Square Bumps Price for Instant and Same-Day Transfers to 1.5%

Thursday, January 30th, 2020

Square, Inc., has announced yet another price change in its offerings. On Tuesday, January 7, 2020, the San Francisco-based firm announced that it will increase the cost of instant and same-day transfers from its merchants’ Square balances to their bank accounts to 1.5% per transfer. This is a .5% increase from the previous rate of 1%.

This change took effect Tuesday for all new users of the transfer service. However, for existing users, this change will not kick in until February 7 for all existing users.

Standard, next-day transfers are still provided for merchants at no cost.

A spokesperson for Square explained that “the timing was right for this change” since merchants currently have access to alternative fast and free transfer options. With Square Card, they have free-next day transfers as well as no-cost instant access to funds. There are no transfer fees with this option.

Square Card is a prepaid business Mastercard that makes the funds in the merchant’s Square account available to make immediate purchases. When a merchant takes a payment, the money earned is reflected in the Square Card balance.

Merchants can spend this money anywhere that Mastercard debit cards are accepted, including in-person, online, and at ATMs. Another perk of using the Square Card is that merchants can enjoy discounts when they purchase at other Square merchants’ locations.

The price hike is likely part of a game plan to increase revenue to expedite growth.  This change in fees has been the second in just the last four months. In the latter part of September 2019, Square modified its pricing for all in-store transactions from a flat 2.75% to 2.6% plus a fixed 10-cent fee allineate with its peers. It also reflected a “better account for operating costs.”

The increase in processing fees is sure to raise Square’s revenue at its core segment. It will also boost the Cash App revenue, which more than doubled annually, reaching $150 million during the 3rd quarter of 2019 (Q3 2019). This will also feed into the subscription and services revenue (SSR), which is a major profit leader for the company.

Square’s revenue has been expanding in double digits, although decelerating. The brand just announced its second-ever profitable quarter. It was purely driven by the merchant segment as well as SSR.

Since there may be Square Cash users who don’t want to pay for the increase, as mentioned before, they have the option to apply for the Square Card. This can directly translate to higher usage of this product, thereby further boosting SSR revenue.

As Square moves into a more expensive tier of service and pricing, this could potentially shift its relationships with its merchants.  However, the demand for instant transfers, for both consumers and businesses, makes it more likely for users to pay for it.

In Conclusion

With any price increase, a company like Square could be taking a gamble in losing merchants to other less expensive providers. It also looks like it is setting its sights on larger sellers as they accounted for 27% of Square’s sales volume in the third quarter of 2019 (Q3 2019).