Dodd/Frank tried to force vendors like Starbucks to absorb the cost of processing credit card transactions. As with most government regulations, the law of unintended consequences kicked in. Unless the bought off members of Congress knew this would happen. Humm.
The problem is Square charges the customer 2.5 percent of the transaction costs as a processing fee. Buy $10 of coffee you get hit with a 25 cent processing fee. Buy $40 of coffee for the office gang, you get charged $1 by Square.
Which saves Starbucks a ton of money on transaction fees and more than triples the cost of a credit transaction to the customer compared to if the feds continued to let vendors like Starbucks pass the cost of a conventional transaction onto the customer as part of the cost of doing business.
Thanks big government.
The little guy gets screwed again while big corporations increase profits.
The world of mobile payments just expanded by 7,000 Starbucks locations, and scrappy entrepreneur Square is the beneficiary.
The deal is huge for the burgeoning world of mobile payments. Although big-name retailers including Home Depot have aligned with PayPal’s mobile solution and many small businesses jumped on the mobile payments bandwagon as a competitive differentiator, the Starbucks deal lends serious credibility to the Square approach — not to mention $25 million in new funding.
Under the deal, Starbucks customers will be able to use the Square payment application at any company-owned location starting in the fall (in addition to the existing Starbucks mobile payment applications for Android and Apple iOS devices.)
Square was also tapped to process Starbucks’s U.S. credit and debit card transactions. What’s more, small businesses that already use Square will be made visible to Starbucks customers through the Square Directory, which is helpful from a marketing standpoint.
Oh, and not only will Starbucks invest $25 million in Square as part of a Series D financing round, Starbucks chairman and CEO Howard Schultz is joining the company’s board of directors.
“As the largest retail mobile payment platform in the U.S., we’re excited and proud to accept payments with Square,” Schultz said in a statement. “The evolving social and digital media platforms and highly innovative and relevant payment capabilities are causing seismic changes in consumer behavior and creating equally disruptive opportunities for business.”
More than 2 million consumers and businesses can already use Square. In a note posted on the Square news blog, Square CEO Jack Dorsey said:
“Square began with a really simple idea: everyone should be able to accept credit cards. It should be easy and free to get set up, it should use simple technology people already own, and, most importantly, it should instantly adapt to any size business—from the person chasing a dream to the largest organization on the planet. By embracing Square, Starbucks has validated these ideas as powerful tools—not just for small businesses, but for smart businesses.”
Square and other mobile payments companies are rewriting the rules for point of sale (POS) technology, especially among small businesses that were previously unable to afford expensive transaction processing fee or costly specialized POS technology. The Square credit-card swiper has made it much easier for small merchants and retailers to accept credit or debit cards.
Everyone from Google to Isis (the venture led by AT&T, Verizon Wireless and T-Mobile) and probably Apple is taking aim at the mobile payment and “digital wallet” space. Aside from Square, the company I’m watching closely is PayPal. Not only does it have serious stature among small businesses as a payment processor — especially any business with an eBay storefront — it has inked relationships with national retailers including Abercrombie & Fitch, Barnes & Noble, Office Depot, and Toys “R” Us.
Related stories:
- PayPal extends influence with 15 national U.S. retailers
- PayPal will be a force to be reckoned with in mobile payments
- Wait, what, another mobile payments standard?
- Jack Dorsey’s design strategies for Square
- Google introduces Wallet; brings NFC tech to cash register
- How mobile tech is changing the retail experience
- Visa In2Pay: payments on-the-go, using your smartphone
- Square brings swiped credit card transactions to your smartphone; aims for small business
