which businesses this plan may really be good for and which businesses may lose more money with this plan.

Again, some businesses will just love the simplicity of knowing what their processing costs are every month but for many of them that choose this plan; their bottom line will be affected to the negative.

In addition, they are a bit vague as to what constitutes a yearly limit of $250,000 in processing.  For instance, if you look deeper into their site, transactions over $400 are not included in this pricing plan and are always charged at their higher regular rate of 2.75%.  Also their plan is touted that you have a yearly limit of $250,000 in transactions and that once you exceed this limit you will be charged at the regular rate as well.  Essentially, you could process $250,000 in a single month and you would only be charged $275.00 for that month, which is great!  All transactions after that, though, will be at the regular rate of 2.75% for the rest of the year.

Here is the excerpt directly from their site:

“Square monthly pricing allows you to pay one flat, monthly fee of $275 for all accepted cards swiped through the card reader under $400 and up to $250,000 annually. If you exceed $400 per swipe or $250,000 annualized, Square will charge each swiped transaction 2.75%.

All manually-entered transaction still cost 3.5% + 15¢ with monthly pricing.”

The key word there is “annualized” and in many of their FAQ’s they refer to this “annualized” number. But buried in one particular paragraph is this sentence…

“If you do exceed this annualized limit, Square will notify you of this via email. Once you’ve exceeded the monthly pricing limit, you’ll automatically be charged Square’s low fee of 2.75% per swiped transaction for the remainder of the month”

So what Square is really saying is that as soon as you process over $20,833.33 in any given month, have a transaction that is above $400, or key in a transaction manually, those transactions will be processed at the higher rate.

It also means that if you have a low volume month (or months) of let’s say $5,000.00, the meter resets at the beginning of the next month and you are still limited to only $20,833.33 in processing for that month.  You pay the $275 for the low month no matter what and that $15,000 in transactions for that month that would have been part of that $250,000 annualized limit is lost and you will never get to the 250K benefit limit.

Now I am not necessarily saying this is a bad deal, you just need to know who this plan will work for and for whom it will cost more money than it is worth.

Even if you go over the $20,833.00 per month in transactions, there is still going to be a break-even point above that where the $275 per month plan makes a lot of sense.  For instance, let’s do some simple math.  At $20,833 per month for only $275 you are essentially paying 1.32% in transaction fees which is really a great rate for that volume.  As your volume drops however, that rate starts to increase.  So if you only process $13,000 in transactions, that $275 equates to a rate of 2.11%.  Keep in mind you only get that rate for swiped transactions and for transactions under $400. If you have a high ticket item business or readily key in transactions manually, this plan is worthless.  Also if you do process, for example, $13,000 more often than not, there are better rate programs available on the market for mobile that will save you more money such as the MobileSwiper.com Tiered rate program where swiped transactions are priced at 1.64%.  As a matter of fact, if you process $16,800 per month or less, that tiered program will save you more money over the Square one price plan.

The reason I brought up this other program is to create a baseline of rate costs to compare against as you go over the Square $20,833 monthly transaction limitation.   Based on our previous calculation of $20,833.00 for $275 which equated to a rate of 1.32%, you would have saved approximately $66.00 in transactions versus the MobileSwiper Tiered rate program.

$20,833.00 x 1.32% = $275.00

$20,833.00 x 1.64% = $341.66

$341.66 – $275.00 = 66.66

As you begin to process transactions above $20,883.00 for every $1000 in transactions you process, you start to lose $11.10.  (1.11% on each transaction –  2.75% – 1.64%).  Once you get to $26,833.00 in transactions you have used up your $66 in savings and begin to lose money on every transaction.

$20,833.00 x 1.32% = $275.00

$6,000.00 X 2.75% =  $165.00

$275.00 + $165.00 =  $440.00

VS

$26,833.00 X 1.64% = $440.00

What does all this mean to a business?  Well after my analysis, this one rate plan is a good plan for businesses that readily process between $16,000 – $26,833.00 per month in transactions that are less than $400 in size and always swiped.

If you are a small business that processes less than $16,000 per month, are a business that has many sales above $400, key in transactions more than once in a while or process above $26,833.00 per month, this plan is NOT for you.

If your business fits into the categories listed above, if you perform a little investigative work examining other programs in the market, you will find better plans for your bottom line.