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Congratulations to Square for making people that it was in the mobile payment business. Square is typically the kind of Company with a great initial product th

by 2pasc 13y ago

Congratulations to Square for making people that it was in the mobile payment business. Square is typically the kind of Company with a great initial product that raises too much money for its own good and end up chasing 500 battles because they have the team do so. Fab comes to mind as well. Square has a significant problem: their product is mostly used by merchants with low average selling prices (ASP) and their pricing model (flat 2.7% vs. the usual X%+0.3) kills their margins at this price point. On the other hand, their POS, which could/should allow them to sign more sophisticated retailers or restaurants with higher ASP does scale with businesses because it does not have any of the workflow management features that are necessary. Overall, they are stuck with an unprofitable customer base and with a (beautiful product) and are trying to throw things on top of this to create a consumer product (like the failed Pay with Square thing).

monkeyspaw 13y ago
Can you elaborate? My understanding is that most merchant accounts are in the 2% + .45 range. Are you suggesting that merchant margins depend on a 1% margin?
- antr 13y ago
  2% can have a big impact. Many business have a gross margin of 20-30%. If you take Square's 2.75% from $100, that's $2.75 off a $20-30 gross margin – or 9.2% to 13.75% of the gross margin. That is a very large cost for a service seen as a commodity.
  - us0r 13y ago
    That's not how this works. Square gets 2.75%. They pay their acquirer (I think Wells Fargo) Interchange+maybe a small fee. For example a swiped (card present) debit card purchase at a retail store is 0.80% + $0.15 (an example - this varies wildly). On $100 that's $0.95. They get $2.75. That's a 60% or so margin. It can also go down quite a bit depending on the type of card used which they really have no control over. For example it could drop to 20% on a corporate rewards card. I would say overall they probably have a very good margin.
    - antr 13y ago
      I don't think you understood my comment. The 20-30% gross margin refers to the business using Square, not Square.
- 2pasc 13y ago
  Sure. If your ASP is $6, then 2.75% is $0.165. This is to be compared to a merchant account for which the 2%+ 0.45 is $0.57. As you can see there is a huge difference. The problem is that credit card processors (Visa, Mastercard...) are charging Square 0.1+1.5% or something which basically means that Square loses money on the transaction. http://www.cardfellow.com/blog/interchange-fee/ http://www.cardfellow.com/blog/interchange-fee/

by 2pasc 13y ago

monkeyspaw 13y ago

Can you elaborate? My understanding is that most merchant accounts are in the 2% + .45 range. Are you suggesting that merchant margins depend on a 1% margin?

antr 13y ago
2% can have a big impact. Many business have a gross margin of 20-30%. If you take Square's 2.75% from $100, that's $2.75 off a $20-30 gross margin – or 9.2% to 13.75% of the gross margin. That is a very large cost for a service seen as a commodity.
- us0r 13y ago
  That's not how this works. Square gets 2.75%. They pay their acquirer (I think Wells Fargo) Interchange+maybe a small fee. For example a swiped (card present) debit card purchase at a retail store is 0.80% + $0.15 (an example - this varies wildly). On $100 that's $0.95. They get $2.75. That's a 60% or so margin. It can also go down quite a bit depending on the type of card used which they really have no control over. For example it could drop to 20% on a corporate rewards card. I would say overall they probably have a very good margin.
  - antr 13y ago
    I don't think you understood my comment. The 20-30% gross margin refers to the business using Square, not Square.
2pasc 13y ago
Sure. If your ASP is $6, then 2.75% is $0.165. This is to be compared to a merchant account for which the 2%+ 0.45 is $0.57. As you can see there is a huge difference. The problem is that credit card processors (Visa, Mastercard...) are charging Square 0.1+1.5% or something which basically means that Square loses money on the transaction. http://www.cardfellow.com/blog/interchange-fee/ http://www.cardfellow.com/blog/interchange-fee/