Jack Dorsey is at it again. As a co-founder of Twitter, Dorsey literally changed the way people communicate online. In 2008, Dorsey left his role as CEO of Twitter to launch his next big project—Square, Inc.
Square initially launched in 2010 as a small business platform to accept debit card and credit card payments on mobile devices. The ability for small businesses, such as merchants and contractors, to accept credit card and debit payments through their phones was a revolutionary development in the payment processing industry. But Dorsey didn’t stop there.
Just last month, Square announced it would be disrupting the industry-standard fee structure that has dominated the merchant account payment processing industry for decades. Until now, businesses have always paid a percentage fee on every credit card and debit card purchase that is processed. This is problematic on many fronts.
One, the fees are often very high, which can quickly eat into a small business’ net revenue each month. Two, small businesses often do not track those fee charges in real time and the bill that hits at the end of the month can be large and unexpected.
Dorsey and his team at Square, Inc. have set out to solve these problems by providing the industry’s first ever flat-rate monthly charge for payment processing services. The exact breakdown is that any small business who makes less than $250,000 per year will now qualify to pay a fixed fee per month of $275, with no per swipe charge. The current rate clients pay at Square is 2.75%. For small businesses who qualify for the monthly fixed fee, their new per transaction rate works out to around 1.3%, which is a substantial savings.
This disruptive move out of Square is guaranteed to send merchant account service competitors into disarray. The entire pricing structure that has held for decades is now under assault, and this move will likely garner a huge new share of the market for Square, as many small businesses will move to Square in order to capitalize on these savings. It will most likely take competitors months to develop similar pricing models, and by that time Square will have achieved exactly what it set out to do when it decided to disrupt the market—attract thousands of new clients in the small business arena.